New to this edition:

TEACHING TIPS

New to this edition:

Purchase of supplies is now capitalized instead of expensed. This is consistent with GAAP and also prepares students who move on to Principles of Accounting or Intermediate Accounting.

Suggested in-class problems:

●Exercise 1-1 (accounting equation) ●Exercise 1-3 (accounting equation) ●Exercise 1-7 (transaction analysis) ●Demo problem (located in the Instructor’s Resource Manual)

Suggested homework:

●Problem 1-1 (transaction analysis) ●Problem 1-4 (transaction analysis)

In-class activity:

Create a set of three note cards for each student; label the cards “Assets,” “Liabilities,” and “Owner’s Equity.” Call out different account names and ask students to raise the correct note card. For example, if you call out “Prepaid Insurance,” the students should raise the note card labeled “Assets.”

LEARNING OBJECTIVES

1.Define and identify asset, liability, and owner’s equity accounts.

• Record, in column form, a group of business transactions involving changes in assets,

liabilities, and owner’s equity.

3.Define and identify revenue and expense accounts.

• Record, in column form, a group of business transactions involving all five elements of the

fundamental accounting equation.

ACCOUNTING LANGUAGE

Account numbersEquity AccountsExpenses Accounts PayableFair market value Accounts ReceivableFundamental accounting equatio n AssetsLiabilities Business entityOwner’s equity CapitalRevenues Chart of accountsSeparate entity concept CreditorSole proprietorship Double-entry accounting Withdrawal

KEY POINTS

• There are five classifications of accounts: assets, liabilities, owner’s equity, revenue, and expenses.

2.After each transaction has been recorded, the total of one side of the fundamental accounting equation must equal the total of the other side.1 Asset, Liability, Owner’s Equity, Revenue, and Expense Accounts 1-1 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.College Accounting Chapters 1-24 11e Tracie Nobles Cathy Scott Douglas McQuaig Patricia Bille (Solutions Manual All Chapters, 100% Original Verified, A+ Grade) 1 / 4

CHAPTER 1 Asset, Liability, Owner’s Equity, Revenue, and Expense Accounts

LECTURE OUTLINE

I.Students should have their text and Working Papers with them each day. Illustrations, discussion questions, exercises, and problems will be referred to in class. Students should consider their texts primary tools and record marginal notations to make the best possible use of the text.II.Assets = Liabilities + Owner’s Equity: the fundamental accounting equation.A.Assets: property or things of value owned by an economic unit (examples: cash, equipment, building, land).B.

Liabilities: amounts owed to creditors.

1. Creditor: one to whom money is owed.

2. Examples: Accounts Payable, Notes Payable, Mortgage Payable.

C. Owner’s equity: owner’s claim, investment, net worth, or proprietorship.

1.Example: owner’s name followed by the word Capital.

• Relationship of the fundamental accounting equation. Show how the amounts under

each classification are determined and how a change in one classification affects the other classifications.

3.Accounts: specific subheadings or breakdowns of assets, liabilities, and owner’s equity.

4.

Withdrawals: taking of cash or other assets for personal use.

• Recording business transactions.
• Every transaction is recorded as increases and/or decreases in two or more accounts—

the introduction of double-entry accounting.

• One side of the equation is always equal to the other side of the equation.
• Discuss with students the steps demonstrated in the chapter. When working example

exercises or problems, have students go through each of the steps.E.Revenues: amounts of assets that a business gains (earns) from its operations; also called income.

1.Earnings in the form of cash.

2.Earnings in the form of other assets—usually as charge accounts (accounts receivable) that a firm maintains for its customers, to be received at a later time.

3.

Examples: fees earned, rent income, income from selling merchandise, interest

income.F.Expenses: amounts of assets that a business uses up as a result of its operations.

• Expenses in the form of cash.

2. Expenses in the form of liabilities: payment to be made at a later time.

3.

Examples: wages to employees, rent to landlord, interest on a loan, supplies,

insurance expired.G.

Student input:

1.Have students list possible asset, liability, owner’s equity, revenue, and expense accounts for a car wash, an insurance office, and a travel agency.III.Relationship of revenues and expenses to owner’s equity.

A. Revenues: Revenues earned increases owner’s equity.

B. Expenses: Expenses incurred decrease owner’s equity.

1-2 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 2 / 4

CHAPTER 1 Asset, Liability, Owner’s Equity, Revenue, and Expense Accounts IV. Chart of accounts: the official list of accounts tailor-made for the business.A.All transactions must be recorded using the official account titles. The numbers preceding the accounting titles are the account numbers.

• In the numbering of accounts for a service business, the 100s are used for assets,

the 200s for liabilities, the 300s for owner’s equity accounts, the 400s for revenue accounts, and the 500s for expense accounts.

DEMONSTRATION PROBLEM

During November of this year, James Kirkland opened an accounting practice called James Kirkland, CPA. The following transactions were completed during the first month.

• Deposited $13,500 in a bank account in the name of James Kirkland, CPA.
• Paid rent for the month, $1,600 (Rent Expense).
• Bought office equipment, including a computer and a printer, for $9,500 from Bingham

Company. Paid $6,700 in cash, with the balance due in 30 days.

• Purchased office supplies and announcements for $970 from City Stationers. Payment is due in

30 days.

• Billed clients $5,500 for services rendered (Client Fees).
• Paid $1,450 salary to secretary/assistant for the month.
• Paid telephone bill of $210 (Telephone Expense).
• Received cash from clients previously billed on account, $2,450.
• Paid Bingham Company $970 to apply on account.
• Paid $275 for continuing education course (Miscellaneous Expense).
• Kirkland withdrew $2,200 for personal use.

Instructions

• Record the transactions and the balance after each transaction, using the following headings.

= Liabilities + Accounts J. Kirkland, J. Kirkland, Cash + + Supplies + Equip. = Payable + Capital –Drawing + Revenue –Expenses

• Demonstrate that the total of one side of the equation equals the total of the other side of the

equation.Receivable

Owner’s EquityAssets Accounts 1-3 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 3 / 4

CHAPTER 1 Asset, Liability, Owner’s Equity, Revenue, and Expense Accounts

SOLUTION

=+ Cash++Supplies+Equipment=+

• Kirkland,

Capital–

• Kirkland,

Drawing+Revenue– (a)+13,500+13,500 (b) –

1,600+1,600

B al. 11,900=13,500 – 1,600 (c) –

6,700+9,500+2,800

B al. 5,200+9,500=2,800+13,500 – 1,600 (d)+970+970 B al. 5,200+970+9,500=3,770+13,500 – 1,600 (e)+5,500+5,500 B al. 5,200+5,500+970+9,500=3,770+13,500+5,500 – 1,600 (f) –

1,450+1,450

B al. 3,750+5,500+970+9,500=3,770+13,500+5,500 – 3,050 (g) –

210+210

B al. 3,540+5,500+970+9,500=3,770+13,500+5,500 – 3,260 (h)+2,450 – 2,450 B al. 5,990+3,050+970+9,500=3,770+13,500+5,500 – 3,260 (i) – 970 – 970 B al. 5,020+3,050+970+9,500=2,800+13,500+5,500 – 3,260 (j) –

275+275

B al. 4,745+3,050+970+9,500=2,800+13,500+5,500 – 3,535 (k) –

2,2002,200

Bal. 2,545+3,050+970+9,500=2,800+13,500–2,200+5,500–3,535 Left Side of Equals Sign: Right Side of Equals Sign:

$ 2,545$ 2,800

Accounts Receivable 3,05013,500 Supplies 970J. Kirkland, Drawing–2,200 9,500 Revenue5,500 Expenses–3,535

$16,065

$16,065

(Rent Expense) Liabilities Accounts Payable Accounts Receivable Equipment (Misc. Expense) (Client Fees) (Telephone Expense) (Salary Expense) AssetsOwner’s Equity Expenses Accounts Payable

• Kirkland, Capital

Cash + 1-4 .

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