 Hello, in this presentation, we will work some short problems which will have calculations. These could be problems that could be presented in the format of multiple choice or short answer questions. First question. Company uses $1,340 of its cash to purchase supplies. The effect on the accounting equation would be? These questions can be a bit deceiving and we can try to do these that we have tempted to do these in our head and not write down the accounting equation. I highly recommend writing down the accounting equation so you don't get these easy questions mixed up. I'm going to say assets equal liabilities plus equity. We're going to say that the company uses $1,000 of cash to purchase supplies. What's that going to do to cash? It's going to decrease cash, cash as an asset. We're going to say that cash is going to go down by $1,340. We also know that we're buying supplies and supplies is not an expense but an asset because we have not yet consumed it in order to generate revenue, that being the expense recognition or matching principle. The asset is also going up. Notice then that of course there's no effect on total assets, liabilities or equity. That's one of the tricky questions we have here in that in terms of the accounting equation when we purchase an asset for cash there will be no effect on the accounting equation meaning neither assets nor liabilities nor equity is going up or down from this transaction in total although the cash is going down and the other asset of receivable is going up. Next question. Company paid off $32,000 of its accounts payable in cash. What would be the effect of this transaction on the accounting equation? Once again I would write down the accounting equation, I'm going to write it down here this time assets equal liabilities plus equity and then we're going to say the first thing that happened company paid off $32,000 of its accounts payable in cash. I would first ask is cash affected? I'm going to write it down this way this time. I'm going to say cash is affected and it's going down because the keyword is paid so we think that cash is going to go down by $32,000 and the other thing that's going to happen then is accounts payable and that's going to be a liability account over here so accounts payable. We know accounts payable must be going down because this cash is going down therefore this too must be going down this liability of accounts payable. We also know it's going down because it's a liability it represents what is owed to somebody and we owe less money after we have paid it and therefore what is owed should go down so that would mean that assets would go down liabilities would go down and equity would remain the same. Next question build a client for $30,000 of consulting work completed the accounts receivable asset increase by $30,000 and so in this one we actually were given half of the transaction so if this was like a multiple choice question they'd probably be looking for the other half of the transaction I would still write down the accounting equation I would write down both sides of what is happening here assets equal liabilities plus equity so we're gonna say build a client for $30,000 of consulting work completed so the work was completed that means we've earned the revenue but we might want to think about what we have received first and that is accounts receivable which is an asset and it's going to increase the amount that people owe us is going up and then the other side is revenue now when considering the accounting equation remember that the entire income statement including revenue and expenses is part of equity and we know that equity must be going up because assets went up and they are on the other side of the equal sign therefore equity must be going up at $30,000 we also know it's going up because we do want to double check it because equity is kind of what is owed to the owner or the net value of the business and if we made a sale on account of equity of assets are going up then if revenue is going up anytime revenue is going up anytime net income is going up then it's going to increase the total value of the company it's going to increase the equity section within the company also note of course that net income would be going up net income calculated as revenue minus expenses next question a company's balance sheet shows cash 28,000 accounts receivable 34,000 equipment 58,000 and equity 76,000 what is the amount of liabilities once again we'll write down the accounting equation of assets equal liabilities plus equity we're going to then list these accounts we have cash which is of course an asset of 28,000 we've got accounts receivable of 34,000 it's an asset and equipment equipment may not be spelled exactly correctly but that's okay 58,000 and then we know that equity is going to be over here at 76,000 so then we're just going to add these up we're going to have total assets which will equal the sum of the 28,000 plus 34,000 plus the 58,000 equaling 120,000 equity on this side 76,000 so 120,000 is going to equal liabilities plus the 76,000 so if we then are looking for the liabilities we're going to subtract the 76,000 from each side and scroll down just a bit we can't see the question anymore but we should be okay we're going to subtract 76 from each side and as we do that we're going to say that 120,000 minus 76,000 44,000 I'm going to go ahead and underline that equals the liabilities plus the equity let's do it this way equals the liabilities plus the equity which is of course 76,000 minus 76,000 or 0 and therefore if we just flip this back around we're going to say liabilities is equal to the 44,000 next question company has assets of 610,000 liabilities of 255,000 and equity of 355,000 it buys office equipment on credit for 80,000 what would be the effect of this transaction on the accounting equation we will start off once again writing down the accounting equation assets equal liabilities plus equity then we're going to have assets starting at 610,000 we got liabilities at 255,000 and equity at 355,000 and of course the liabilities and the equity add up to 610,000 and therefore we are starting off in balance it buys office equipment on credit for 80,000 I would we didn't pay cash this should be an equal sign we didn't pay cash and therefore we bought something on account I would then think about what we received in this transaction we got office equipment so I'm going to say office equipment that's going to be an asset so it's going to increase by 80,000 the assets section we're going to say 80,000 the other side of the transaction because we know that assets have to equal liabilities plus equity we bought it on account so that means we're going to buy it on credit it will be a liability increasing we know the liability is going to increase for a couple different reasons one because this side increased this side then must increase to remain in balance and equity will stay the same and we also know that liabilities are going up because we owe more money due to the fact that we bought something on account and I should put this if I'm going to be consistent here we're going to say the second one should be 80,000 and that's accounts payable which is going to be a liability so then if we add these up we're going to say the totals then are going to be 610 plus the 80 that's 690 for the assets which is going to equal the sum of the 255 plus the 80 that's going to be the 335 plus the equity and we're just going to bring that down at the 335 if we add up the 335 and the 355 we get 690 therefore the assets equal the liabilities plus equity and we would then say that assets are at 690,000 liabilities are at 335,000 equity is at 355,000 note that they could ask anything in terms of a multiple choice question they could say what happened in terms of the increase to its particular accounts and list that out which means assets increased by 80 liabilities increased by 80 or they can ask for the balances after the after this transaction is done which is probably what would happen in format of a multiple choice question they would say what are assets at the ending liabilities and equity after this transaction had been recorded.