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College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570

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BuyFindarrow_forward

College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570
Textbook Problem

Label each of the following accounts as asset (A), liability (L), owner’s equity (OE), revenue (R), or expense (E).

  1. a. Supplies
  2. b. Professional Fees
  3. c. Prepaid Insurance
  4. d. M. Jones, Drawing
  5. e. Accounts Payable
  6. f. Service Income
  7. g. M. Jones, Capital
  8. h. Office Equipment
  9. i. Accounts Receivable
  10. j. Salary Expense

To determine

Identify the given financial item as asset (A), liability (L), owners’ equity (OE), revenue (R), or expense (E).

Explanation

Accounting equation: Accounting equation is a concept expressed in the form of equation, creates a relation between resources or assets of a company and claims of resources to creditors and owners. Fundamental accounting equation is expressed as shown below:

Assets = Liabilities + Owners' EquityAssets = Liabilities+{(Owners' Capital)+(Owners' withdrawals)+(Revenues)(Expenses)}

Components of accounting equation:

  • Assets: These are the resources owned and controlled by business and used to produce benefits for the company. Assets are classified on the balance sheet as current assets, non-current assets, property, plant, and equipment, and intangible assets.
  • Liabilities: The claims creditors have over assets or resources of a company are referred to as liabilities. These are the debt obligations owed by company to creditors and suppliers. Liabilities are classified on the balance sheet as current liabilities and long-term liabilities.
  • Owners’ equity: The financial interest of the owners to invest in the business is referred to as owners’ equity or capital. Owners’ equity comprises of capital, drawings, revenues and expenses.
  • Revenues: Revenues are earnings from operations of a business

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