Lesson: 3
Topic: The Accounting Equation
Objectives:
During this lesson the class will explore the structure and function of the fundamental
accounting equation. Thus, students will come to understand the difference
between the three unique elements of the accounting equation, including:
- assets,
- liabilities, and
- owner's equity,
Establishing the Accounting Equation:
Method of
Instruction and Evaluation:
After a Socratic lesson guided by the PowerPoint entitled Establishing the Accounting Equation,
the student will complete the following exercises:
1. Using the accounting equation, determine the value of the missing elements.
| Assets | Liabilities | Owner's Equity |
| a) | 10,000.00 | 6,000.00 | __________ |
| b) | 18,000.00 | __________ | 6,000.00 |
| c) | __________ | 3,000.00 | 9,500.00 |
| d) | 19,000.00 | 4,200.00 | __________ |
| e) | __________ | 1,250.00 | 0.00 |
| f) | 187,450.00 | __________ | 79,600.00 |
| g) | __________ | 43,400.00 | 29,550.00 |
| h) | 3,400.00 | __________ | 3,400.00 |
| TOTALS: | __________ | __________ | __________ |
2. Complete problem 5 on page 17 within your text.
No text book? No problem! Here's the question:
|
Claude Pineau, a factory worker in Hull, Quebec, asks you to help him find out
how much he is worth. You find out the following facts:
- His bank balance is $754.00
- He owns a home valued at $82,500.00, which has a mortgage on it of
$12,500.00.
- He owns furniture and household equipment valued at $16,000.00.
- He owns a summer property valued at $65,000.00 which he bought entirely with
money borrowed from the bank. Since the time of the purchase he has paid back
$20,000.00 of the loan.
- He has unpaid bills amounting to $1,560.00
- He owes his father-in-law, M. Dupuis, the sum of $10,000.00 which he
borrowed interest-free several years ago at the time that he bought his home.
List Claude Pineau's assets in one column, his liabilities in another, and
calculate his net worth.
|
Expectations
Addressed:
The "Fundamental Accounting Practices" strand of the BAF3M
Ministry of Education Curriculum Guidelines outlines all of the following
specific expectations. The expectations
addressed by this lesson have been highlighted below.
- Introduction to Accounting as a Discipline:
- explain the purpose of accounting;
- explain the difference between accounting and bookkeeping;
- identify the users and uses of accounting;
- identify the Generally Accepted Accounting Principles (GAAP) and
explain their importance.
- Business Structures:
- describe the
characteristics of different forms of business organization,
including sole proprietorship, partnership, and corporation;
- describe the advantages
and disadvantages of different forms of business organization,
including sole proprietorship, partnership, and corporation;
- explain the differences
among the equity sections of different forms of business
organization, including sole proprietorship, partnership, and
corporation (e.g., capital account in a sole proprietorship versus
common stock in shareholders’ equity in a corporation).
- The Accounting Cycle for a Service Business:
- assess the effects that transactions have on the accounts
and financial statements of a service business;
- record transactions using the journals and ledgers of a
service business;
- prepare a trial balance and the financial statements for a
service business;
- record adjusting and closing entries for a service business
(e.g., prepaid expenses, amortization, accruals);
- describe the impact of year-end procedures, including
adjusting and closing entries, on the financial statements of a
service business;
- apply the Generally Accepted Accounting Principles (GAAP) at
each stage of the accounting cycle for a service business.
References:
- text, chapter #2, topic #2.1: pages 15-16 (required reading)
- Power Point Presentation: Establishing the Accounting Equation
- class notes
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