Drake started a business and deposited $5,000 into his business bank account. He then purchased a computer for $3,000 by cheque, reducing his bank balance to $2,000. Drake then bought $500 of stock on credit from a supplier, increasing his total assets to $5,500 and creating a $500 liability for the amount owing. Drake then sold $100 of goods on credit, creating a $100 accounts receivable asset. After receiving $50 cash for another sale, Drake's assets remained $5,500 as he had paid $200 to his supplier, reducing his liability to $300.

1. ACCOUNTING EQUATION EXAMPLES

2. DRAKE STARTED BUSINESS & LODGED $5,000 INTO HIS
BUSINESS BANK ACCOUNT THAT HE JUST OPENED
ØASSETS = OWNER’S EQUITY + LIABILITIES
Ø$5,000 = $5,000 + $0
ASSETS
CASH AT BANK
$5,000
OWNER’S EQUITY
$5,000
(ALSO REFERRED TO AS
CAPITAL – OWNER’S
CLAIMS ON THE
ASSETS)
LIABILITIES
$0

3. IF DRAKE THEN PURCHASED A COMPUTER FOR HIS
BUSINESS FOR $3,000 AND PAYS FOR IT BY CHEQUE
• ASSETS = OWNER’S EQUITY + LIABILITIES
• $5,000 = $5,000 + $0
ASSETS
COMPUTER $3,000
BANK $2,000
TOTAL ASSETS $5,000
(BANK BALANCE OF
$5,000 IS REDUCED BY
$3,000 CHEQUE)
OWNER’S EQUITY
$5,000
(ALSO REFERRED
TO AS CAPITAL –
OWNER’S CLAIMS
ON THE ASSETS)
LIABILITIES
$0

4. IF DRAKE THEN BUYS SOME STOCK FOR $500 ON
CREDIT FROM A SUPPLIER
• ASSETS = OWNER’S EQUITY + LIABILITIES
• $5,500 = $5,000 + $500
ASSETS
COMPUTER $3,000
BANK $2,000
STOCK $500
TOTAL ASSETS $5,500
OWNER’S EQUITY
$5,000
(ALSO REFERRED
TO AS CAPITAL –
OWNER’S CLAIMS
ON THE ASSETS)
LIABILITIES
TRADE PAYABLES
$500
(AMOUNTS
OWING TO
SUPPLIER)

5. IF DRAKE SOLD GOODS WHICH HAD COST HIM
$100, TO A CUSTOMER ON CREDIT FOR $100
• ASSETS = OWNER’S EQUITY + LIABILITIES
• $5,500 = $5,000 + $500
ASSETS
COMPUTER $3,000
STOCK($500-$100) $400
DEBTORS $100
BANK $2,000
TOTAL ASSETS $5,500
(DEBTORS ALSO REFERRED
TO AS ACCOUNTS
RECEIVABLES)
OWNER’S EQUITY
$5,000
(ALSO REFERRED TO
AS CAPITAL –
OWNER’S CLAIMS ON
THE ASSETS)
LIABILITIES
TRADE PAYABLES $500
(AMOUNTS OWING TO
SUPPLIER)

6. IF DRAKE SOLD GOODS WHICH HAD COST $50 TO
A CUSTOMER FOR $50 AND THAT CUSTOMER
PAYS IMMEDIATELY
• ASSETS = OWNER’S EQUITY + LIABILITIES
• $5,500 = $5,000 + $500
ASSETS
COMPUTER $3,000
STOCK($400-$50) $350
DEBTORS $100
BANK (+$50) $2,050
TOTAL ASSETS $5,500
(DEBTORS ALSO REFERRED
TO AS ACCOUNTS
RECEIVABLES)
OWNER’S EQUITY
$5,000
(ALSO REFERRED TO AS
CAPITAL – OWNER’S
CLAIMS ON THE
ASSETS)
LIABILITIES
TRADE PAYABLES $500
(AMOUNTS OWING TO
SUPPLIER)

7. IF DRAKE PAID $200 TO HIS SUPPLIER BY CHEQUE
• ASSETS = OWNER’S EQUITY + LIABILITIES
• $5,300 = $5,000 + $300
ASSETS
COMPUTER $3,000
STOCK $350
DEBTORS $100
BANK (-$200) $1,850
TOTAL ASSETS $5,300
(BANK – BANK BALANCE
OF $2,050 LESS $200 PAID
TO SUPPLIER)
OWNER’S EQUITY
$5,000
(ALSO REFERRED TO
AS CAPITAL –
OWNER’S CLAIMS ON
THE ASSETS)
LIABILITIES
TRADE PAYABLES $300
(AMOUNTS OWING TO
SUPPLIER HAVE BEEN
REDUCED BY THE $200
PAID BY DRAKE)
($500 LESS $200 = $300)

8. WWW.ACADOCEO.COM