Question

Exercise 1-8 Using the accounting equation LO A1 

Determine the missing amount from each of the separate situations given below. 

Assets		=	Liabilities		+	Equity
		=	$52,000		+	$24,000
$140,000		=	$57,000		+
$970,000		=			+	$62,000

Answer 1

The accounting formula serves as the foundation of double-entry bookkeeping. Also called the accounting equation, this formula represents the relationship between the assets, liabilities, and owners' equity of a business. The equation shows that the value of a company's assets always equals the sum of its liabilities and owners' equity.

The Basic Accounting Formula

The accounting formula essentially shows what the firm owns (its assets) as purchased with either the money it owes to creditors (its liabilities) or by money its owners invest in the business (its owners' equity or capital). This relationship can be expressed in the form of a simple equation:

Assets = Liabilities + Owners' Equity

This equation must balance, because everything the firm owns (assets) has been purchased with something, either some form of debt (liability) or owners' capital.

	Assets	=	Liabilities	+	Equity
(a)	$          76,000	=	$        52,000	+	$        24,000
(b)	$        140,000	=	$        57,000	+	$        83,000
(c)	$          97,000	=	$        35,000	+	$        62,000