fbpixel
101 Concepts for the Level I Exam

Concept 39: Accounting Equation – Basic and Expanded Forms


Basic accounting equation

Assets = liabilities + owner’s equity

 

You are given the following information about company ABC.

Assets                                     $100 million

Liabilities                                $80 million

Calculate owner’s equity.

Solution:

Owner’s equity          = assets – liabilities

= $100 – $80 = $20 million

Expanded version of the accounting equation

Assets = liabilities + contributed capital + beginning retained earnings + revenue – expenses – dividends

 

You are given the following information about company XYZ.

(in millions)

Liabilities                                                  $80

Contributed capital                                 $5

Beginning retained earnings                $15

Revenue earned during the year         $20

Expenses incurred during the year     $10

Dividends declared for the year           $2

Calculate the total assets at the end of the year.

Solution:

Assets = 80 + 5 + 15 + 20 – 10 – 2 = $108 million