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
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