Unit: Introduction to Accounting

This activity will help you meet these educational goals:

• Content KnowledgeYou will explain the effects of revenue, income, and expenses on the accounting equation.
• Inquiry You will perform an investigation, in which you will make observations, analyze results, draw conclusions, and communicate your results in written and tabular form.
• 21st Century SkillsYou will employ online tools for research and analysis, use critical thinking, and communicate effectively.

Introduction

Accounting is an important tool that companies use to prepare their financial statements. In this activity, you will apply some basic accounting concepts.

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Directions and Analysis

TASK 1

How do revenue, income, and expenses affect the accounting equation? Explain the effect of each of the transactions listed below on the accounting equationassets, liabilities, and owner's equity:

A. The owner invests more money in the business.

B. The company receives cash through a bank loan.

C. The company purchases equipment by paying cash.

D. The owner contributes a personal vehicle to the business.

E. The company purchases office premises by paying 50% in cash and the balance amount by issuing a note payable.

Task 2: Effects of Accounting Transactions

Determine the effect of the listed transactions of Nikea Inc. on the accounting equation. Nikea Inc. provided advisory services to XYZ Inc. in May 2013. Nikea billed XYZ for $10,000 in the same month (May). The sales invoice shows that the amount will be due in June.

A. In May 2013, Nikea recorded the transaction by debiting accounts receivable for $10,000 and crediting service revenues for $10,000. What is the effect of this entry on the accounting equation?

B. What is the impact on XYZ's accounting equation in May, when it recorded the transaction as a debit to consultant expense for $10,000 and a credit to accounts payable for $10,000?

C. In June, Nikea Inc. received the $10,000 payment from XYZ. Which of Nikea's accounts are affected by this transaction and what is its effect on the accounting equation?

D. What is the effect on XYZ's accounting equation in June when it remitted the $10,000?

Evaluation

Your teacher will use this rubric to evaluate the completeness of your work as well as the clarity of thinking you exhibit.