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Chapter 1Financial Statements: Personal Accountinglearning outcomes12345Describe the purpose of accountingDescribe the balance sheet and the incomestatementDefine an accounting periodExplain how the accounting equation worksExplain accrual-based accounting6789Explain how to account for debt and assetsExplain how to account for prepaid expensesDistinguish between capital and revenueDemonstrate how double entries arerecorded in T-accountsAccess ameengage.com for integrated resources including tutorials, practice exercises, the digital textbookand more.Assessment QuestionsAS-1 ( 1 )Define accounting and describe the purpose of accounting.Accountingis a system to identify, measure and communicate all the financial activities ofanindividual or a business. The purpose of accounting is to allow interested users to makeinformedjudgments based on accurately recorded information.AS-2 ( 2 )What is net worth?Net Worth Assets - Liabilities. If all assets are cashed out to pay off outstanding liabilities, theremainingcash will represent net worth.AS-3 ( 2 )In simple terms, what are assets and liabilities?Assets are what you own and liabilities are what you owe.1
Chapter 1Financial Statements: Personal AccountingAS-4 ( 2 )What are revenues and expenses?Revenuesare increases in net worth caused by providing goods or services. In your personallife,one way revenue is earned is by working and earning a salary. Expenses are a decrease innetworth due to the costs of day-to-day activities. In your personal life, expenses can includeitemssuch as rent or food.AS-5 ( 2 )Explain the role of the balance sheet.Thebalance sheet is a permanent document that is used to record what you own (assets)andwhat you owe (liabilities) on a specific date. The balance sheet provides a snapshot ofyourfinancial position. The difference between the value of what you own and what you owerepresentsyour net worth.AS-6 ( 2 )Explain the role of the income statement.Theincome statement is primarily used as a temporary record of transactions relating torevenueand expenses. The purpose of this statement is to determine the change in net worthovera specific period of time.AS-7 ( 3 )What are some advantages of using monthly accounting periods in your personal balancesheet?Theadvantages include tracking regular monthly living expenses (e.g. rent, cell phone),frequentlyassessing realistic expectations, and controlling errors effectively.2
Financial Statements: Personal AccountingChapter 1AS-8 ( 4 )What is the accounting equation?Assets Liabilities Net WorthAS-9 ( 8 )What is the equation for calculating ending net worth for a period?EndingNet Worth Beginning Net Worth Capital Surplus (Deficit)AS-10 ( 2 )Define surplus and deficit.Surplusis the amount by which revenues exceed expenses for the period. Deficit is theamountby which expenses exceed revenues for the period. The amount is taken from thepersonalincome statement. A surplus increases net worth and a deficit decreases net worth.AS-11 ( 4 )What is a T-account?AT-account is used to record accounting transactions for individual items. This form allowsyouto record the double entries for each transaction on opposite sides (increase or decrease)ofeach account.AS-12 ( 5 )Explain accrual-based accounting.Revenue(which causes an increase in net worth) and expenses (which cause a decrease in networth)should be recognized in the time period in which they occur, regardless of when thecashpayment is received or made.3
Chapter 1Financial Statements: Personal AccountingAS-13 ( 5 )Briefly describe the cash-based method of accounting.Underthe cash-based method of accounting, revenue and expenses are recorded only whenthe cash is received or paid.AS-14 ( 6 )True or False: When you borrow money, you have more cash but your net worth decreases.False.Borrowing money does not change your net worth.AS-15 ( 6 )True or False: When you pay off a loan, your cash decreases and your net worth increases.False.Repaying debt does not change your net worth.AS-16 ( 6 )True or False: Buying an asset has no impact on net worth.True.AS-17 ( 7 )What is a prepaid expense?Aprepaid expense occurs when you pay cash for an expense before it is incurred.AS-18 ( 7 )When an expense is initially prepaid, which accounts increase or decrease?Cashdecreases and prepaid expenses increases.4
Financial Statements: Personal AccountingChapter 1AS-19 ( 7 )When does an expense need to be recorded under accrual-based accounting? What are thethree possible timings the payment can be made for an expense?Under accrual-based accounting, expenses are always recorded when they are incurredregardlessof when the cash payment is made.1.Pay before and recognize the expense when it is incurred (prepaid expense).2.Pay as the expense is incurred (cash).3. Pay after the expense is incurred (unpaid account).AS-20 ( 8 )What is capital?Capitalis an increase to net worth other than revenue (such as winning the lottery orreceivinga gift).5
Chapter 1Financial Statements: Personal AccountingApplication Questions Group AAP-1A ( 2 )April Rose had the following financial data for the year ended December 31, 2016CashJewelleryAutomobileHouseBank LoanCredit CardMortgage a) Calculate April Rose’s total assets.Cash 6,000Jewellery10,000Automobile18,000House256,000 290,000Total Assetsb) Calculate April Rose’s total liabilities.Bank Loan 45,000Credit Card5,000Mortgage140,000 190,000Total LiabilitiesAP-2A ( 2 4 )Consider the following information for Julius TroyCashJewelleryAutomobileHouseCredit CardBank LoanMortgage6 12,00018,00022,000161,0005,00010,000125,000
Financial Statements: Personal AccountingChapter 1Requireda) Calculate Julius Troy’s total assets.Cash 12,000Jewellery18,000Automobile22,000House161,000 213,000Total Assetsb) Calculate Julius Troy’s total liabilities.Credit Card 5,000Bank Loan10,000Mortgage125,000 140,000Total Liabilitiesc) Calculate Julius Troy’s net worth.Total Assets 213,000Less Total Liabilities140,000 73,000Net WorthAP-3A ( 6 )Darryl purchased a new laptop on January 1, 2016 worth 2,000. He paid the entire amountusing cash. He also purchased a new cell phone worth 300 on account. How will thesetransactions affect Darryl’s net worth?Networth will remain unaffected.AP-4A ( 2 5 8 9 )The following information was taken from the personal records of Juliet Lahm on April 30, 2016CashJewelleryHouseMortgageNet Worth 3,0002,000190,00080,000115,0007
Chapter 1Financial Statements: Personal AccountingTransactions for the month of May 20161.Earned monthly salary of 5,050.2.Paid 1,200 cash for utilities.3.Purchased an automobile worth 10,000 on account.4.Paid 600 cash for food expenses.5.Paid 400 cash for gas.Requireda) Complete the Cash T-account to determine the ending balance of cash.INCREASEDECREASE CASHOpening Bal.1.TOTAL:-3,0002.1,2005,0504.6005.400 5,850b) Complete the personal income statement to determine the surplus or deficit for the period.Personal Income StatementFor the Month Ended May 31, 2016Revenue 5,050ExpensesUtilities Expense 1,200Food Expense600Gasoline Expense400Total Expenses 2,200Surplus (Deficit) 2,850c) What is Juliet Lahm’s net worth on May 31?Net Worth, BeginningAdd SurplusNet Worth, Ending8 115,000 2,850 117,850
Financial Statements: Personal AccountingChapter 1AP-5A ( 2 4 )A person has the following information with regard to his own balance sheet, but the liabilitysection is missing.CashAutomobileHouseNet Worth 35,00058,000100,00055,000RequiredDetermine the total amount of liabilities.Assets - Liabilities Net Worth Assets - Net Worth Liabilities( 35,000 58,000 100,000) - ( 55,000) 138,000AP-6A ( 4 )Calculate the missing amounts in the following table.Scenario 1Total AssetsScenario 2 123,000 148,000Total Liabilities 29,000 34,000Net Worth 94,000 114,000AP-7A ( 4 )As of December 31, 2015, Maria Green had total assets of 40,000, and total liabilities of 15,000. As of December 31, 2016, Maria’s total assets and liabilities increased to 50,000 and 30,000, respectively. How has Maria’s net worth changed since the end of 2015?Net Worth has decreased by 5,000Dec 31, 2015Dec 31, 2016Total Assets 40,000 50,000Total Liabilities 15,000 30,000Net Worth 25,000 20,0009
Chapter 1Financial Statements: Personal AccountingAP-8A ( 2 4 9 )The following information pertains to Ken White’s personal financial transactionsOpening Balances as at January 1, 2016Cash 9,000Contents of Home6,000Automobile29,000House156,000Unpaid Accounts5,500Bank Loan60,000Net Worth134,500Transactions for the month of January 20161.Paid maintenance expense for the month of January with 120 cash.2.Purchased new furniture worth 2,500 with cash.3.Paid credit card liability of 5,500 (Unpaid Accounts) in full.4.Paid telephone, electricity and water bill for January with 1,200 cash.5.Purchased 2,000 of groceries and goods for personal consumption with cash.6.Deposited 4,040 salary earned during the month.Requireda) Using the information provided, record the opening balances in the T-accounts.b) Record the transactions for the month of January in the T-accounts.10
Financial Statements: Personal AccountingChapter 1PERSONAL BALANCE SHEETPERSONAL INCOME STATEMENTAs at January 31, 2016ASSETSINCREASELIABILITIESDECREASECASH Opening 9,0006. 4,040For the Month Ended Jan. 31, 2016DECREASE--DECREASEINCREASEUNPAID ACCOUNTSINCREASEREVENUE- 6. 4,040 5,500 Opening1.1202.2,5003.5,5004.1,2005.2,0003.5,500 4,040Less EXPENSESINCREASEDECREASE ENTERTAINMENT EXPENSE 1,720INCREASEDECREASE contents of home Opening 6,0002. 2,500 0INCREASEFOOD EXPENSE DECREASE-INCREASEBANK LOANDECREASE5. 60,000 Opening 2,000INCREASE 8,500INCREASE Opening- 2,000 DECREASEINTEREST EXPENSE-DECREASEautomobile- 29,000INCREASEDECREASE MAINTENANCE EXPENSE 1. 120 60,000 120Net Worth 29,000DECREASEINCREASEhouse OpeningDECREASE-INCREASEINCREASENET WORTH Utilities EXPENSE4. 1,200 156,000TOTAL LIABILITESNet Worth- 1,200 134,500 Opening- 156,000TOTAL ASSETSDECREASE 134,500 195,22060,000135,220}Total Revenue 195,220 4,040LESS TOTAL EXPENSES3,320SURPLUS (DEFICIT) 72011
Chapter 1Financial Statements: Personal AccountingAP-9A ( 2 4 9 )Alan Marshall is preparing his balance sheet and income statement for the month endedApril 30, 2016. Use the following information to help him prepare his financial statements.Opening Balances as at April 1, 2016Cash 5,000Contents of Home1,000Automobile4,000House280,000Unpaid Accounts10,000Auto Loan30,000Net Worth250,000Transactions for the month of April1.Purchased new furniture worth 2,000 for home using credit card.2.Paid credit card bill with 3,000 cash.3.Paid utility bills of 800 for the month of April using credit card.4.Purchased groceries and food for 2,500 using cash.5.Made a principal payment of 1,250 for the auto loan.6.Paid April’s rent of 1,500 with cash.7.Deposited 4,050 salary earned during the month.Requireda) Using the information provided, record the opening balances in the T-accounts.b) Record the transactions for the month of April in the T-accounts.12
Financial Statements: Personal AccountingChapter 1PERSONAL BALANCE SHEETPERSONAL INCOME STATEMENTAs at April 30, 2016ASSETSINCREASEDECREASECASH Opening 5,0007. 4,050For the Month Ended April 30, NPAID ACCOUNTSREVENUE- 7. 4,050 10,000 Opening2. 3,0002. 3,0004. 2,5005.1,2506.1,5001.2,0003.800 4,050Less EXPENSESINCREASEDECREASE ENTERTAINMENT EXPENSE 800INCREASEDECREASE contents of home Opening 1,0001. 2,000 9,800INCREASEDECREASE-INCREASEAUTO LOAN4. 1,250 Opening 2,500INCREASE 3,000INCREASE- 2,500 30,000 Opening5.DECREASEFOOD EXPENSE DECREASEINTEREST EXPENSE -DECREASEautomobile- 4,000INCREASEDECREASE MAINTENANCE EXPENSE 28,750net worth 4,000DECREASEINCREASEDECREASEhouse -INCREASEINCREASENET WORTHRENT EXPENSE DECREASE6. 250,000 Opening-Opening 280,000 1,500INCREASE3. 280,000TOTAL LIABILITESNet Worth 250,000 287,80038,550249,250}DECREASEUtilities EXPENSE TOTAL ASSETS- 1,500 800Total Revenue 287,800- 800 4,050LESS TOTAL EXPENSES4,800SURPLUS (DEFICIT)( 750)13
Chapter 1Financial Statements: Personal AccountingAP-10A ( 2 3 )John Black is a senior administrator at a market research firm, and recently received a salaryincrease from 3,500 per month to 4,000 per month. He feels richer and would like to knowthe increase in his net worth. However, he has never prepared a personal balance sheet or anincome statement that would help him understand his net worth. John gathered the followinginformation to help him understand his financial position.September 30, 2016CashOctober 31, 2016November 30, 2016 1,000 2,150 2005004001,5001,2001,100Insurance Expense150150150Utilities Expense200400300Miscellaneous Expense17550100HouseBank LoanSalaryEntertainment ExpenseFood ExpenseRequiredPrepare John Black’s income statement for the three months.John BlackPersonal Income StatementFor the Month EndingSeptember30, 2016RevenueOctober31, 2016November30, 2016Total 3,500 3,500 4,000 11,0002005004001,1001,5001,2001,1003,800Insurance Expense150150150450Utilities Expense200400300900Miscellaneous Expense17550100325Total Expenses 2,225 2,300 2,050 6,575Surplus (Deficit) 1,275 1,200 1,950 4,425ExpensesEntertainment ExpenseFood Expense14
Financial Statements: Personal AccountingChapter 1AP-11A ( 3 8 )Jeff Winger is working at a law firm. His salary recently increased and he would like to keeptrack of his net worth. Jeff has gathered the following information to help you track his networth. Assume the opening net worth for June 30 is 0.June 30, 2016July 31, 2016 August 31, 2016Cash 2,500 4,100 11,50011,0004,3004,9004,900Food Expense290500100Entertainment Expense2108005001,3001,3001,300Credit Card BillsAutomobile LoanSalaryRent ExpenseComplete the table below.June 30, 2016Opening Net WorthJuly 31, 2016August 31, 2016 0 2,500 4,800Surplus (Deficit) 2,500 2,300 3,000Closing Net Worth 2,500 4,800 7,800AnalysisAfter looking at the table you prepared for Jeff, he notices that his cash has not increased byas much as his net worth has. Why is this the case?Some transactions, such as purchasing assets or paying back debt, affect cash but not networth. Jeff has not purchased any assets during the period. His credit card debt has decreasedby 500 and his car loan has decreased by 1,000.Therefore he used 1,500 cash to pay back his debts which is why the increase in cash is 1,500 less than the increase in net worth.15
Chapter 1Financial Statements: Personal AccountingAP-12A ( 2 4 )Using the opening balances provided in the balance sheets below, enter the updatedamounts for each transaction in the blank balance sheets labelled Answers.1. Borrowed 4,000 from the bank.Opening BalancesAssetsCashInvestmentContents of HomeAutomobileHouseTotal Assets 5,0008,0006,00020,000280,000 319,000LiabilitiesUnpaid AccountsBank LoanAutomobile LoanStudent LoanMortgageTotal LiabilitiesNet WorthTotal Liabilities Net Worth 3,00005,0006,000250,000264,00055,000 319,000LiabilitiesUnpaid AccountsBank LoanAutomobile LoanStudent LoanMortgageTotal LiabilitiesNet WorthTotal Liabilities Net Worth 3,0004,0005,0006,000250,000268,00055,000 323,000AnswersAssetsCashInvestmentContents of HomeAutomobileHouseTotal Assets 9,0008,0006,00020,000280,000 323,0002. Purchased 3,000 of investments in cash.Opening BalancesAssetsCashInvestmentContents of HomeAutomobileHouseTotal Assets16 7,0008,0006,00020,000180,000 221,000LiabilitiesUnpaid AccountsBank LoanAutomobile LoanStudent LoanMortgageTotal LiabilitiesNet WorthTotal Liabilities Net Worth 3,00005,0006,000150,000164,00057,000 221,000
Financial Statements: Personal AccountingChapter 1AnswersAssetsCashInvestmentContents of HomeAutomobileHouseTotal Assets 4,00011,0006,00020,000180,000 221,000LiabilitiesUnpaid AccountsBank LoanAutomobile LoanStudent LoanMortgageTotal LiabilitiesNet WorthTotal Liabilities Net Worth 3,00005,0006,000150,000164,00057,000 221,0003. Paid 1,000 to reduce an outstanding automobile loan (principal portion).Opening BalancesAssetsCashContents of HomeAutomobileHouseTotal Assets 3,0006,00020,000180,000 209,000LiabilitiesUnpaid AccountsBank LoanAutomobile LoanStudent LoanMortgageTotal LiabilitiesNet WorthTotal Liabilities Net Worth 3,00005,0006,000150,000164,00045,000 209,000LiabilitiesUnpaid AccountsBank LoanAutomobile LoanStudent LoanMortgageTotal LiabilitiesNet WorthTotal Liabilities Net Worth 3,00004,0006,000150,000163,00045,000 208,000AnswersAssetsCashContents of HomeAutomobileHouseTotal Assets 2,0006,00020,000180,000 208,00017
Chapter 1Financial Statements: Personal Accounting4. Bought a motorcycle for 6,000. Paid a 1,000 deposit with cash and borrowed 5,000from the bank.Opening BalancesAssetsCashContents of HomeMotorcycleAutomobileHouseTotal Assets 2,0004,000020,000180,000 206,000LiabilitiesUnpaid AccountsBank LoanStudent LoanMortgageTotal LiabilitiesNet WorthTotal Liabilities Net Worth 3,0001,00011,000150,000165,00041,000 206,000LiabilitiesUnpaid AccountsBank LoanStudent LoanMortgageTotal LiabilitiesNet WorthTotal Liabilities Net Worth 3,0006,00011,000150,000170,00041,000 211,000AnswersAssetsCashContents of HomeMotorcycleAutomobileHouseTotal Assets18 1,0004,0006,00020,000180,000 211,000
Financial Statements: Personal AccountingChapter 1AP-13A ( 8 )John Hollister collected the following amounts in cash for the month of February 2016Salary paid by employer 2,400Winnings at the casino 270Gifts 295Performance bonus paid by employer 450RequiredCalculate John’s total revenue and total capital items for February 2016.TotalRevenue 2,400 450 2,850TotalCapital 270 295 565AP-14A ( 4 )Indicate whether the terms of the accounting equation will increase, decrease or stay thesame for each transaction by placing a “ ” or “-” in the appropriate space. If an item is notchanged by the transaction, leave the space blank. The first transaction has been completedfor you.TransactionAssetsDeposited salary earned. 1. Purchased a new TV on credit. 2. Received a cash gift. 3. Purchased fuel for car on credit. Liabilities Net Worth -4. Made a loan payment including interest.--5. Received cash from a student loan. 6. Received a paycheque. 19
Chapter 1Financial Statements: Personal AccountingAP-15A ( 2 5 9 )The following information is available from Anna Edison’s financial recordsOpening Balances as at June 1, 2016Cash 18,000Furniture3,100Valuables & Electronics3,200House255,000Student Loans39,000Family Loan2,000Mortgage100,000Net Worth138,300The following transactions took place during the month of June1.2.3.4.5.6.20 350 was taken from the bank account for a car lease payment.Paid 1,000 cash against the student loans. Includes 140 of interest.Won a tablet worth 800 as a raffle prize.Made a mortgage payment of 2,000 with cash. Includes 400 interest. 4,800 salary earned was directly deposited to the bank account.Family member accepted jewellery of 2,000 in repayment of the loan.
Financial Statements: Personal AccountingChapter 1a) Record the transactions in the T-accounts.PERSONAL BALANCE SHEETIncome StatementAs at June 30, 2016AssetsIncreaseLiabilitiesDecrease DecreaseCashOpeningFor the Month Ended June 30, 2016--RevenueIncreaseStudent Loans 18,000DecreaseIncrease- 39,000 Opening1.3502.5.4,8008602. 1,000 4,8004. 2,0005.4,800 19,450Less EXPENSES 38,140IncreaseIncrease DecreaseDecreaseFurnitureOpening-- 3,100 IncreaseFamily Loan DecreaseAutomobile EXPENSE1.-350 2,000 Opening6.2,000 350Increase 0 DecreaseENTERTAINMENT EXPENSE- 3,100DecreaseIncrease-DecreaseMortgage Valuables & Electronics Opening 3,2003.800Increase 100,000 Opening4.1,600Increase DecreaseGroceries EXPENSE-6. 2,000 98,400 2,000IncreaseIncrease DecreaseDecreaseHouse--Opening 255,000 Increasenet worth 138,300 OpeningDecreaseInterest EXPENSE2.1404.400- 5403.800Increase 255,000Total AssetsDecreaseTravel Expense- 139,100 279,550Total Liabilites136,540Net Worth143,010}Total Revenue 279,550Less Total ExpensesSurplus (Deficit) 4,800890 3,91021
Chapter 1Financial Statements: Personal Accountingb) Complete the income statement and balance sheet.Income StatementFor the Month Ended June 30, 2016Revenue 4,800ExpensesAutomobile Expense 350540Interest ExpenseTotal Expenses890 3,910Surplus (Deficit)Personal Balance SheetAs at June 30, 2016AssetsCash and SavingsLiabilities 19,450Student LoansValuables & Electronics2,000Furniture3,100 Total LiabilitiesHouseTotal AssetsMortgage 38,14098,400255,000 Net Worth136,540143,010 279,550 Total Liabilities Net Worth 279,550AP-16A ( 4 9 )Indicate whether assets, liabilities or net worth will increase or decrease and by how much,based on each transaction. The first one has been done for you. Always ensure the accountingequation is balanced.Provide an explanation only if net worth is affected.1. P urchased a new television for 700 on credit.2. R eceived 2,000 salary.3. Paid 1,200 cash for one year ofinsurance.4. Purchased a new 500 gamingconsole with cash.5. Paid for groceries with 80 cash.6. Paid 400 toward the car loan.7. Paid 30 interest on the car loan.8. Paid 600 toward unpaid bills.9. Used one month of insurance.22Assets Liabilities Net Worth 700 700 2,000-1,200 1,200-500 500-80-400-30-600-100Explanation 2,000 Recorded salary earned as revenue-80 Paid for grocery expense-400-30 Paid for interest expense-600-100 Recorded insurance expenses
Financial Statements: Personal AccountingChapter 1AP-17A ( 4 7 9 )Indicate whether the account balances will increase or decrease and by how much, based oneach transaction. The first one has been done for you. Always ensure the accounting equationis balanced.Assets Liabilities 1. P urchased a new television for 700 on credit. 7002. P urchased 100 worth of gas on credit.-8504. P urchased a chandelier for 200 cash. 200-2005. P repaid three months of rent with 3,300 cash.Explanation 700 1003. M ade a 850 car loan payment.NetWorth-100 Purchased gas-850 3,300-3,3006. R eceived a cash gift of 500. 500 500 Received cash gift7. U sed up one of three months of prepaid rent.-1,100-1,100 Used up rent8. P aid interest of 50, in cash, on the car loan.9. R eceived a phone bill for 110.-50-50 Paid interest on car loan 110-110 Received phone billAnalysisThe net worth account is only updated at the end of an accounting period. Revenue andexpense accounts, and the net worth account, track changes in net worth during the period.For each transaction that affects net worth, determine whether a revenue, expense, or networth is used to track the change.2. Fuel Expense increases by 1006. Net Worth increases by 5007. Rent Expense increases by 1,1008. Interest Expense increases by 509. Telephone Expense increases by 11023
Chapter 1Financial Statements: Personal AccountingAP-18A ( 2 4 7 )On December 1, 2016, Shervin decided to track his finances. On this date, his assets andliabilities wereCashPrepaid RentPrepaid InsuranceHouseContents of HomeAutomobileStudent LoanUnpaid AccountsBank LoanMortgage 0120,000Requireda) What is the value of his total assets?CashPrepaid RentPrepaid InsuranceHouseContents of HomeAutomobileTotal Assets 14,0003,000300160,00019,00030,000 226,300b) What is the value of his total liabilities?Student LoanUnpaid AccountsBank LoanMortgageTotal Liabilities 10,00017,00025,000120,000 172,000c) What is Shervin’s net worth on December 1, 2016?Total AssetsLess Total LiabilitiesNet Worth 226,300172,000 54,300d) During the month of December, Shervin recognized 150 of prepaid expenses as an actualexpense on the income statement. Calculate the change in his cash account and net worth.TransactionEffect24CashNet WorthNo changeDecrease by 150
Financial Statements: Personal AccountingChapter 1AP-19A ( 4 6 )Nick Miller wrote down his personal accounting information but some of it was destroyed.BicycleAutomobileCashFurnitureNet WorthOverdue RentTelevisionTotal AssetsUnpaid Bills 7003,000800?3,350?5006,1002,300Requireda) How much is Nick’s furniture worth?Nick’s assets include: Bicycle, Automobile, Cash, Furniture, and Television. Together, theBicycle, Automobile, Cash, and Television are worth 5,000. Nick’s Total Assets are 6,100which means the Furniture must be worth 1,100.b) How much rent does Nick owe?Assets - Liabilities Net WorthNick’s Total Assets are 6,100 and his Net Worth is 3,350. Therefore his Total Liabilities mustbe 2,750. Nick’s liabilities include his Unpaid Bills and his Overdue Rent. Unpaid Bills total 2,300, so he must owe 450 in rent.AnalysisNick has worked 80 hours at his job as a bartender and earned 1,900 but will not get paid foranother two weeks. According to accrual-based accounting has Nick’s net worth increased?Why or why not?Accrual-based accounting states that net worth changes when activities occur, not necessarilywhen cash is paid or received. In this case, Nick has already earned his salary so his net worthhas increased. An asset account could be created to record this.25
Chapter 1Financial Statements: Personal AccountingAP-20A ( 4 )State how the following transactions would affect net worth (increase, decrease, no change)TransactionEffect on Net WorthBorrow cash.no changePay entertainment expense with cash.decreasePay food expense with cash.decreaseBuy assets with cash.no changeCharge home repairs expense on credit card.decreasePay insurance expense with cash.decreasePay loan principal with cash.no changePurchase assets on account.no changeReceive salary.increasePay rent expense with cash.decreaseAP-21A ( 2 5 )Using the following chart, indicate whether there would be an increase, decrease or nochange to cash and net worth for the transactions provided. The first transaction has beencompleted for you.CashTransactionIncreaseDecreaseNo ChangeIncreaseDecreaseNo Change1Deposit salary earned:2Pay cash for food.X3Purchase a new car.XX4Pay rent expense in advance.XX5Reduce student loan principal.XX6Buy a new computer with cash.XX7Obtain a bank loan.8Pay entertainment expenses.9Record cash earned from apart-time job.26XNet WorthXXXXXXXX
Financial Statements: Personal AccountingChapter 1AP-22A ( 8 )Joana Harwin collected the following amounts in cash for the month of March 2016Full-time employment income 1,200Income from part-time babysitting job 220Rental income 525RequiredCalculate Joana’s total revenue and total capital items for March 2016.TotalRevenue 1,200 295 525 2,020TotalCapital 027
Chapter 1Financial Statements: Personal AccountingApplication Questions Group BAP-1B ( 2 )Dana Shukrun was reviewing her records on December 31, 2016. Below is a list of items andtheir value.CashComputerAutomobileHouseMortgageCredit CardBank Loan 7,90070019,100255,000150,0004,60037,700Requireda) Calculate Dana Shukrun’s total assets.Total Assets: 282,700 7,900 700 19,100 255,000b) Calculate Dana Shukrun’s total liabilities.Total Liabilities: 192,300 150,000 4,600 37,700AP-2B ( 2 4 )John Bonham was performing a year-end review of his finances and came up with this list:CashFurnitureAutomobileHouseCredit CardStudent LoanMortgage28 13,2001,90021,900210,0004,60011,400100,000
Financial Statements: Personal AccountingChapter 1Requireda) Calculate John Bonham’s total assets.Total Assets: 247,000 13,200 1,900 21,900 210,000b) Calculate John Bonham’s total liabilities.Total Liabilities: 116,000 4,600 11,400 100,000c) Calculate John Bonham’s net worth.Net Worth: 131,000 247,000 - 116,000AP-3B ( 2 4 )Consider the following informationCashAutomobilePrepaid InsuranceBank LoanUnpaid Credit Card BillsNet Worth 6,00050,0003,00010,0002,000?How much is the net worth?Assets - Liabilities Net Worth( 6,000 3,000 50,000) - ( 2,000 10,000) 47,00029
Chapter 1Financial Statements: Personal AccountingAP-4B ( 2 4 5 9 )Christine Sutherland compiled the following information on May 31, 2016CashJewelleryHouseMortgageNet Worth 2,1003,000186,200171,80019,500Transactions for the month of June 20161.2.3.4.5.6.Received 4,100 cash for her monthly salary.Paid 590 cash for maintenance on her car.Paid cash for telephone, water and electricity for 540.Purchased an automobile worth 10,600 on credit.Received 30 interest earned on bank deposits.Paid 320 for food with cash.Requireda) What is the ending balance of cash?INCREASE Opening Balance1.Cash 2,1004,1005.Ending BalanceDECREASE-2.3.5905406.32030 4,780b) What is the surplus or deficit for the accounting period?Surplus or deficit: 2,680 4,100 - 590 - 540 30 - 320c) What is Christine Sutherland’s net worth on June 30?Net worth: 22,180 19,500 2,68030
Financial Statements: Personal AccountingChapter 1AP-5B ( 2 3 5 )Arthur’s financial records show that his assets and net worth as of May 1, 2016 areCashComputerContents of HomeAutomobileHouseStudent LoanNet Worth 6,0004,00017,50020,000137,500?113,000Requireda) Arthur wants to find out how much he owes. Determine his total liabilities.AssetsCash 6,000Computer4,000Contents of Home17,500Automobile20,000House137,500Total Assets 185,000Less Net Worth113,000Total Liabilities 72,000b) During the month of May, Arthur paid 2,000 for two months of rent in advance ( 1,000per month). Calculate the change in Arthur’s cash account and personal net worth.TransactionEffectCashNet WorthDecrease by 2,000No ChangeAP-6B ( 4 )Calculate the missing amounts in the following table.Total AssetsTotal LiabilitiesNet WorthScenario 1 125,900 33,200 92,700Scenario 2 150,300 33,200 117,10031
Chapter 1Financial Statements: Personal AccountingAP-7B ( 1 3 )As of December 31, 2015, Deena Balsdon had total assets of 42,800 and total liabilities of 16,700. As of December 31, 2016, Deena’s total assets and liabilities
Chapter 1 FinanCial StatementS: PerSonal aCCounting assessment Questions aS-1 (1) Define accounting and describe the purpose of accounting. Accounting is a system to identify, measure and communicate all the financial activities of an individual or a business. The purpose of accounting is to allow interested users to make
