Accounting Equation 01

1. Balance Sheet Version
Assets = Liabilities + Equity

2. Income Statement Version
Net Income = Revenue - Expenses

3. Combined Version
Assets = Liabilities + Equity
---> Equity = Beginning Equity + Net Income

Assets = Liabilities + Beginning Equity + Net Income
---> Net Income = Revenue - Expenses

Assets = Liabilities + Beginning Equity + Revenue - Expenses

An Example of Combined Version

At January 1, 2010, the balance of equity was $100,000.
During the year of 2010, revenue and expenses were as follows
Revenue = $300,000
Expenses = $240,000

What is the balance of equity at December 31, 2010?

Equity = Beginnig Equity + Revenue - Expenses
--> $100,000 + $300,000 - $240,000 = $160,000

At December 31, 2010, Entity A had the following balances
Assets = $280,000
Liabilities = $120,000
Equity = $160,000

Balance sheet version
Assets = Liabilities + Equity
--> $280,000 = $120,000 + $160,000

Combined version
Assets = Liabilities + Beginning Equity + Revenue - Expenses
--> $280,000 = $120,000 + $100,000 + $300,000 - $240,000

Practice Question 1:

If Assets = $12,000 and Liabilities = $3,000
what is the amount of equity?

--> Equity = Assets - Liabilities = $12,000 - $3,000 = $9,000

Case 2:

Revenue = $16,000
Expenses = $10,000
Net income = Revenue - Expenses = $16,000 - $10,000 = $6,000

Practice Question 2:

If Revenue = $16,000 and Expenses = $11,000
what is the amount of net income?

--> Net income = Revenue - Expenses = $16,000 - $11,000 = $5,000

Case 3:

Assets = $25,000
Liabilities = $11,000
Beginning Equity = $10,000
Revenue = $36,000
Expenses = $32,000
Assets = Liabilities + Beginning Equity + Revenue - Expenses
$25,000 = $11,000 + $10,000 + $36,000 - $32,000

Practice Question 3:

In the following case, what is the amount of Beginning Equity
Assets = $55,000
Liabilities = $21,000
Revenue = $76,000
Expenses = $62,000
Beginning Equity = ?

Assets = Liabilities + Beginning Equity + Revenue - Expenses
$55,000 = $21,000 + ? + $76,000 - $62,000
--> Beginning Equity = ? = $20,000