FABM LESSON 3

• What is the expanded accounting equation for liabilities?

  Assets = Liabilities + (Capital + Revenue – Expenses)
• How can liabilities be expressed in the expanded accounting equation?

  Liabilities = Assets - (Capital + Revenue - Expenses)
• What does the capital equation represent in the expanded accounting equation?

  Capital = Assets - Liabilities - (Revenue - Expenses)
• What are the four main elements of the equity account in the expanded accounting equation?

  • Owner’s capital
  • Owner’s withdrawal
  • Revenues
  • Expenses
• What remains unchanged in the expanded accounting equation?

  The asset and liability sections remain the same
• How does the expanded accounting equation relate to financial statements?

  It shows how revenues and expenses affect equity
• What is the expanded accounting equation for a sole proprietorship?

  Assets = Liabilities + Owner’s Equity (capital) - Withdrawals + Revenues - Expenses
• What is the expanded accounting equation for a partnership?

  Assets = Liabilities + Members’ Capital - Distributions + Revenues - Expenses
• What is the expanded accounting equation for a corporation?

  Assets = Liabilities + Common Stock - Dividends + Paid In Capital - Treasury Stock + Revenues - Expenses
• If liabilities are 10,000, capital is 60,000, revenue is 50,500, and expenses are 36,500, what are the assets?

  Assets = 174,000
• If assets are 154,000, capital is 41,000, revenue is 89,000, and expenses are 51,000, what are the liabilities?

  Liabilities = 75,000
• If assets are 198,000, liabilities are 81,000, revenue is 53,000, and expenses are 41,500, what is the capital?

  Capital = 105,500
• If assets are 203,000, liabilities are 134,000, and expenses are 106,000, what is the revenue?

  Revenue = 53,000
• If assets are 110,000, liabilities are 40,000, and revenues are 52,000, what are the expenses?

  Expenses = 64,500
• How does the expanded accounting equation demonstrate the flow of financial information?

  • Shows relationship between balance sheet and income statement
  • Illustrates how revenues and expenses affect equity