Unit 5
Accounting and Finance Foundations Unit 5: Accounting Terminology 334
Accounting Terminology
Chapter 14
Assets = Liabilities + Owner’s Equity
Trans.
No.
Cash + Supplies + Accounts
Receivable,
Lisa Cook
+ Prepaid
Insurance
= Accounts
Payable
Office
Supply
+ Your
Name,
Capital
+ Rev. - Expenses - Drawing
- 7500 + + + = + 7500 + - -
- -300
7200
+ +300 + + = + 7500 + - -
- -550
6650
+ 300 + + +550 = + 7500 + - -
- 6650 + +450
750
+ + 550 = +450
450
+ 7500 + - -
Transaction 4
Accounts payable is when a company buys something on account from another entity and will pay at a
later date. The company who is selling something thus becomes a vendor. Accounts Payable is a liability
account, because money is owed and must be paid at a later date.
Bought supplies on account, Office Supply, $450
When a company purchases supplies using credit (buying on account), the two accounts affected are
Supplies and Accounts Payable or the company from which the purchase was made; in this situation,
Office Supply Company.
Supplies are classified as an asset, and Office Supply Company is a liability because you now owe them
money. When you purchase supplies, the amount the company has in supplies is increased. When a
company purchases something on account (Office Company)—in this case, supplies, the amount owed to
Office Company is increased.
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