Accounting and Finance Foundations

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

1. 7500 + + + = + 7500 + - -


2. -300
   7200

+ +300 + + = + 7500 + - -

3. -550
   6650

+ 300 + + +550 = + 7500 + - -

4. 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.

Student Guide