Question

Prepare a December 31, 2020, balance sheet for Long Print Shop from the following: cash, $50,000; accounts payable, $38,000; merchandise inventory, $14,000; Joe Ryan, capital, $46,000; and equipment, $20,000.

Answer 1

Answer:

                                   Long Print Shop

         Balance sheet for the year ended December 31, 2020

                                                         Amount in $                       Amount in $

Assets

Non-current asset

Equipment                                                                                     20,000

Current assets

Merchandise inventory                      14,000

Cash                                                     50,000

Total current asset                                                                        64,000

Total assets                                                                                  84,000

Liabiities

Accounts payable                                                                         38,000

Total liabilities                                                                             38,000

Equity

Capital                                                                                            46,000

Total equity                                                                                   46,000

Total liabilities and equity                                                            84,000

Explanation:

The accounting equation shows the relationship between the elements of a balance sheet which are assets liabilities and equity. This may be expressed mathematically as

Assets = Liabilities + Equity

While assets include fixed assets, cash, inventories, account receivables etc, liabilities include accounts payable, loans payable, accrued expenses etc.

Equity which represents the amount owed to the owners of the business includes retained earnings (which is the accumulation of the net income/loss over the years less dividends paid) and common shares.