| Assets | - Liabilities | = Proprietorship | ||
| Cash | $4,750 | Lowell Bros. | ||
| Furniture | 500 | Claim | $ 250 | |
| Merchandise | 2,500 | Reid Murdock | ||
| Claim | 2,500 | |||
| $7,750 | - | $2,750 | =$5,000 | |
Runyon now begins operations and after six months finds that his activities have comprised the purchase of delivery equipment for $300 cash; sale of goods amounting to $6,000; the payment of $1,000 cash for rent, clerk hire, and advertising; and sundry purchases of stock-in-trade and other items as needed. As a result he now has $1,000 cash on hand; customers owe him $3,000; his stock of goods still on hand is worth $2,100; he owes creditors $1,000 for goods bought and his clerks $50 for services rendered.
It is readily seen that as the number of assets and liabilities increases, the method of showing them that was used above becomes awkward and cumbersome; therefore, still using the equation, we make the following vertical tabulation to determine and show proprietorship:
| Assets | ||
| Cash | $1,000.00 | |
| Customers | 3,000.00 | |
| Merchandise | 2,100.00 | |
| Furniture | 500.00 | |
| Delivery Equipment | 300.00 | |
| Total Assets | $6,900.00 | |
| Liabilities | ||
| Creditors for Merchandise | $1,000.00 | |
| Clerks for Services | 50.00 | |
| Total Liabilities | 1,050.00 | |
| Proprietorship | ||
| Capital | $5,850.00 | |
This method of expressing the proprietorship equation is called a “Balance Sheet,” or “Financial Statement.”
Further analysis of the above information discloses the amount of Runyon’s purchases and of his payments to creditors. Taking the transactions involving cash, we find that he had $5,000 to start with and received $3,000 from sales, or $8,000 in all. He bought furniture and delivery equipment for $800, and paid expenses of $1,000, in all $1,800. There is therefore a balance of $6,200 to be accounted for. $1,000 cash is still on hand, so that he must have paid creditors $5,200. Since he still owes creditors $1,000 for goods bought, his purchases must have been in all $6,200.
The ability to make accounting statements and to analyze accounting data for various purposes constitutes a very important part of the equipment of the accountant.
CHAPTER II
ASSETS, LIABILITIES, AND CAPITAL
Before discussing the form and content of the balance sheet and some of its major uses, the chief classes of assets, liabilities, and proprietorship or capital will be explained so that the student will have an intelligent notion of what is meant by each asset, liability, and capital item.
Kinds of Assets.—Accounting terms are not wholly standard. An account title is often used in one business to include items not mentioned under that title in another business. One finds also terms and titles peculiar to particular businesses. However, there is a tendency towards a standardization of the terms used in balance sheets. It is the purpose here to present and explain those which are common to practically all businesses. These include the asset titles Cash, Notes Receivable, Accounts Receivable, Merchandise, Investments, Deferred Charges or Expense Assets, Furniture and Fixtures, Delivery Equipment, Buildings, and Land.