and the fundamental accounting equation. This chapter establishes how a business tracks its financial position by organizing what it owns against what it owes. 1. The Fundamental Accounting Equation
While Chapter 1 introduces the idea, Chapter 2 formalizes it. Every transaction affects at least two accounts. If you buy supplies for cash, Supplies (Asset) goes up, and Cash (Asset) goes down. If you buy supplies on account, Supplies (Asset) goes up, and Accounts Payable (Liability) goes up. The answer key for Chapter 2 problems will always demonstrate this balance. If your equation does not balance, you have made an error in classification or math. Accounting 1 7th Edition Answer Key Chapter 2
If a business has $50,000 in assets and $10,000 in liabilities, the equity must be $40,000 . This equation must stay in balance after every single transaction. 3. Key Terms and Definitions Commonly tested vocabulary in Chapter 2 includes: and the fundamental accounting equation
: The owner’s claim against the assets, also called Capital or Net Worth . If you buy supplies on account, Supplies (Asset)