Chapter 1

Personal Accounting

Assessment Questions
AS-1 ( 1 )
Define accounting and state the purpose of accounting.
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AS-2 ( 1 )
What is net worth?
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AS-3 ( 2 )
In simple terms, what are assets and liabilities?
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AS-4 ( 2 )
What are revenues and expenses?
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AS-5 ( 2 )
Explain the role of the balance sheet.
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AS-6 ( 2 )
Explain the role of the income statement.
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AS-7 ( 2 )
What are some advantages of using monthly accounting periods in your personal balance
sheet?
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AS-8 ( 3 )
What is the accounting equation?
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AS-9 ( 1 )
What is the equation for calculating closing net worth for a period?
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AS-10 ( 2 )
Define surplus (and deficit).
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AS-11 ( 4 )
What is a T-Account?
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AS-12 ( 5 )
Define the principle of accrual accounting.
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AS-13 ( 5 )
Briefly describe the cash-based method of accounting.
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AS-14 ( 6 )
Explain the matching principle.
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AS-15 ( 1 )
True or False: When you borrow money, you have more cash but your net worth decreases.
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AS-16 ( 1 )
True or False: When you pay off a loan, your cash decreases and your net worth increases.
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AS-17 ( 1 )
True or False: Buying an asset has no impact on net worth.
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AS-18 ( 7 )
Describe the concept of depreciation.
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AS-19 ( 5 )
What is a prepaid expense?
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AS-20 ( 5 )
When an expense is initially prepaid, which accounts increase or decrease?
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Personal Accounting

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AS-21 ( 6 )
What are the three ways to recognize an expense?
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AS-22 ( 6 )
Describe the concept of materiality in the context of assets and expenses.
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AS-23 ( 8 )
What is capital?
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AS-24 ( 10 )
Define market value.
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AS-25 ( 10 )
Define book value.
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Chapter 1

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Application Questions
AP-1 ( 1 )
Darryl purchased a new laptop on January 1, 2010 worth $2,000. He paid the entire amount
($2,000) using cash. He also purchased a new cell phone worth $300 and an mp3 player worth
$100, on account. How will these transactions affect Darryls net worth?
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AP-2 ( 2 )
April Rose had the following financial data for the year ended December 31, 2012:
Cash
Jewelry
Automobile
House
Bank Loan
Credit Card
Mortgage Payable

$6,000
10,000
18,000
56,000
45,000
5,000
40,000

Required:
a) Calculate April Roses total assets.
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b) Calculate April Roses total liabilities.
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Chapter 1

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AP-3 ( 1 , 2 )
Consider the following information of Julius Troy:
Cash
Jewelry
Automobile
House
Credit Card
Bank Loan
Mortgage Payable

$12,000
18,000
22,000
61,000
5,000
10,000
25,000

Required:
a) Calculate Julius Troys total assets.
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b) Calculate Julius Troys total liabilities.
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c) Calculate Julius Troys net worth.
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Chapter 1

Personal Accounting

AP-4 ( 1 , 3 )
Consider the following information:
Cash
Automobile
Prepaid Insurance
Mortgage Payable
Unpaid Credit Card Bills
Net Worth

$6,000
50,000
3,000
10,000
2,000
?

How much is the net worth?

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AP-5 ( 2 , 3 )
A worker has the following information with regards to his own balance sheet, but the liability
section is missing.
Cash
Automobile
House
Net Worth

$35,000
58,000
100,000
55,000

Required: Determine the amount of liability.

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Chapter 1

Personal Accounting

AP-6 ( 1 , 2 , 4 )
Following information was taken from the personal records of Juliet Lahm:
Opening Balances:
Cash
Jewelry
House
Mortgage Payable
Net Worth

$3,000
2,000
90,000
80,000
15,000

The following are the transactions for the month of May 2011:
1.
2.
3.
4.
5.
6.

Received monthly salary

Paid cash for utilities
Purchased an automobile on account
Paid cash for food expenses
Received interest earned on bank deposits
Paid cash for gas

$5,000
1,200
10,000
600
50
400

a) What is the ending balance of cash?

INCREASE (DR)
+

DECREASE (CR)
CASH

Opening Bal.

b) What is the surplus or deficit for the period?

Personal Income Statement
For the Month Ended May 31, 2011

Chapter 1

Personal Accounting

c) What is Juliet Lahms net worth on May 31?

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AP-7 ( 1 , 3 )
As of December 31, 2010, Maria Green had total assets of $40,000, and total liabilities of
$15,000. As of December 31, 2011, Marias total assets and liabilities increased to $50,000 and
$30,000, respectively. How has Marias net worth changed since the end of 2010?
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AP-8 ( 1 , 2 , 3 , 4 )
The following information pertains to Ken Whites personal financial transactions :
Opening Balances at January 1, 2011
Cash
House
Automobile
Contents of Home
Unpaid Accounts
Bank Loan
Net Worth

$9,000
56,000
29,000
6,000
5,500
60,000
34,500

The following are the transactions for the month of January 2011:

10

1.

Paid maintenance expense for the month of January with cash

$120

2.

Sold furniture for cash (assume the furniture is sold at the

balance sheet value)

2,000

3.

Purchased new furniture as a replacement for the old one,

using cash

2,500

Personal Accounting

Chapter 1

4.

Paid credit card liability in full

5,500

5.

Paid telephone, electricity and water bill for January with cash

1,200

6.

Purchased groceries and goods for personal consumption

with cash

2,000

7.

Deposited salary earned during the month

4,000

8.

Earned interest on savings account

40

Required:
a) Using the information provided, record the opening balances in the T-accounts.
b) Record the transactions for the month of January in the T-accounts.
c) Complete the personal balance sheet and income statement.

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Chapter 1

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PERSONAL BALANCE SHEET

PERSONAL INCOME STATEMENT

As at January 31, 2011

ASSETS
INCREASE(DR)

DECREASE(CR)

For the Month Ended Jan. 31, 2011

LIABILITIES
DECREASE(DR)

CASH

INCREASE(CR)

REVENUE
DECREASE(DR)

INCREASE(CR)

UNPAID ACCOUNTS

MINUS

EXPENSES
INCREASE(DR)

DECREASE(CR)

Utilities

INCREASE(DR)

DECREASE(CR)

HOUSE

INCREASE(DR)

DECREASE(CR)
FOOD

DECREASE(DR)

INCREASE(CR)

BANK LOAN
INCREASE(DR)

DECREASE(CR)

MAINTENANCE
INCREASE(DR)

DECREASE(CR)

Automobile
INCREASE(DR)

DECREASE(CR)

interest

NET WORTH
INCREASE(DR)

DECREASE(CR)

CONTENTS OF HOME

Opening Net
Worth

PLUS: Surplus
(Deficit)

INCREASE(DR)

DEPRECIATION

INCREASE(DR)

= TOTAL LIABILITES
+ Net Worth

12

DECREASE(CR)

INSURANCE

Equals Closing
Net Worth

TOTAL ASSETS

DECREASE(CR)

Total Revenue
- TOTAL EXPENSES
SURPLUS (DEFICIT)

Chapter 1

Personal Accounting

KEN WHITE
PERSONAL BALANCE SHEET
As at January 31, 2011

KEN WHITE
PERSONAL INCOME STATEMENT
FOR THE MONTH ENDED
JANUARY 31, 2011

AP-9 ( 1 , 2 , 3 , 4 )
Alan Marshall is preparing his balance sheet and income statement for the month ended April
30, 2011. Use the following information to help him prepare his financial statements.
Opening Balances - April 1, 2011
Cash
Contents of Home
Automobile
House
Unpaid Accounts
Auto Loan
Net Worth

$5,000
1,000
4,000
80,000
10,000
30,000
50,000

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Chapter 1

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The following are the transactions for the month of April:

1.

Purchased new furniture for home using the credit card

$2,000

2.

Paid credit card bill with cash

3.

Paid utility bills for the month of April using the credit card

4.

Purchased groceries and food using cash

2,500

5.

Made the annual principal payment for the auto loan

1,250

6.

Paid the Aprils rent with cash

1,500

7.

Deposited salaries earned during the month

4,000

8.

Earned interest on savings account

3,000
800

50

Required:
a) Using the information provided, record the opening balances in the T-accounts.
b) Record the transactions for the month of April in the T-accounts.
c) Complete the personal balance sheet and income statement.

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Chapter 1

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PERSONAL BALANCE SHEET

PERSONAL INCOME STATEMENT

As at April 30, 2011

ASSETS (what we own)

INCREASE(DR)

DECREASE(CR)

For the Month Ended April 30, 2011

LIABILITIES (what we OWE)

DECREASE(DR)

CASH

INCREASE(CR)

REVENUE
DECREASE(DR)

INCREASE(CR)

UNPAID ACCOUNTS

MINUS

EXPENSES
INCREASE(DR)

DECREASE(CR)

Utilities

INCREASE(DR)

DECREASE(CR)

CONTENTS OF HOME

INCREASE(DR)

DECREASE(CR)
FOOD

DECREASE(DR)

INCREASE(CR)

Auto Loan
INCREASE(DR)

DECREASE(CR)
Rent

INCREASE(DR)

DECREASE(CR)

Automobile
INCREASE(DR)

DECREASE(CR)

DEPRECIATION

NET WORTH
INCREASE(DR)

DECREASE(CR)

HOUSE

Opening Net
Worth

PLUS: Surplus
(Deficit)

INCREASE(DR)

DECREASE(CR)

MAINTENANCE

INCREASE(DR)

DECREASE(CR)

ENTERTAINMENT

Equals Closing
Net Worth

TOTAL ASSETS
= TOTAL LIABILITES
+ Net Worth

Total Revenue
- TOTAL EXPENSES
SURPLUS (DEFICIT)

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Chapter 1

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ALAN MARSHALL
PERSONAL INCOME STATEMENT
FOR THE MONTH ENDED
april 30, 2011

ALAN MARSHALL
PERSONAL BALANCE SHEET
As at April 30, 2011

AP-10 ( 1 , 2 )
John Black is a senior administrator at a market research firm, and has recently experienced a
salary increase from $3,500 per month to $4,000 per month. He feels richer and would like to
know the increase in his net worth. However, he has never prepared a personal balance sheet or
an income statement that would help him understand his net worth. The following information
has been gathered by John in an attempt to better understand his financial position.
September 30, 2010
Cash

November 30, 2010

$1,000

$2,150

$4,050

120,000

120,000

120,000

400

350

300

3,500

3,500

4,000

200

500

400

1,500

1,200

1,100

Insurance Expense

150

150

150

Utilities Expense

200

400

300

Miscellaneous Expense

175

50

100

House
Bank Loan
Salary
Entertainment Expense
Food Expense

16

October 31, 2010

Chapter 1

Personal Accounting

Required: Prepare John Blacks income statement and balance sheet for the three months.
John Black
Personal Income Statement
For the Month
September

October

November

Total

John Black
Balance Sheet
As at Month End
September

October

November

AP-11 ( 1 , 2 )
Ethan is a famous songwriter and composer. His income is based solely on royalties that he
receives regularly. Ethan opted to use three months as his accounting period.

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Chapter 1

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The following information pertains to income earned and expenses incurred from January 1,
2011 to March 31, 2011
January
Royalty Income

February

March

$12,000

$13,000

$10,000

60

60

60

2,000

2,100

1,900

Maintenance Expense

350

500

180

Clothing Expense

900

1,500

Utilities Expense

300

500

1,500

1,500

1,500

15

50

Interest Expense
Food Expense

Rent Expense
Miscellaneous Expense

Required:
a) Prepare a personal income statement for each of the three months.
Ethan
Personal Income Statement
For the Period Ended March 31, 2011
January

February

March

Total

b) What amount should be added to Ethans net worth on March 31, 2011.
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Chapter 1

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AP-12 ( 3 )
Calculate the missing amounts in the following table.
Scenario 1
Total Assets

Scenario 2

$123,000

Total Liabilities

$34,000

Net Worth

$94,000

$114,000

AP-13 ( 2 )
Using the opening balances provided in the balance sheets below, enter the updated
amounts for each transaction in the blank balance sheets marked Answers.
1. Borrowed $4,000 from the bank.
Opening Balances
Assets
Cash
House
Automobile
Contents of Home
Investment

Total Assets

Liabilities
Bank Loan
Unpaid Accounts
Mortgage Payable
Automobile Loan
Student Loan
Total Liabilities
Net Worth
119,000 Liabilities + Net Worth
5,000
80,000
20,000
6,000
8,000

Answers: Assets
Cash
House
Automobile
Contents of Home
Investment

Total Assets

0
3,000
50,000
5,000
6,000
64,000
55,000
119,000
Liabilities
Bank Loan
Unpaid Accounts
Mortgage Payable
Automobile Loan
Student Loan
Total Liabilities
Net Worth
Liabilities + Net Worth

2. Sold investments for $8,000 cash.

Opening Balances
Assets
Cash
House
Automobile
Contents of Home
Investment

Total Assets

Liabilities
Bank Loan
Unpaid Accounts
Mortgage Payable
Automobile Loan
Student Loan
Total Liabilities
Net Worth
115,000 Liabilities + Net Worth
1,000
80,000
20,000
6,000
8,000

0
3,000
50,000
5,000
6,000
64,000
51,000
115,000

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Answers: Assets
Cash
House
Automobile
Contents of Home
Investment

Total Assets

Liabilities
Bank Loan
Unpaid Accounts
Mortgage Payable
Automobile Loan
Student Loan
Total Liabilities
Net Worth
Liabilities + Net Worth

3. Paid $1,000 to reduce an outstanding automobile loan (principal portion).

Opening Balances
Assets
Cash
House
Automobile
Contents of Home

Total Assets

Liabilities
Bank Loan
Unpaid Accounts
Mortgage Payable
Automobile Loan
Student Loan
Total Liabilities
Net Worth
109,000 Liabilities + Net Worth
3,000
80,000
20,000
6,000

Answers: Assets
Cash
House
Automobile
Contents of Home

Total Assets

0
3,000
50,000
5,000
6,000
64,000
45,000
109,000
Liabilities
Bank Loan
Unpaid Accounts
Mortgage Payable
Automobile Loan
Student Loan
Total Liabilities
Net Worth
Liabilities + Net Worth

4. Bought a motorcycle for $6,000 - paid a $1,000 deposit with cash and borrowed
$5,000 from the bank.
Opening Balances
Assets
Cash
House
Automobile
Contents of Home
Motorcycle

Total Assets

20

Liabilities
Bank Loan
Unpaid Accounts
Mortgage Payable
Automobile Loan
Student Loan
Total Liabilities
Net Worth
106,000 Liabilities + Net Worth
2,000
80,000
20,000
4,000
-

1,000
3,000
50,000
5,000
6,000
65,000
41,000
106,000

Chapter 1

Personal Accounting

Answers: Assets
Cash
House
Automobile
Contents of Home
Motorcycle

Liabilities
Bank Loan
Unpaid Accounts
Mortgage Payable
Automobile Loan
Student Loan
Total Liabilities
Net Worth
Liabilities + Net Worth

Total Assets

AP-14 ( 2 )
Using the following chart, indicate whether there would be an increase, decrease or no
change to the bank balance and net worth for the transactions provided. The first transaction
has been completed for you.
Bank Balance
Transaction

Increase

Deposit salary

Pay cash for food x x

Take a loan to buy a new car x

Sell a stereo for cash x

Reduce student loan principal x x

Buy a new computer for cash x x

Deposit a bank loan x x

Pay entertainment expenses x x x

Record interest received on savings

Decrease

Net Worth

No Change

Increase

Decrease

No Change

AP-15 ( 1 , 3 )
State how the following transactions would impact net worth (increase, decrease, no change):
Item

Effect on Net Worth

Borrow cash
Pay entertainment expense with cash
Pay food expense with cash
Buy assets with cash
Charge home repairs expense on credit card
Pay insurance expense with cash
Pay loan principal with cash
Purchase assets on account
Receive salary
Pay rent expense with cash

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AP-16 ( 1 , 2 , 3 , 6 )
On December 1, 2010, Shervin decided to track his finances. On this date, his assets and
liabilities were as follows:
Cash
Prepaid Rent
Prepaid Insurance
House
Contents of Home
Automobile
Student Loan
Unpaid Accounts
Bank Loan
Mortgage Payable

$14,000
3,000
300
60,000
19,000
30,000
10,000
17,000
25,000
25,000

a) What is the value of his total assets?

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b) What is the value of his total liabilities?
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c) What is Shervins net worth on December 1, 2010?
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d) During the month of December, Shervin recognized $150 of prepaid expenses as an actual
expense on the income statement.
Calculate the change in his cash account and personal net worth.
Transaction

Cash

Net Worth

Effect

AP-17 ( 3 , 5 , 6 )
Arthurs financial records show that his assets and net worth as of May 1, 2010 are as follows:
Cash
Computer
Automobile
House
Contents of Home
Student Loan
Net Worth

$6,000
4,000
20,000
37,500
17,500
?
13,000

a) Arthur wants to find out how much he owes. Determine his total liabilities.
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b) During the month of May, Arthur paid $2,000 for two months of rent in advance ($1,000
per month). Calculate the change in Arthurs cash account and personal net worth.
Transaction

Cash

Net Worth

Effect

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Chapter 1

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AP-18 ( 6 )
Peters total net worth is $235,000. Use the materiality principle to help classify each of the
following as an asset or an expense.
Item

Amount

Expense/Asset
$15

CD

100,000

House

2,000

Laptop
Food

80

Gas for Automobile

30
250

Concert Tickets

3,000

Furniture

AP-19 ( 7 )
On January 1, 2011, Tristan purchased a brand new car and a cell phone worth $45,000 and
$1,200 respectively. It is estimated that the useful life of the car is 9 years while the cell phone
has a useful life of 4 years. The depreciation is to be equally distributed each year. Calculate
the depreciation expense for the first year.
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AP-20 ( 7 )
The market value of some of Jessicas personal assets on January 1, 2010 are listed below:
Automobile
Computer

$11,000
$1,200

The automobile and computer were newly purchased on January 1, 2010. The automobile
has a useful life of 10 years and the computer has a useful life of 3 years. Calculate the annual
depreciation and the value of the automobile and computer on the balance sheet at year-end.
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Chapter 1

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AP-21 ( 8 )
John Hollister collected the following amounts in cash for the month of February 2011:
Salary paid by employer

$2,400

Winnings at the casino

$270

Gifts

$220

Performance bonus paid by employer

$450

Required: Calculate Johns total revenue and total capital items for February 2011.
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
AP-22 ( 8 )
Joana Harwin collected the following amounts in cash for the month of March 2011:
Interest earned on savings account
Full-time employment income

$75
$1,200

Income from part-time babysitting job

$220

Rental income

$525

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Chapter 1

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Required: Calculate Joanas total revenue and total capital items for March 2011.
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
AP-23 ( 9 )
Yelena Rollins incurred the following transactions related to cash for the month of May 2011:

Invested in property
Borrowed a bank loan
Paid back a portion of a student loan
Paid telephone bill
Earned a salary from a part-time job

Of the three sources and uses of cash, how many ways did Yelena increase or decrease cash
for May? Classify each of the above transactions according to the three sources and uses of
cash.
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Case Study
CS 1 ( 1 , 2 , 3 , 4 )
After taking the first part of this financial accounting course, you excitedly tell a friend of
yours what you have learned. You tell him about assets, liabilities and net worth and how
they increase and decrease in value with every financial transaction. Your friend decides to
start getting organized and apply accounting principles to his personal finance. He compiles
everything that he thinks is important and calculates his net worth. He then asks you to look
over what he had done to make sure it is correct. His list of important financial items is listed
below, along with his version of the T-Account records.
1

He had $950 in his bank account at the beginning of the month.

2
3

He had a $1,200 balance on his credit card at the beginning of the month.
He estimates that he had about $3,000 worth of stuff in his apartment at
the beginning of the month (TV, sound system, computer and furniture).
Deposited his salary of $1,500.
Paid in advance for three months of rent with $1,350 cash.
Paid $600 to pay off a portion of the credit card bill.
Purchased a new video game system for $350 with his credit card.
Bought $120 worth of food with cash.
Got hired at a second job. He will start next month and will earn $800 per
month.
Spent $250 cash on movies, stage plays and Dave and Busters.
Lived in his apartment for one of the three months he already paid for
(see #5)

4
5
6
7
8
9
10
11

Cash

$950

$1,350

$1,500

Total

$130

Unpaid Accounts
6

$600

$1,200

$600

$350

$120

10

$250

Total
-

Net Worth

$950
+

$1,350

$3,000

$120

$1,500

10

$250

$350

$800

Total

$3,930

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Chapter 1

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Required:
1. What are some immediate problems that you see with what your friend has prepared?
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______________________________________________________________________________
2 . With all the problems you see, your friend asks you to show him what the correct
records should look like. Use the provided templates located at the end of this
problem to record the transactions.
______________________________________________________________________________
After showing your friend the corrected version, he starts asking you a number of questions.
3. Why did you use all of these accounts when I only used three (Cash, Unpaid Accounts
and Net Worth)?
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
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4. Why is the $3,000 worth of stuff not considered net worth?
______________________________________________________________________________
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5. I was having trouble figuring out how to record my second job which I start next
month. They are going to be paying me $800 a month! I figured it will increase my net
worth, but I didnt know where else to put it. I knew it couldnt be cash, because they
havent paid me yet. What did you do with it and why?
______________________________________________________________________________
______________________________________________________________________________
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6. What did you do with my rent? Shouldnt the entire $1,350 decrease my net worth?
And what would happen if I did it my way?
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7. I forgot to tell you that the $600 credit card payment included $30 of interest. I didnt
think it mattered since the total payment amount is the same. This wont change
anything, right?
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Chapter 1

Personal Accounting

8. You may have noticed that I am running low on cash. Any suggestions on how I can
legally raise more cash?
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9. This is very useful and I would like to do this more often. I think I can do it this
weekend, then two weeks from now once I finish with my exams, then probably not
for another month after that. Im going on a well-deserved vacation after my exams, so
I wont be around to look after it. Do you think this will work out well?
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Chapter 1

Personal Accounting

PERSONAL BALANCE SHEET

Assets
INCREASE (DR)

Liabilities
DECREASE (CR)

DECREASE (DR)

INCREASE (CR)

Opening:

Opening:

Ending

Ending

INCREASE (DR)

DECREASE (CR)

DECREASE (DR)

INCREASE (CR)

Opening:

Opening:

Ending

Ending

INCREASE (DR)

Opening:

DECREASE (CR)

NET WORTH
Opening Net Worth
Add: Capital
Add: Surplus (Deficit)
Equals Closing Net Worth

Ending

Total Assets
= Total Liabilities
+ Net Worth

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Chapter 1

Personal Accounting

PERSONAL INCOME STATEMENT

REVENUE

DECREASE (DR)

INCREASE (CR)

Minus
EXPENSES
INCREASE (DR)

DECREASE (CR)

INCREASE (DR)

DECREASE (CR)

INCREASE (DR)

DECREASE (CR)

INCREASE (DR)

DECREASE (CR)

INCREASE (DR)

DECREASE (CR)

INCREASE (DR)

DECREASE (CR)

Total Revenue
Total Expenses
Surplus (Deficit)

32