CHAPTER 1 Assets, Liability, Owner’s Equity, Revenue, and Expense Accounts Asset, Liability, Owner’s Equity, 1 Revenue, and Expense Accounts CHAPTER REVIEW 1. Define and identify asset, liability, and owner’s equity accounts. Assets are cash, properties, or things of values owned by the business. Liabilities are amounts the business owes to creditors. Owner’s equity is the owner’s investment or net worth. 2. Record a group of business transactions, in column form, involving changes in assets, liabilities, and owner’s equity. The accounting equation is stated as assets equals liabilities plus owner’s equity. Under the appropriate classification, a separate column is asset up for each ac- count. Transactions are recorded by listing amounts as either additions to or de- ductions from the various accounts. The equation must always remain in balance. 3. Define and identify revenue and expense accounts. Revenue consists of amounts earned by a business, such as fees earned for performing services, income from selling merchandise, rent income for the use of property, or inter- est earned for lending money. Expenses are the costs of earning revenue—that is, of do- ing business—such as wages expense, rent expense, interest expense, and advertising expense. 4. Record a group of business transactions, in column form, involving all five elements of the fun- damental accounting equation. The accounting equation has been expanded and appears as follows: Assets = Liabilities + Owner’s Equity (Capital) + Revenue – Expenses Accounts are classified and listed under each heading. Transactions are recorded by listing amounts as either addition to or deductions from the various accounts. The equation must always remain in balance. 1 Copyright © Houghton Mifflin Company. All rights reserved. .