MBA Math Monday Journal and T-Accounts

The MBA Math Mondayseries helps prospective MBA students to self assess their proficiency with the quantitative building blocks of the MBA first year curriculum. The first MBA Math accounting exercise explained that balance sheetsprovide a snapshot of a firms financial condition at a moment in time, with balance referring to the equality between the left sides assets and the right sides combination of liabilities and equity. The second accounting exercise introduced transactions as the means by which the balance sheet changes over time. As long as the balance sheet equation (assets = liabilities + equity) is maintained for each transaction then the new balance sheet that results from a large sequence of transactions will remain in balance. This exercise introduces journals and t-accounts as recording systems to handle the volume of transactions that companies generate. Modern accounting recording systems are automated, of course, but putting pencil to paper with journals and t-accounts helps beginning studentsto internalize the logic of accounting. Spending time in the accounting trenches working with transactions is critical to developing an informed understanding of the financial statements that MBAs will analyze in their classes and careers. Exercise: Ruston CompanyBalance SheetAs of January 4, 2009(amounts in thousands) Cash 9,300 Accounts Payable 2,500 Accounts Receivable 5,000 Debt 2,300 Inventory 5,500 Other Liabilities 6,500 Property Plant Equipment 15,900 Total Liabilities 11,300 Other Assets 1,400 Paid-In Capital 5,700 Retained Earnings 20,100 Total Equity 25,800 Total Assets 37,100 Total Liabilities Equity 37,100 Transfer the journal entries to T-accounts for the transactions below, compute closing amounts for the T-accounts, and construct a final balance sheet to answer the question. Journal amounts in thousands Date Account and Explanation Debit Credit Jan 4 Accounts Payable 8 Cash 8 Paid money owed to supplier Jan 5 Property, Plant Equipment 49 Cash 49 Paid cash for machine Jan 6 Cash 70 Paid-In Capital 70 Issued stock Jan 7 Cash 20 Inventory 16 Retained Earnings 4 Sold and delivered product to customer Jan 8 Cash 51 Debt 51 Borrowed money from bank Jan 9 Inventory 14 Accounts Payable 14 Bought manufacturing supplies on credit Jan 10 Cash 10 Accounts Receivable 10 Received customer payment What is the final amount in Total Assets? Solution (with audio commentary): click here Prof. Peter Regan created the self-paced, online MBA Math quantitative skills course and teaches live MBA courses at Dartmouth (Tuck), Duke (Fuqua), and Cornell (Johnson).