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Double entry system，which is a second rule in accounting，means that in recording a transaction at least two changes must be made in the assets，liabilities，or owners'equity.For instance，if the owner invested$15，000 into the business，assets(cash)would be increased by$15，000 and owners'equity(paid-in capital) would be increased by$15，000.

The rule about a double entry does not mean that a transaction will always affect both sides of the equation—and even two components of the equation.A transaction may affect only the left side by increasing one asset and decreasing another asset，for example，acquiring inventory for cash.A transaction could also affect only the right side.The rule doesn't specify in which direction a change is made.The left and right side totals may increase，decrease or even remain the same.It is essential，however，that the accounting equation as a whole remains in balance after the transaction.

In detail，the effect of business transactions upon the accounting equation is shown as follows:

(1)Increase one asset and increase one equity;

(2)Decrease one asset and decrease one equity;

(3)Increase one asset and decrease another asset;

(4)Increase one equity and decrease another equity.

Let's take a look at some transactions on GRF Company to see how typical transactions affect the balance sheet equation.

Assume that GRF company was founded on January 1，2008.It owned assets (cash)of$500，000，owed creditors(note payable)$200，000，and owed the owners(paid-in capital)$300，000 on that day.The accounting equation would be:

Assets=Liabilities+Owners'Equity

$500，000=$200，000+$300，000

The transactions of January of GRF Company's are shown as follows:

(1)Jan.3，loan from bank，signing a note payable for$12，000.

(2)Jan.5，issued 1，000 shares of common stock to employees for cash，$20 per share.

(3)Jan.18，purchased equipment for cash，$1，250.

(4)Jan.19，purchased inventories on account，$400.

(5)Jan.28，disbursed cash on account，$300.

The accounting equation after each transaction is analyzed in the following.

From the above table，we can see there are at least two accounts affected by each transaction.But the total assets always equal the total liabilities plus total owners' equity.That is to say，the equating must always be in balance.For example of transaction 1，the loan increased the Asset，Cash，and increased the Liability，Note Payable，by the same amount，$12，000.After the transaction is completed，GRF Company has assets of$512，000($500，000+$12，000)，liabilities of $212，000($200，000+$12，000)，and owners'equity of$300，000.The sums of each side of the equation are equal.

1.The relationship between the accounting elements can be expressed in a simple mathematical form known as the accounting equation.会计要素之间的相互关系可以用一种简单的数学公式来表示，即会计等式。该句为简单句。known as the accounting equation是过去分词短语作定语，修饰前面的a simple mathematical form。

2.Revenues increase retained earnings are the assets earned from a company's earning activities.收入增加的留存收益是从公司的营利活动中所赚取的资产。该句为简单句。主语为revenues，谓语动词是increase和系动词are，retrained是过去分词作定语，修饰earnings。

3.The former is a blanket classification of the specific content of accounting elements providing summarized information of accounts，such as“accounts receivable”，“raw materials”and other subjects，the latter is further classified on the general classification of subjects，to provide more detailed and more specific accounting information.前者是对会计要素的具体内容进行总括分类，提供总括信息的会计科目，如“应收账款”、“原材料”等科目，后者是对总分类科目作进一步分类，提供更详细、更具体的会计信息科目。该句是由逗号连接的两个简单句而形成的并列句。The former引导一个简单句;the latter引导另一个简单句。在第一个简单句中，providing为现在分词短语作目的状语;在第二个简单句中，to provide是不定式短语作目的状语。

1.Explain the following terms in English.

2.Test your ability to assign specific assets to various categories.

Here are 24 specific assets:traveler's checks，tables，truck，typewriter，adding machine，computers，lamp，pencils，typing paper，chairs，stationery，wrapping paper，automobiles，coins，money in bank，desk blotters，light bulbs，desk，correction fluid，currency，showcases，typewriter ribbon，facsimile，and computer disks.

Place each of these assets under the appropriate specific asset category heading in the following form:

Cash Furniture and Fixtures Delivery Equipment Office Equipment Office Supplies

3.Using the following columnar headings—Transaction，Asset，Liabilities，and Capital—show a+(plus)for an increase or a－(minus)for a decrease resulting from each of the following business transactions.Remember that each transaction must involve at least two changes.The changes must cause the accounting equation to remain in balance.The proprietor:

(a)Purchased equipment，paying cash.

(b)Paid the monthly rent expense.

(c)Bought supplies on credit.

(d)Made an additional investment in the company.

(e)Charged customers for services provided on account.

(f)Paid creditor on account.

(g)Received payment from customers on account.

(h)Received cash for services provided this day.

(i)Permanently reduced his investment in the business by taking out cash.

(j)Paid salaries for the week.

(k)Purchased equipment，paying half cash with the balance due in 30.

4.Label the following accounts as Asset(A)，Liability(L)，Owner's Equity (OE)，Revenue(R)，or Expense(E).

5.Prepare the form as the example.

Account　Type of Account　Increase　Decrease　Normal Balance

(a)land　　　　A　　　　　　Dr.　　Cr.　　　　Dr.

(c)accounts receivable

(k)utilities expense

6.For each of the following，which choice—(A)，(B)，(C)or(D)—Should be inserted in the blank to make a correct statement?

(1)Which of the following is an example of an asset account?_______.

A.Service revenue　B.Withdrawals

C.Supplies　D.All of the above

(2)ABC company paid$2，850 on account.The effect of this transaction on the accounting equation is to_______.

A.decrease assets and decrease owner's equity

B.increase liabilities and decrease owner's equity

C.have no effect on total assets

D.decrease assets and decrease liabilities

(3)Which of these statements is False?_______.

A.Increase in assets and increase in revenues are recorded with a debit

B.Increase in liabilities and increase in owner's equity are recorded with a credit

C.Increase in both assets and withdrawals are recorded with a debit

D.Decreases in liabilities and increase in expenses are recorded with a debit

(4)Notes Payable have a normal beginning balance of$30，000.During the period，new borrowings total$63，000 and the ending balance in Notes Payable is $41，000.Determine the payments on loans during the period._______.

A.$74，000　B.$52，000　C.$134，000

D.Cannot be determined from the information given

(5)Which of the following accounts has a normal debit balance?_______.

A.Rent Expense　B.Withdrawals

C.Service Revenue　D.Both A and B have a normal debit balance

7.Translate the following terms into Chinese.

(3)accounting equation

(5)accounts receivable

(6)business transaction

(10)notes receivable

1.Using the following chart，show the effects on the ASSETS= CAPITAL equation caused by the following business transactions.After you have recorded the transactions on the chart，add the individual columns and verify that the equation is still in balance.［Remember that assets are set up in various categories depending on the nature of the asset.Transactions(d)and(e)should not affect capital;they represent an exchange of assets.］

(a)The proprietor invested$10，000 cash in the business.

(b)The proprietor invested in a computer valued at$650.

(c)The proprietor took$200 out of the business as a permanent reduction in investment.

(d)The proprietor purchased fifty floppy disks for the business，paying for the disks with$75 in cash from the business.

(e)The proprietor purchased an Ink Jet printer for$175，paying cash from the business.

2.Mr.Jones，the owner of a limousine business，purchases an automobile from the Friendly New Car Dealership，the purchase price of the automobile is$15，400.There are make-ready charges of$250，delivery charges of$175，and applicable local sales taxes(8.25%)amounting to$1，306.

(a)Determine the cost at which the new automobile should be recorded on the books of Mr.Jones's business.

(b)If，upon leaving the dealership，Mr.Jones was offered$17，500 for the automobile，at which price should the new automobile be recorded on his records?

(c)Does Mr.Jones own the asset“automobile”?

3.Mr.Glenn is negotiating to buy a parcel of property for his business.The seller is asking$170，000 for the property.The assessed value of the property for tax purposes is$125，000.The property is presently insured by the owner for$ 135，000.Mr.Glenn originally offered the seller$130，000 for the property.Later，Mr.Glenn and the seller agreed on a purchase price of$150，000.Shortly after the purchase is made by Mr.Glenn，he is offered$175，000 for the same property.At which price would Mr.Glenn record on the property on the books of his business?