| Course | GB518 Financial Accounting Principles and Analysis |
|---|---|
| Unit | Unit 1 |
| Paper type | Accounting equation exercise |
| Length | About 840 words, 6 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MBA |
| Updated | October 2026 |
Free sample paper for GB518 Unit 1
Ten Transactions in a Consultancy's First Month: A Unit 1 Accounting Equation Exercise Read Like a Banker
[Student Name]
Purdue University Global
GB518: Financial Accounting Principles and Analysis
Unit 1 Accounting Equation Exercise
[Instructor Name]
[Date]
The consultancy, its partners and every figure are composite and illustrative; the sources cited are real.
The Firm
Northgate Network Partners was formed by two network engineers to audit and secure small businesses' computer networks. In its first month it bought equipment, borrowed from a bank, prepaid its office rent and completed its first client engagement.
The Transaction Grid
The grid tracks eight accounts: cash, accounts receivable, equipment and prepaid rent on the asset side; accounts payable and a bank loan as liabilities; partner capital and retained earnings as equity. After each transaction, total assets equal total liabilities plus equity, which the check column confirms. Robert Libby, Patricia Libby and Frank Hodge present this grid as the most direct way to see that every transaction keeps the equation in balance (Libby et al., 2023).
Transaction 1. Partners contribute $60,000 in cash. Cash rises $60,000; partner capital rises $60,000. Assets $60,000; liabilities plus equity $60,000.
Transaction 2. Laptops and network test gear bought on account, $14,500. Equipment rises $14,500; accounts payable rises $14,500. Assets $74,500; liabilities plus equity $74,500.
Transaction 3. Small business loan received, $25,000. Cash rises $25,000; bank loan rises $25,000. Totals $99,500 on each side.
Transaction 4. Rent paid three months ahead, $7,200. Cash falls $7,200; prepaid rent rises $7,200. Totals unchanged at $99,500.
Transaction 5. Network audit billed to a client, $18,400. Accounts receivable rises $18,400; retained earnings rises $18,400 as revenue. Totals $117,900.
Transaction 6. Software subscriptions paid, $1,350. Cash falls $1,350; retained earnings falls $1,350 as an expense. Totals $116,550.
Transaction 7. Part of the equipment bill paid, $9,000. Cash falls $9,000; accounts payable falls $9,000. Totals $107,550.
Transaction 8. Client pays half of the audit invoice, $9,200. Cash rises $9,200; accounts receivable falls $9,200. Totals unchanged at $107,550.
Transaction 9. One month of rent used, $2,400. Prepaid rent falls $2,400; retained earnings falls $2,400 as rent expense. Totals $105,150.
Transaction 10. Partner draw, $4,000. Cash falls $4,000; retained earnings falls $4,000. Totals $101,150.
Every row moves at least two accounts by the same amount, so the equation never breaks, and the check column proves it after each transaction.
The Balance Sheet at Month End
Assets. Cash $72,650; accounts receivable $9,200; equipment $14,500; prepaid rent $4,800. Total assets $101,150.
Liabilities. Accounts payable $5,500; bank loan $25,000. Total liabilities $30,500.
Equity. Partner capital $60,000; retained earnings $10,650. Total equity $70,650.
Total liabilities and equity: $101,150.
The Income Statement for the Month
Revenue from the network audit was $18,400. Expenses were software subscriptions of $1,350 and rent of $2,400, for total expenses of $3,750. Net income was $14,650. The partner draw of $4,000 is not an expense; it reduces retained earnings directly, which is why retained earnings ends at $10,650 rather than $14,650 (Kieso et al., 2022).
How a Banker Would Read the Month
K. R. Subramanyam describes a lender's analysis as starting with liquidity and solvency, how easily the firm can meet its obligations, before turning to profitability (Subramanyam, 2014). The reading below follows that order.
Solvency. The firm is comfortably solvent. Cash of $72,650 alone covers all liabilities of $30,500 more than twice over, and current assets, cash plus receivables plus prepaid rent, total $86,650.
Borrowing. About 30 percent of the firm's assets, $30,500 of $101,150, are financed by others, mostly the bank loan. The rest comes from the partners. That is a moderate level for a new firm and leaves room to borrow later.
Earnings. One month of $14,650 net income looks strong, but it rests on a single engagement. A banker would want to know how many clients are in the pipeline, since one audit is not a business.
What the Month Says About Cash
Cash rose from zero to $72,650, but most of that came from the partners and the bank, not from operations. Of the $94,200 that came into the business during the month, $85,000 was capital and borrowing, and only $9,200 came from a client. On the way out, $17,550 went to rent, software and the equipment bill, and $4,000 to a partner. The firm is well funded for now, but its cash position reflects how it was financed more than how it performs.
What the Income Figure Leaves Out
The $14,650 is incomplete in three ways. It records no depreciation on the $14,500 of equipment, which will wear out over a few years. It records no interest on the bank loan, which accrues each month whether or not it has been paid. And it pays nothing to the partners for their own time, since partner draws are not expenses. Once depreciation and interest are recorded, and if the partners' time were valued at a market salary, the month's true earnings would be much smaller. A banker reading this statement would treat it as the start of a record, not proof of profitability.
References
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2022). Intermediate accounting (18th ed.). Wiley.
Libby, R., Libby, P. A., & Hodge, F. (2023). Financial accounting (11th ed.). McGraw Hill.
Subramanyam, K. R. (2014). Financial statement analysis (11th ed.). McGraw-Hill Education.
GB518 Unit 1 instructions, in plain terms
The first GB518 exercise asks you to track a set of transactions through the accounting equation and interpret the result. Build a grid with a column for each account and a row for each transaction, showing each transaction's effect on assets, liabilities and equity, with a check that both sides stay equal after every row. From the totals, prepare a simple balance sheet and an income statement for the period, noting that owner draws reduce equity without being expenses. Then interpret the period as a lender would: is the business solvent, how much of its assets are financed by others, where did the cash come from and what does the income figure omit? Expect about three pages with the grid as an exhibit, citing accounting texts in APA 7.
Inside the GB518 Unit 1 example
The exercise introduces Northgate Network Partners and its eight accounts, citing Libby, Libby and Hodge on the transaction grid. Ten transactions follow, from $60,000 of partner capital and $14,500 of equipment on account to a $25,000 loan, $7,200 of prepaid rent, an $18,400 audit billed, subscriptions, payments, a collection, a month's rent used and a $4,000 draw, with totals after each; the highlighted sentence explains the check column. The balance sheet shows $101,150 of assets, $30,500 of liabilities and $70,650 of equity, and the income statement $14,650 of net income, with Kieso, Weygandt and Warfield on draws. Following Subramanyam's lender sequence, the reading covers solvency, about 30 percent borrowed financing, earnings resting on one engagement and cash drawn mostly from capital and the loan. Missing depreciation, interest and partner pay close it.
GB518 Unit 1 rubric: what earns full points
GB518 instructors look for a grid that stays in balance and an interpretation a manager could use. Each transaction should affect at least two accounts by equal amounts, with totals checked after every row. Statements drawn correctly from the grid's totals, with draws treated as distributions rather than expenses, show understanding. The interpretation carries significant weight: solvency, the share of assets financed by others and the source of cash should be read from the figures. Noting what the income figure omits, such as depreciation and interest, shows judgment about accrual accounting. The exercise is supported in APA 7 by the Libby text on the equation grid, the Kieso intermediate text on draws and Subramanyam on how lenders read statements.
Common GB518 Unit 1 mistakes, and how to avoid them
Many GB518 Unit 1 exercises balance every row and stop, without saying what the month means. Others record a partner draw as an expense, which understates income. A common gap is the source of cash: a new firm's cash often comes mostly from owners and lenders, and reading it as operating success misleads. Some writers skip the check column, so an error goes unnoticed. Track every transaction across the accounts, check the equation after each row, build the statements from the totals, treat draws correctly, and read solvency, financing, cash sources and missing costs as a lender would.
Get a GB518 Unit 1 example written to your instructions
Send the transactions your GB518 section provides for Unit 1, together with the prompt and rubric, and the grid, the statements and the closing reading are written to that set. The first custom sample is free of charge and arrives within 24 to 48 hours; any business your prompt describes replaces the consultancy used here. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
More GB518 papers and MBA samples
- GB518 Unit 2: Journal Entry Set
- GB518 Unit 3: Adjusting Entries Problem
- GB518 Unit 4: Inventory Costing Problem
- GB518 Unit 5: Internal Controls and Cash Case
- GB518 Unit 6: Depreciation Methods Exercise
- GB518 Unit 7: Debt Versus Equity Analysis
- GB518 Unit 8: Cash Flow Statement Exercise
- GB518 Unit 9: Ratio Analysis
- GB518 Unit 10: Company Financial Analysis
- GB513 Unit 1: Descriptive Statistics Exercise
- GB512 Unit 1: Diagnostic Business Message
- GB500 Unit 1: Professional Goals Statement
GB518 Unit 1 questions, answered
Why does a graduate course start with the accounting equation?
Because every statement the MBA will analyze later rests on it. GB518 uses the opening unit to make sure managers from non-finance backgrounds see how a single business event moves resources and claims at once. The exercise is short, but the reading habit it builds, asking who financed what, returns in the ratio and company analysis units.
Where do owner draws go in the equation?
They reduce equity directly, not through an expense. A draw is a distribution of the owner's own capital, so it lowers cash and equity without touching the income statement. Recording it as an expense understates profit and is one of the most common deductions in Unit 1. The consultancy grid shows the draw in its own equity column.
Does the exercise need a written part if the prompt only asks for the grid?
Check the rubric. In many GB518 sections even the opening exercise includes a short interpretation question, such as what the month's results say about the business. When no written part is required, a finished example still adds a brief note under the statements, since graduate instructors often reward that reading even when it is not demanded.
Where can I find a free GB518 Unit 1 sample paper?
This page carries a full GB518 Unit 1 accounting equation exercise for a new IT consultancy, with a ten-transaction grid, statements and a banker's reading, and APA 7 references.
Why is the $14,650 of net income incomplete?
It records no depreciation on the $14,500 of equipment, no interest accrued on the bank loan and no pay for the partners' own time, so the firm's true first-month earnings are smaller than the figure suggests.