accounting categories accounting is organized into categories – the 5 categories we will use this...
TRANSCRIPT
Chapter 2Determine How Transactions
Change the Accounting Equation
Accounting Categories
• Accounting is organized into Categories – The 5 categories we will use this semester are:1. Assets—what the company owns2. Liabilities—what the company owes3. Owner’s Equity —the owner’s financial right to
the company4. Revenue—money coming in from the operation of
the business5. Expenses—money paid out from the operation of
the business
Accounts
• Each category contains accounts which are individual records of a single item.– Categories and accounts used in Chapter 2 & 3:1. Assets—Cash, Prepaid Insurance, Supplies2. Liabilities—Biggler Company, Accounts Payable3. Owner’s Equity —John Smith, Capital (Investment) John
Smith, Drawing (Withdrawals)4. Revenue—Sales, Fees5. Expenses—Advertising Expense, Miscellaneous Expense,
Rent Expense, Repair Expense, Utilities Expense
The Accounting Equation
• The relationship between Assest, Liabilities, and Owner’s Equity is written as an equation– Serves as the basis for all accounting organization• Is the root of all concepts we will learn
TOTAL ASSETS = TOTAL LIABILITIES + TOTAL OWNER’S EQUITYOr more simply put: A=L+OE
Transactions
• A business activity that changes the amounts in the accounting equation A=L+OE
• Transactions are stated in numbers that have a common value (Concept: Unit of Measurement).– In the United States, business transactions are
recorded in dollars $ and cents
How Transactions Change The Accounting Equation
ASSETS =A change to one Assets =
+ Increase Cash
- Decrease Cash
A change to two Assets =+ Increase Supplies- Decrease Cash
Liabilities + Owner’s EquityA change to either a Liability or to Owner’s Equity
+ Increase Capital
- Decrease Accts. Pay. (Liability)
No change
Transactions Sample: Received cash from the owner as an investment $10,000
ASSETS =
+ Cash $10,000
Liabilities + Owner’s Equity
+ Capital $10,000
Transactions Sample: Paid cash for supplies $200
ASSETS =
- Cash $200+ Supplies $200
Liabilities + Owner’s Equity
Transactions Sample: Paid cash for insurance $500
ASSETS =
- Cash $500+ Prepaid Insurance $500
Liabilities + Owner’s Equity
Transactions Sample: Bought supplies on account from Biggler Company $300
ASSETS =
+Supplies $300
Liabilities + Owner’s Equity
+ Biggler Co. $300
Transactions Sample: Paid cash on account to Biggler Co. for amount owed $100
ASSETS =
- Cash $100
Liabilities + Owner’s Equity
- Biggler Co. $100
Balance Sheet
• A financial statement prepared on a specific date used to report details about a company’s Assets, Liabilities, and Owner’s Equity
Smith Delevery Service
Balance Sheet
September 5, 2012
Assets Liabilities
Cash 5 0 0 0
Biggler Supply 1 0 0 0
Prepaid Insurance 1 6 0 0 Owner's Equity
Supplies 1 4 0 0 John Smith, Capital 7 0 0 0
Total Assets 8 0 0 0 Total Liab. + Ow. Eq. 8 0 0 0