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Business Entity
- An individual, Association, or organization that engages in economic activities and controls specific economic resources
- The business entity's fincances are kept separate from the owner's nonbusiness assets and liabilities. (Business Entity Concept)
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Assets
Items owned by a business that will provide future benefits. "Owned Not Rented"
Example:Cash,Merchandise,Supplies,Furniture, Fixtures,Machinery,Buildings, & Land.
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Accounts Receivable
- The amount of money owed to the business by its customers as a result of making sales "on account" or "on credit"
- Simply, customers who have promised to pay sometime in the future.
Money Someone Owes Us
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Liabilities
- A probable future outflow of assets as a result of a past transaction or event.
- Debts or obligations of the business that can be paid with cash, goods, or services.
Examples: Accounts Payable, Notes Payable,
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Accounts Payable
-An unwirtten promise to pay a supplier for assets purchased or services rendered
-Referred to as making a purchased "on account" or "on credit"
Money We Owe
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Notes Payable
Formal written promises to pay suppliers or lenders specified sums of money at definite future times.
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Owner's Equity
Amount by which the business assets exceed the business liabilities.
Also Called: Net Worth or Capital
- Example: If a business has a total assets of $100,000 & total liabilities of $60,000.
- What is the owner's equity?
- $100,000 - $60,000=$40,000
- Assets - Liabilites = Owner's Equity. Assets= Liabilities + Owner's Equity.
- Once the debts are paid, the remaing assets belong to the owner.
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