Acc 107

  1. The Accounting Equation
    [ Assets ] = [Liabilities + Owner's Equity]

    Left side shows the assets.

    • Right side shows where the money came from to buy the assets.
  2. Business Transaction
    - Economic event that has a direct impact on the business.

    - Usually requires an exchange with an outside entity.

    - We must be able to measure this exchange in dollars.

    - All business transactions affect the accounting equation through specific accounts.
  3. Account
    A separate record used to summarize changes in each asset, liability, and owner's equity of a business.
  4. Owner's Equity Transactions
    Four Types:

    Decrease: Increase:

    • Expenses Revenues
    • Drawing Investments
  5. Revenues
    - The amount a business charges customers for products sold or services performed.

    - Recognized when earned (even if cash has not been received yet)

    - Increases both assets (cash or accounts receivable) and owner's equity.

    • Examples:
    • Delivery Fees, Consulting Fees, Rent Revenue (if the business rents space to others), Interest Revenue (for interest earned on bank deposits), Sales (for sales of merchandise).
  6. Expenses
    - Represent the decrease in assets (or increase in liabilities) as a result of efforts made to produce revenues.

    - Separate accounts are maintained for each type of expense.

    - Either decrease assets or increase liabilities, but ALWAYS decrease owner's equity.

    • Examples:
    • Rent, Salaries, Supplies consumed, Taxes
  7. Net Income

    Example: Luke P performed $6,000 of tax services (revenue) this year and incurred expenses of $1,500 for rent, $500 for supplies, and $3,000 in salaries.

    Revenue - Expenses = Net Income

    $6,000 - $5,000 = $1,000

    $1,500 + $500 + $3,000 = $5,000
  8. Accounting Period Concept
    - The concept that income determination can be made on a periodic basis (month, quarter, year, etc.)

    - Any accounting period of 12 months is called a fiscal year
  9. Withdrawals
    - The owner taking [withdrawing] cash or other assets from the business for personal use

    - Reduces owner's equity assets

    - Also referred to as drawing
  10. Financial Statements
    Three commonly prepared financial statements:

    • 1. Income Statement
    • 2. Statement of owner's equity
    • 3. Balance Sheet
  11. Income Statement
    -Reports the prfitability of business operations for a specific period of time.

    -Expenses are subtracted from revenues to determine net income/ loss.

    -Also called the profit and loss statement or operating statement.

    Revenue - Expense = Net Income/Loss
  12. Financial Statement Headings
    • 1st Line: The name of the company
    • 2nd Line: The title of the statement
    • 3rd Line: The time period covered or the date of the statement

    • Example:
    • Jessie J Campus Delivery
    • Income Statement
    • For Month Ended June 30, 20--
  13. The Statement Of Owner's Equity
    - Reports the activities that affected owner's equity for a specific period of time

    - Uses Net Income from the oncome statement
  14. Balance Sheet
    -Confirms the accounting equation has remained in balance

    -Also referred to as a statement of financial position or statement of financial condition

    - Reports assets, liabilities, and owner's equity on a SPECIFIC DATE, not a period of time.
  15. Accounting Process

    Three Basic Phases
    • [Input] --> [Processing] --> [Output]
    • Transactions provide the neccesary input
    • Identify Accounts
    • Classify Accounts
    • Determine Wether Increase or Decrease
    • Enter transaction and verify balance

    • Income Statement
    • Revenues - Expenses = Net Income

    • Statement Of Owner's Equity
    • Beginning Capital + Investements + Net Income - Withdrawals = Ending Capital

    • Balance Sheet
    • Assets = Liabilities + Owners Equity
    • [Ending Captital]
Card Set
Acc 107