1 / 12

Chapter 2

Chapter 2. Determine How Transactions Change the Accounting Equation. Accounting Categories. Accounting is organized into Categories The 5 categories we will use this semester are: Assets —what the company owns Liabilities —what the company owes

courtney-fischer
Download Presentation

Chapter 2

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter 2 Determine How Transactions Change the Accounting Equation

  2. Accounting Categories • Accounting is organized into Categories • The 5 categories we will use this semester are: • Assets—what the company owns • Liabilities—what the company owes • Owner’s Equity —the owner’s financial right to the company • Revenue—money coming in from the operation of the business • Expenses—money paid out from the operation of the business

  3. Accounts • Each category contains accounts which are individual records of a single item. • Categories and accounts used in Chapter 2 & 3: • Assets—Cash, Prepaid Insurance, Supplies • Liabilities—Biggler Company, Accounts Payable • Owner’s Equity —John Smith, Capital (Investment) John Smith, Drawing (Withdrawals) • Revenue—Sales, Fees • Expenses—Advertising Expense, Miscellaneous Expense, Rent Expense, Repair Expense, Utilities Expense

  4. 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 EQUITY Or more simply put: A=L+OE

  5. 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

  6. How Transactions Change The Accounting Equation ASSETS = Liabilities + Owner’s Equity A change to either a Liability or to Owner’s Equity Increase Capital Decrease Accts. Pay. (Liability) No change A change to one Assets = • Increase Cash • Decrease Cash A change to two Assets = • Increase Supplies • Decrease Cash

  7. Transactions Sample: Received cash from the owner as an investment $10,000 ASSETS = Liabilities + Owner’s Equity + Capital $10,000 + Cash $10,000

  8. Transactions Sample: Paid cash for supplies $200 ASSETS = Liabilities + Owner’s Equity • Cash $200 + Supplies $200

  9. Transactions Sample: Paid cash for insurance $500 ASSETS = Liabilities + Owner’s Equity • Cash $500 + Prepaid Insurance $500

  10. Transactions Sample: Bought supplies on account from Biggler Company $300 ASSETS = Liabilities + Owner’s Equity + Biggler Co. $300 +Supplies $300

  11. Transactions Sample: Paid cash on account to Biggler Co. for amount owed $100 ASSETS = Liabilities + Owner’s Equity - Biggler Co. $100 - Cash $100

  12. Balance Sheet • A financial statement prepared on a specific date used to report details about a company’s Assets, Liabilities, and Owner’s Equity

More Related