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Property and Financial Claims

Learn about assets, equities, and liabilities in business finance. Discover how property, financial claims, and credit affect your financial standing. Explore the concept of property and its relation to the accounting equation.

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Property and Financial Claims

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  1. Property and Financial Claims Chapter 3 Section 1

  2. Key Terms • Assets • Equities • Owner’s Equity • Liabilities • Accounting Equation • Property • Financial Claim • Credit • Creditor

  3. What is Property? • Property is anything of value that a person or business owns and therefore controls. • Examples…

  4. Financial Claim • Financial Claim is the legal right to an item. • When you purchase an something you gain legal right to that item. • In Accounting, Financial Claim is measured in dollar amounts.

  5. Financial Claim Cont.. • If you purchase an iPad for $500, your financial claim over the iPod is $500. Property (Cost) = Financial Claim iPod = Your Claim to the iPod $500 = $500

  6. Purchasing on Credit • When you buy an item and agree to pay for it later is purchasing on Credit. • The business or person selling you the item on credit is called a creditor. - A Creditor is any person or business to which you owe money.

  7. How Credit Affects Financial Claims • If you purchase a car for $25,000 by making a down payment of $3,000 while financing the remaining $22,000 (using a bank loan) the Financial Claim to the car is shared by you and the bank.

  8. Credit and Financial Claims Cont… Property (Cost) = Financial Claim Car = Claim is shared by you and the bank $25,000 = $3,000 (you) + $22,000 (bank)

  9. Financial Claims in Accounting Assets - property or items of value owned by a business • Cash • Office equipment • Manufacturing equipment • Buildings • Land

  10. Financial Claims in Accounting Cont… Equities - The Accounting term for Financial Claims to an Asset

  11. Financial Claims Cont… A small company named Roadrunner Delivery Service purchases a Delivery Truck for $10,000. Roadrunner makes a down payment of $3,000. A bank loans the remaining $7,000 to RDS. Both RDS and the bank have a financial claim to the truck.

  12. Financial Claims in Business Purchases Property = Creditor’s Financial Claim + Owner’s Financial Claim Truck ($10,000) = Bank ($7,000) + RDS ($3,000)

  13. Repayment of Loan • As RDS repays the loan, the Bank’s financial claim over the Truck will decrease as RDS’ financial claim will increase. • When the loan is completely repaid, the creditor’s financial claim will be canceled.

  14. Two Types of Equities • Owner’s Equity - Owner’s Financial Claim over an asset. • Liabilities - Creditor’s Claim over an asset. - These are debts a company owes to another organization.

  15. The Accounting Equation Property = Creditor’s Financial Claim + Owner’s Financial Claim Assets = Liabilities + Owner’s Equity

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