Date post: | 22-Dec-2015 |
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Assets on the Balance Sheet
• Current Assets are “used up”, “expended” or converted into cash within 12 months
• Some expenses are Prepaid in advance. These become an ASSET
Assets on the Balance Sheet
• Non-current Assets are “used up” or “expended” in a period longer than 12 months
• Non-current Assets do not have a category title, they are just listed after Current Assets
Liabilities on the Balance Sheet
• Current Liabilities are “discharged” or “paid off” within 12 months.
Owners’ Equity on the Balance Sheet
• Owners’ Equity is the difference between Assets and Liabilities.– The value remaining in the company for the owners.– Not a pool of cash– Revenues increase Owners’ Equity; Expenses decrease it.
• Invested Capital = Voluntary investment of funds• Retained Earnings = residual value from profit-seeking activities• Retained Earnings help the business to grow
Double-entry Bookkeeping
• Newton’ Third Law of MotionFor every action there is an equal and opposite
reaction
• Accounting rulesFor every Debit there is an equal and opposite
Credit recorded in the accounting records
Double-entry Bookkeeping
• Double-entry bookkeeping is the accepted accounting mechanism for recording and classifying the monetary events of a business entity
• The T-account format:
• For every monetary event there is at least one entry on the debit side of at least one account and the credit side of another account.
Title and Account #
+ Debit side + Credit side
Double-entry Bookkeeping
A = L + OE
Asset
+ - =Liabilities
- +
Owners’ Equity
- ++
Account Type + Debit Effect + Credit Effect
Assets Increase Decrease
Liabilities Decrease Increase
Owners’ Equity Decrease Increase