Chapter One Notes

Page 1

Expenses

Costs

Always decreases owner's equity

Cash: Decrease assets

Credit: Increase Liabilities

Not Equipment!

Equipment can be converted to cash, expenses cannot.

A car is equipment, an asset (future value)

Buying gas for that car is an expense (consumable)

Revenues

Income, or making money

Increases equity

Increases assets

Net Income

Making more money than you are losing/spending

Revenues-Expenses=positive number

Revenues > Expenses

Net Loss

Revenues-Expenses=Net Income or loss

Losing or spending more money than you are making

Revenue-Expenses=negative number

Revenues< Expenses

Owner invests personal cash in the business

Assets: Increase

Liabilities: No effect

Owner's Equity: Increas

Owner withdraws assets for personal use

Assets: Decrease

Liabilities: No effect

Owner's Equity: Decrease

Company receives a bank loan

Assets: Increase

Liabilities: Increase

Owner's equity: No net effect

Company pays back a bank loan

Assets: Decrease

Liabilities: Decrease

Owner's equity: No net effe

Company purchases land by paying half in cash and signing a note payable for the remainder

Company

Assets:

Assets: Increase and decrease with net increase

Liabilities: Increase

Owner's equity: No net effect b/c net increase in assets=increase in liabilities

Revenues and Expenses

Net Income and Net Loss

Effects on the Accounting Equation