Accounting

Accounting

1. Owner’s equity

   • Represents the owner’s residual interests in the assets of the business. Claimed by the owners

2. Analyzing transactions

   • Every transaction must keep the accounting equation in balance.

3. The entity assumption

   • Dictates that business records must be kept separate and distinct from the personal records of the owners. If a person owns more than one business, it can break down.

4. A transaction may do one of several things

   • Cause both increase or a decrease liabilities and assets. Everything should be balanced!

5. Revenues and expenses

   • Expense decreases owner’s equity
   • Revenues increase owners equity

6. Interest

   • Rental charge for the use of money. Annual interest= annual period The common denominator is 360 to ease computations and because it results in more interest for financial institutions.

7. Rent

   • If a business prepays $6,000 for five months’ worth of rent, and if two months have gone by, then the business has incurred $2,400 of expense -$1,200 per month for two months.

8. Depreciation

   • Shows that an asset such as equipment or a building is wearing out and being used up. Divide the estimated useful life of the asset between the historical cost of the asset.

9. Unearned Revenue

   • A company may have earned revenue as time has elapsed because it has provided the service to the customer.

10. Sales of inventory

    • Contains components of both revenues and expenses

11. Liabilities

    • Present obligations of the firm

12. Assets

    • property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.

13. Balance Sheet

    • shows a firm’s assets, liabilities and owner's equity. It most start in the first or last day of a month.

14. Withdrawal by owner

    • Take away money from your account for an investment.

15. Statement of owner's equity

    • Summarizes the owners equity for a period of time.

16. Income statement

    • Summarizes a firm's revenues and expenses for a period of time. If expenses exceed revenues=net loss If revenues exceed expenses=net income

17. Forms of Business Organization

    • Sole proprietorship- owned and usually operated by one individual Partnerships- 2 or 3 persons to make profit in business Corporations- many partners (12 people, for ex.)

18. Adjustments to accounts

    • Several adjustments need to be made to the accounting records This is to reach balance

19. Historical cost

    • is a measure of value used in accounting in which the price of an asset on the balance sheet is based on its nominal or original cost when acquired by the company.

20. Transaction analysis

    • Owner’s original investment: assets for opening a business( without liabilities) Inventory: All the sold products kept in record

21. Basic Accounting equation

    • Assets=liabilities+owner’s equity