ASSETS LIABILITIES + EQUITY = BALANCE ACCOUNTING EQUATION TWO BASIC ELEMENTS OF A BUSINESS,WHAT IT OWNS AND WHAT IT OWES

ACCOUNTING EQUATION AN ALGEBRAIC EQUATION THAT EXPRESSES THE RELATIONSHIP BETWEEN ASSETS (RESOURCES),LIABILITIES (OBLIGATIONS ) AND OWNER’S EQUITY (NET ASSETS OR RESIDUAL INTEREST IN THE BUSINESS AFTER ALL LIABILITIES HAVE BEEN MET) ASSETS = LIABILITIES + OWNER’S EQUITY

ASSETS ECONOMIC RESOURCES THAT ARE OWNED OR CONTROLLED BY A COMPANY/BUSINESS AND RESPONSIBLE FOR FUTURE BENEFITS. OWNED OR CONTROLLED RESPONSIBLE FOR FUTURE BENEFITS GOODS OR SERVICES AVAILABLE TO INDIVIDUALS AND BUSINESSES USED TO PRODUCE VALUABLE CONSUMER PRODUCTS AND SERVICES ECONOMIC RESOURCES

ASSETS TYPES CURRENT NON CURRENT TANGIBLEINTANGIBLE

CURRENT ASSETS LIKELY TO CONVERT INTO CASH,CONSUMED OR SELL WITHIN ONE YEAR OR OPERATING CYCLE WHICHEVER IS HIGHER EXAMPLES CASH/MARKETABLE SECURITIES ACCOUNT RECEIVABLE /NOTES RECEIVABLE /ADVANCES INVENTORY PREPAIDS/SUPPLIES

CASH/MARKETABLE SECURITIES CURRENT ASSETS Most liquid asset. Standard medium of exchange Short-term, highly liquid investments Treasury bills, commercial Paper, market funds. CASH MARKETABLE SECURITIES

Claims held against customers and others for money, goods, or services. CURRENT ASSETS ACCOUNT RECEIVABLE /NOTES RECEIVABLE /ADVANCES ACCOUNT RECEIVABLE CUSTOMERS GOODS OR SERVICES SOLD ON CREDIT NOTES RECEIVABLE BORROWERS MONEY ON CREDIT ADVANCES

items held for sale, or goods to be used in the production of goods to be sold. CURRENT ASSETS INVENTORY

COST EXPIRE WITH THE PASSAGE OF TIME OR THROUGH USAGE CURRENT ASSETS PREPAIDS/SUPPLIES

ASSETS CURRENT ASSETS LIKELY TO CONVERT INTO CASH,CONSUMED OR SELL WITHIN ONE YEAR OR OPERATING CYCLE WHICHEVER IS HIGHER EXAMPLES CASH/MARKETABLE SECURITIES ACCOUNT RECEIVABLE /NOTES RECEIVABLE /ADVANCES INVENTORY PREPAIDS/SUPPLIES Most liquid asset. Standard medium of exchange Short-term, highly liquid investments Treasury bills, commercial Paper paper, market funds. Claims held against customers and others for money, goods, or services. items held for sale, or goods to be used in the production of goods to be sold. COST EXPIRE WITH THE PASSAGE OF TIME OR THROUGH USAGE

TANGIBLE/ FIXED ASSET/ PROPERTY PLANT AND EQUIPMENT INTANGIBLE NON CURRENT ASSETS

 ARE THOSE ASSETS ASSETS WHICH HAVE PHYSICAL EXISTENCE  NOT PURCHASED WITH AN INTENTION FOR RESALE  SUBJECT TO DEPRECIATION TANGIBLE ASSETS EXAMPLES : LAND, BUILDING, FURNITURE & FIXTURES, PLANT, MACHINERY, MOTOR VEHICLE

NON CURRENT ASSETS INTANGIBLE  ASSETS WHICH DO NOT HAVE PHYSICAL EXISTENCE  NOT PURCHASED WITH AN INTENTION FOR RESALE  SUBJECT TO AMORTIZATION EXAMPLES:PATENTS, COPY RIGHTS, ROYALITY, SOFTWARES,GOOD WILL, FRANCHISES

NON CURRENT ASSETS ASSETS ARE NOT EXPECTED TO BE CONVERTED TO CASH OR CONSUMED WITHIN ONE YEAR OR THE OPERATING CYCLE, WHICHEVER IS LONGER. TANGIBLE/ FIXED ASSET/ PROPERTY PLANT AND EQUIPMENT INTANGIBLE  ARE THOSE ASSETS ASSETS WHICH HAVE PHYSICAL EXISTENCE  NOT PURCHASED WITH AN INTENTION FOR RESALE  SUBJECT TO DEPRECIATION EXAMPLES : LAND, BUILDING, FURNITURE & FIXTURES, PLANT, MACHINERY, MOTOR VEHICLE  ASSETS WHICH DO NOT HAVE PHYSICAL EXISTENCE  NOT PURCHASED WITH AN INTENTION FOR RESALE  SUBJECT TO AMORTIZATION EXAMPLES:PATENTS, COPY RIGHTS, ROYALITY, SOFTWARES,GOOD WILL, FRANCHISES

LIABILITIES PROBABLE FUTURE SACRIFICES OF ECONOMIC BENEFITS ARISING FROM PRESENT OBLIGATIONS OF A PARTICULAR ENTITY TO TRANSFER ASSETS OR PROVIDE SERVICES TO OTHER ENTITIES IN THE FUTURE AS A RESULT OF PAST TRANSACTIONS OR EVENTS.” PAST EVENT PRESENT OBLIGATION TYPES CURRENT FUTURE SACRIFICE LONG TERM

CURRENT LIABILITIES ARE THOSE OBLIGATIONS WHICH NORMALLY MATURE/DUE/ PAID WITH IN ONE YEAR FROM EXISTING CURRENT ASSETS OR CREATION OF OTHER CURRENT LIABILITIES EXAMPLES ACCOUNT PAYABLE /NOTES PAYABLE /LOANS UNEARNED REVENUE Current Maturities of Long-Term Debt DIVIDEND /INTEREST/TAXES /PAYROLL

ACCOUNT PAYABLE /NOTES PAYABLE //LOANS CURRENT LIABILITIES ACCOUNT PAYABLE SUPPLIERS/ VENDORS GOODS OR SERVICES PURCHASED ON CREDIT NOTES PAYABLE LENDERS MONEY ON CREDIT LOANS

UNEARNED REVENUE CURRENT LIABILITIES Payment received from customers before delivering goods or rendering services

DIVIDEND /INTEREST/TAXES /PAYROLL ACCRUED LIABILITY CURRENT LIABILITIES BUSINESSEXPENES AND OTHER PAYABLES

CURRENT LIABILITIES ARE THOSE OBLIGATIONS WHICH NORMALLY MATURE/DUE/ PAID WITH IN ONE YEAR FROM EXISTING CURRENT ASSETS OR CREATION OF OTHER CURRENT LIABILITIES EXAMPLES ACCOUNT PAYABLE /NOTES PAYABLE /LOANS UNEARNED REVENUE Current Maturities of Long-Term Debt DIVIDEND /INTEREST/TAXES /PAYROLL Balances owed to others for goods, supplies, or services purchased on open account. Written promises to pay a certain sum of money on a specified future date. Payment received before delivering goods or rendering services Portion of long-term debt that comes due in the current year. BUSINESSEXPENES AND OTHER PAYABLES

LONG TERM LIABILITIES ARE THOSE OBLIGATIONS WHICH NORMALLY MATURE/DUE/ PAID AFTER ONE YEAR EXAMPLES BONDS PAYABLE /NOTES PAYABLE /LOANS LEASE LIABILITIES MORTGAGES CONTIGENT LIABILITIES/WARRANTY/ GUARANTEE

BONDS PAYABLE /NOTES PAYABLE /LOANS CONTRACTUAL AGREEMENT Purpose is to borrow when the amount of capital needed is too large for one lender to supply. LONG TERM LIABILITIES

LEASE LIABILITIES A lease is an agreement in which the lessor conveys the right to use property, plant, or equipment, for a stated period of time, to the lessee

LONG TERM LIABILITIES MORTGAGES secured bonds, secured against specific asset

CONTIGENT LIABILITIES/WARRANTY/ GUARANTEE LONG TERM LIABILITIES Promise made by a seller to a buyer to make good on a deficiency of quantity, quality, or performance in a product

LONG TERM LIABILITIES ARE THOSE OBLIGATIONS WHICH NORMALLY MATURE/DUE/ PAID AFTER ONE YEAR EXAMPLES BONDS PAYABLE /NOTES PAYABLE /LOANS LEASE LIABILITIES MORTGAGES CONTIGENT LIABILITIES/WARRANTY/ GUARANTEE CONTRACTUAL AGREEMENT Purpose is to borrow when the amount of capital needed is too large for one lender to supply. A lease is an agreement in which the lessor conveys the right to use property, plant, or equipment, for a stated period of time, to the lessee secured bonds, secured against specific asset Promise made by a seller to a buyer to make good on a deficiency of quantity, quality, or performance in a product

EQUITY OWNER’S CLAIM TO ASSET OF BUSINESS OWNER’S EQUITY ASSETS LIABILITIES MINUS = ACCOUNTING EQUATION

OWNER’S EQUITY SOURCES PROFITS/RETAINED EARNING (REVENUE MINUS EXPENSES) PROFITS/RETAINED EARNING (REVENUE MINUS EXPENSES) CAPITAL CONTRIBUTED EQUITY

REVENUE AND EXPENSES REVENUE ECONOMIC RESOURCES GENERATED BY A BUSINESS IN THE NORMAL COURSE OF BUSINESS FOR A PARTICULAR PERIOD OF TIME EXPENSES COST RESPONSIBLE FOR GENERATING REVENUE IN THE NORMAL COURSE OF BUSINESS FOR A PARTICULAR PERIOD OF TIME

ACCOUNITNG EQUATION SOME BASIC UNDERSTANDING EVENTS ASSETSLIABILITIESEQUITY = + OWNER BRINGS SOME ASSETS IN BUSINESS INCN.E INC(CAP) = + PURCHASE OF AN ASSET ON CREDIT INC N.E = + PURCHASE OF AN ASSET ON CASH DEC N.E = + PAYMENT OR RETIREMENT OF LIABILITY DECN.E = + INC DEC CONT

ACCOUNITNG EQUATION SOME BASIC UNDERSTANDING EVENTS ASSETS LIABILITIESEQUITY = + EXPENSES DUE AND PAID DEC N.EDEC(EXP) = + EXPENSES DUE BUT NOT PAID N.E DECDEC(EXP) = + PAYMENT OF EXPENSES IN ADVANCE N.E = + INC DEC CONT

ACCOUNITNG EQUATION SOME BASIC UNDERSTANDING EVENTS ASSETS LIABILITIESEQUITY = + REVENUE EARNED AND RECEIVED INC N.EINC(REV) = + REVENUE EARNED BUT NOT RECEIVED INC N.EINC(REV) = + REVENUE RECEIVED BUT NOT EARNED INCN.E = + INC

ACCOUNITNG EQUATION SOME BASIC UNDERSTANDING DOUBLE ENTRY SYSTEM DEBIT AND CREDIT DEBIT CREDIT THE EQUALITY OF DEBITS AND CREDITS PROVIDES THE BASIS OF DOUBLE ENTRY ACCOUNTING SYSTEM (ENSURES ACCURACY OF RECORDED AMOUNTS) ACCOUNTING IS A BUSINESS LANGUAGE, THERE IS A WAY TO WRITE THIS LANGUAGE CALLED TRANSACTION, A TRANSACTION HAS TWO SIDES, LEFT AND RIGHT ANY THING WRITTEN ON THE LEFT SIDE OF THE TRANSACTION ANY THING WRITTEN ON THE RIGHT SIDE OF THE TRANSACTION

ACCOUNITNG EQUATION SOME BASIC UNDERSTANDING RULES OF DEBIT AND CREDIT NATURE OF ACCOUNTINCREASEDECREASE ASSETDEBITCREDIT LIABILITIESCREDITDEBIT EQUITYCREDITDEBIT EXPENSESDEBITCREDIT REVENUECREDITDEBIT