Anything of Value Owned by the Business Assets Anything of Value Owned by the Business

Types of Assests Cash Furniture Equipment Automobiles Property Accounts Receivable Prepaid Insurance

Financial Obligations of the Business Liabilities Financial Obligations of the Business

Types of Liabilities Accounts Payable Loans Payable Taxes Payable Notes Payable Interest Payable Rent Payable Any Payable

Owner’s Equity The Difference between the Value of the Assests and the Value of the Liabilities = What the Business is worth if it were sold today!

Owner’s Equity Accounts Owner’s Capital Account (value of cash contributed by owner plus income and minus expenses) Accounts that effect Owner’s Capital Expense Accounts Rent Expense Insurance Expense Revenue Accounts Sales Other Income

Assets MUST Equal Liabilities + Owner’s Equity!

Debits and Credits What do they mean? On your bank statement? Debit means the bank has reduced its liability to you. Credit means the bank has increased its liability On your credit card statement? Each time you use the card, you increase your liability (credit). ATM (Debit Card) Each time you use it, the bank’s liability is reduced.

So, what do Debit and Credit mean in Accounting terms? Debit = Left Credit = Right Nothing more, Nothing Less

T Accounts (assets) Cash Debit Credit - +

T Accounts (Liab/OE) Accounts Payable Debit Credit - +

The Accounting Equation Assets = Liabilities + Owner’s Equity ABC Supply Co. Richie Rich Capital Cash Supplies 150 300 250 5000 5000 100 100 1000 150 300 1200 Do Rite Cleaners 500 Rent Expense Sales 250 500 1000 Prepaid Ins. Accts Rec. 1200 Loans Payable Debits always equal credits!!