Basic Concepts of GENERAL Accounting

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Presentation transcript:

Basic Concepts of GENERAL Accounting MINAKSHI SINGH

The Basic Accounting Equation Financial accounting is based upon the accounting equation. Assets = Liabilities + Owners' Equity This is a mathematical equation which must balance. If assets total $300 and liabilities total $200, then owners' equity must be $100.

The Basic Accounting Equation The balance sheet is an expanded expression of the accounting equation.

The Basic Accounting Equation

Assets Assets are valuable resources that are owned by a firm. They represent probable future economic benefits and arise as the result of past transactions or events.

Liabilities Liabilities are present obligations of the firm. They are probable future sacrifices of economic benefits which arise as the result of past transactions or events.

Owners' Equity Owners' equity represents the owners' residual interest in the assets of the business. Residual interest is another name for owners' equity.

Owners' Equity Owners may make a direct investment in the business or operate at a profit and leave the profit in the business.

Owners’ Equity = Assets – Liabilities Yet another name for owners' equity is net assets. Indicates that owners' equity results when liabilities are subtracted from assets. Owners’ Equity = Assets – Liabilities

The Basic Accounting Equation Both liabilities and owners' equity represent claims on the assets of a business.

The Basic Accounting Equation Liabilities are claims by people external to the business.