© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Chapter 1 The Accounting Equation and Double-entry Bookkeeping 会计等式和复式记账法

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Three primary financial statements. Introduction to Financial Statements Income Statement Balance Sheet Statement of Cash Flows We will use a sole proprietorship to describe these statements.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Statement of Financial Position: A Starting Point

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Assets( 资产 ) Assets are economic resources that are owned by the business and can be measured in monetary term.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Liabilities( 负债 ) Liabilities are debts that a business owes its creditors.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Owner’s Equity( 所有者权益 ) Owner ’ s equity represents the owner ’ s claim to the net assets of the business.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Owner’s Equity Net assets Net worth Capital Proprietorship

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill The Accounting Equation 会计等式 Assets = Liabilities + Owner ’ s Equity $300,000 = $80,000 + $220,000 Assets = Liabilities + Owner ’ s Equity $300,000 = $80,000 + $220,000

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Exercise in class II. Problems:1(on page 33).

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Let ’ s analyze some transactions for Guangli service!

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Accounts Payable( 应付账款） Accounts Payable is the debt that the business owes its supplier for the goods or services provided.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Prepaid Insurance （预付保险费） Prepaid Assets are the resources paid for before receiving the actual benefits. e.g. insurance /advertisement fee

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Accounts （账户） The basic recording unit of accounting information

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Revenue( 收入） Revenues are the amounts of assets that a business earns as a result of selling goods or rendering service in form of receiving the credit card receipts or check or receivable. Receivables are the amounts owed to a business by customers.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Expense （费用） Expenses are the amounts of assets that a business uses up in the process of generating revenues which reduce the owner’s equity. e.g. utility fee (electricity and water bill), payroll

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Difference between expenses and prepaid assets Expense: the payment is made after the use of assets. Prepaid assets: the payment is made before the use of the assets. Prepaid assets should be transferred into expense when the relevant asset is used up.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Question one Mr. Li paid 2000 yuan for the office rent of the month. Is that a kind of expense ?

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Owner’s Equity( 所有者权益 ) Revenue Expense Changes in Owner ’ s Equity

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Double-entry Bookkeeping ( 复式记账法 ) Assets = Liabilities + Owner’s Equity An accounting system by which each transaction is recorded in at least two accounts and the accounting equation is still kept in balance.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Accounting Equation Assets = Liabilities + Owner’s Equity

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill The Use of Accounts Increases are recorded on one side of the T- account, and decreases are recorded on the other side. Left or Debit Side Right or Credit Side Title of Account

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Cash( 现金 ) (a) (f) (b) (c) (d) 9000 (e) 3600 (g) Cash Footings Bal

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Let ’ s use the previous information and see how debits and credits are recorded in the Cash account for Guangli services.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill ALOE A = L + OEASSETS Debit for Increase Credit for DecreaseEQUITIES Debit for Decrease Credit for IncreaseLIABILITIES Debit for Decrease Credit for Increase Debit and Credit Rules ( 借贷记账法 ) Debits and credits affect accounts as follows:

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Liabilities Equity Assets =+ Each account has a normal balance. Normal Balances

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Debits and Credits for Revenue and Expense EQUITIES Debit for Decrease Credit for Increase REVENUES Debit for Decrease Credit for Increase EXPENSES Credit for Decrease Debit for Increase Expenses decrease owner ’ s equity. Revenues increase owner ’ s equity.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Normal Balances Each account has a normal balance. Revenues Expenses Owner’s Capital + _

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Account Receivable ( 应收账款） Receivable includes all the money claimed against people, organizations, or other debtors when a business provides the service or sells the merchandise. e.g. Notes Receivable / Accounts Receivable

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Drawing Asset withdrawn from an business by its owners for their personal use. e.g. You are the owner of a small business. The mortgage payment on your home is due, but you have little money in your personal checking account. Therefore, you write a check for this payment from your business bank account.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Investments and Withdrawals by the Owner EQUITIES Debit for Decrease Credit for Increase JILL JONES, CAPITAL Debit for Decrease Credit for Increase JILL JONES, DRAWING Credit for Decrease Debit for Increase An owner ’ s withdrawals decrease owner ’ s equity. An owner ’ s investments increase owner ’ s equity.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Each account has a normal balance. Revenues Expenses Owner’s Capital Owner’s Withdrawals _ + _ Continue Normal Balances

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Revenues Expenses Owner’s Capital Owner’s Withdrawals _ + _ Normal Balances Each account has a normal balance.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill A+C+R A +E+D= L+C+R Double Entry Accounting  The Equality of Debits and Credits Debit balances Credit balances = In the double-entry accounting system, every transaction is recorded by equal dollar amounts of debits and credits.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Trial Balance 试算平衡表 A list of all the account balances at a given point of time in the following order: assets, liabilities, owner’s equity, revenue and expenses.

© The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Assignments Problems 3, page 33 A4 paper Better to use pencil