BAT4m Unit 1: Review of Grade 11 Accounting September 4 2014

Assets are the resources owned by a business. Accounting Equation The two basic elements of a business are what it owns (assets) and what it owes. (liabilities and owner’s equity) Assets are the resources owned by a business. Liabilities are claims for creditors (or lenders) Owner’s Equity are the claims of owners.

Assets = Liabilities + Owner’s Equity Accounting Equation Assets = Liabilities + Owner’s Equity Remember that by law, creditor’s claims are paid before ownership claims. For example, a business has the following: total assets = 80,000 and total liabilities are $60,000 and total owner’s equity = $20,000. Let’s say, when they sold the assets, they only received $65000. How much money will the lenders claim? How much can the owner claim?

Assets Assets are resources owned by a business. Assets are used to carry out activities such as the production (manufacturing) and distribution (shipping) of merchandise. Assets provide future service or benefits to the business. Common examples are AR, machine, computer, building, patents and copyright.

Liabilites Liabilities are claims against assets by creditors (or lenders). They are debts and obligations. Examples are Accounts Payable, Notes Payable, Mortgage Payable, Bond Payable Bestbuy orders 100 units of Samsung laptop, which is worth $500 + HST on August 1. On August 2, Bestbuy receives these laptops.

Liabilites Bestbuy orders 100 units of Samsung laptop, which is worth $500 + HST on August 1. On August 2, Bestbuy receives these laptops. Entry:

Owner’s Equity OE is the owner’s claim on total assets after creditors claim their assets. OE = Total Assets – Total Liability If the equity is negative – if total liabilities are more than total assets owners’ deficit (deficiency) Under what circumstance can this happen?

Owner’s Equity When an owner invest their own money into the business  Increase which account? OE or capital or shareholder account When an owner withdraws money from the company  Increase which account? Drawings acct Revenues increase OE whereas expenses decrease OE. Net Income = Revenues > Expenses Net Loss = Revenues < Expenses

Revenue Revenue : result from business activities which are done to earn income. Revenues result from performing services, selling merchandise inventory, renting property and lending money. Revenues normally result in an increase in an asset and increase in OE. Bestbuy:

Expenses Expenses are the costs (money out)of assets which are consumed and services are used in order to earn revenue. Expenses normally result in a decrease in an asset and a decrease in OE. What would be typical expenses for Pizza Hut? Ingredients such as flour, peperoni, cheeze s Wages, utilities, hydro, water, rent, ads, marketing, franchise fee

Classwork P32 E1-2, E1-4, E1-7 P36 P1-1, P1-2, P1-4

Forms of Business Organization A business can be formed in three different ways: Proprietorship – one owner Partnership – two or more owners Corporation – Many owners

Proprietorship When a business is owned by one person, this business is called proprietorship. The owner is usually the operator of the business. Examples are convenient store, barbershop, plumbers, farmers and mechanics. Usually only a small amount of money is needed to start in business as a propritorship.