MSE608C – Engineering and Financial Cost Analysis The Balance Sheet and Double-Entry Bookkeeping.

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Presentation transcript:

MSE608C – Engineering and Financial Cost Analysis The Balance Sheet and Double-Entry Bookkeeping

Assets on the Balance Sheet Current Assets are “used up”, “expended” or converted into cash within 12 months Some expenses are Prepaid in advance. These become an ASSET

Assets on the Balance Sheet Non-current Assets are “used up” or “expended” in a period longer than 12 months Non-current Assets do not have a category title, they are just listed after Current Assets

Liabilities on the Balance Sheet Current Liabilities are “discharged” or “paid off” within 12 months.

Owners’ Equity on the Balance Sheet Owners’ Equity is the difference between Assets and Liabilities. –The value remaining in the company for the owners. –Not a pool of cash –Revenues increase Owners’ Equity; Expenses decrease it. Invested Capital = Voluntary investment of funds Retained Earnings = residual value from profit-seeking activities Retained Earnings help the business to grow

Double-entry Bookkeeping Newton’ Third Law of Motion For every action there is an equal and opposite reaction Accounting rules For every Debit there is an equal and opposite Credit recorded in the accounting records

Double-entry Bookkeeping Double-entry bookkeeping is the accepted accounting mechanism for recording and classifying the monetary events of a business entity The T-account format: For every monetary event there is at least one entry on the debit side of at least one account and the credit side of another account. Title and Account # + Debit side+ Credit side

Double-entry Bookkeeping A = L + OE Asset + - = Liabilities - + Owners’ Equity -+ + Account Type + Debit Effect+ Credit Effect AssetsIncreaseDecrease LiabilitiesDecreaseIncrease Owners’ EquityDecreaseIncrease

Chart of Accounts

The Journal

The Ledger

The Cycle at Work

Assessment Owner’s Equity is comprised of what two components? What is the basic “law” of double-entry bookkeeping? What are the first stages of the Accounting Cycle?