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Property=Property Rights items ownedright to use item / legal right to item’s value.

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Presentation on theme: "Property=Property Rights items ownedright to use item / legal right to item’s value."— Presentation transcript:

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2 Property=Property Rights items ownedright to use item / legal right to item’s value

3 Property and Property Rights Property: anything of value that is owned or controlled by a business – legal right vs. right to use – if buy with cash---you have property right (legal right) – if buy with cash and credit---you share property right with creditor (right to use)

4 Property Rights: financial claim to property the value of the property must always equal the financial claims to the property

5 Example: pay $25 now and agree to pay $75 later Cost of Property = Financial Claim to Property Equipment = creditor's claim + owner’s claim $100 = $75 + $25

6 Equity: total financial claims to the assets of a business by both owners and creditors

7 Account Classifications Assets: property or items of value owned or controlled by a business Liabilities: creditors' financial claims {debt of the business owed to creditors} Owner's Equity: owner's financial claims

8 Basic Accounting Equation: A=L+OE Assets = Liabilities + Owner's Equity the value of items owned must equal the total value of the property rights to that item

9 Business Transactions economic event causing change in assets, liabilities or owner's equity cause change in the financial position of a business change is recorded in accounts

10 Accounts: record of the increase or decrease in and the balance for specific item different businesses may have a need for different accounts all accounts are classified as either assets, liabilities, or owner's equity

11 Ex: Assets = Liabilities + Owner's Equity cash a/p John Smith, Capital a/r Revenue furniture Sales equipment Fees land Expenses Cost of Merchandise John Smith, Withdrawal

12 Cost of Merchandise Purchases Transportation In

13 Accounts Receivable- money to be received for sales on credit represent a business' claim to the assets of a person or other business

14 Accounts Payable- money to be paid to a business's creditors

15 Capital- value of the owner's investment in the business

16 Expenses- price paid for items used in a business (the day to day costs of operating a business)

17 Revenue- income earned from sale of goods / services

18 Owner puts $1000 into business's bank account to get things started Assets = Liabilities + Owner's Equity $1000 = 0 + $1000 cash John Smith, Capital Note: left side equals right side of equation

19 Owner puts $1000 into business's bank account to get things started Assets = Liabilities + Owner's Equity $1000 = 0 + $1000 cash J. Smith, Capital Note: left side equals right side of equation

20 double-entry accounting Every transaction affects at least two accounts

21 ACCOUNTING IN A NUTSHELL Property = Property Rights Value of Items = Financial Claims to the Items Assets = Equity Assets = Creditor Claims + Owner's Claims Assets = Liabilities + Owner's Equity Left Side = Right Side Debits = Credits

22 Assets The classification of property owned or controlled by a business.

23 liabilities Classification of the creditors’ claims to the asset of a business.

24 equity The total (both creditors’ and owner’s) financial claims to the assets of a business.

25 accounts receivable Total amount of money to be received in the future for goods and services sold on credit.

26 accounts payable An account that shows the amount of money owed to a business’s creditors.

27 creditor A person or business that sells property on credit or anyone to which money is owed.

28 withdrawal When the owner takes cash or other assets from the business for personal use.

29 capital The account that shows the dollar amount of the owner’s investment in the business.

30 expenses The day to day costs of operating a business in pursuit of revenue.

31 revenue Income earned from the sale of goods or services.


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