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Published byBrice Hopkins Modified over 8 years ago
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Property=Property Rights items ownedright to use item / legal right to item’s value
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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)
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Property Rights: financial claim to property the value of the property must always equal the financial claims to the property
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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
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Equity: total financial claims to the assets of a business by both owners and creditors
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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
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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
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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
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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
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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
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Cost of Merchandise Purchases Transportation In
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Accounts Receivable- money to be received for sales on credit represent a business' claim to the assets of a person or other business
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Accounts Payable- money to be paid to a business's creditors
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Capital- value of the owner's investment in the business
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Expenses- price paid for items used in a business (the day to day costs of operating a business)
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Revenue- income earned from sale of goods / services
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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
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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
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double-entry accounting Every transaction affects at least two accounts
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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
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Assets The classification of property owned or controlled by a business.
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liabilities Classification of the creditors’ claims to the asset of a business.
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equity The total (both creditors’ and owner’s) financial claims to the assets of a business.
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accounts receivable Total amount of money to be received in the future for goods and services sold on credit.
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accounts payable An account that shows the amount of money owed to a business’s creditors.
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creditor A person or business that sells property on credit or anyone to which money is owed.
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withdrawal When the owner takes cash or other assets from the business for personal use.
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capital The account that shows the dollar amount of the owner’s investment in the business.
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expenses The day to day costs of operating a business in pursuit of revenue.
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revenue Income earned from the sale of goods or services.
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