Asset, Liability, Owner's Equity, Revenue, and Expense Accounts

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Asset, Liability, Owner's Equity, Revenue, and Expense Accounts

CHAPTER 1 Assets, Liability, Owner’s Equity, Revenue, and Expense Accounts Asset, Liability, Owner’s Equity, 1 Revenue, and Expense Accounts CHAPTER REVIEW 1. Define and identify asset, liability, and owner’s equity accounts. Assets are cash, properties, or things of values owned by the business. Liabilities are amounts the business owes to creditors. Owner’s equity is the owner’s investment or net worth. 2. Record a group of business transactions, in column form, involving changes in assets, liabilities, and owner’s equity. The accounting equation is stated as assets equals liabilities plus owner’s equity. Under the appropriate classification, a separate column is asset up for each ac- count. Transactions are recorded by listing amounts as either additions to or deductions from the various accounts. The equation must always remain in balance. 3. Define and identify revenue and expense accounts. Revenue consists of amounts earned by a business, such as fees earned for performing services, income from selling merchandise, rent income for the use of property, or interest earned for lending money. Expenses are the costs of earning revenue—that is, of do- ing business—such as wages expense, rent expense, interest expense, and advertising expense. 4. Record a group of business transactions, in column form, involving all five elements of the fun- damental accounting equation. The accounting equation has been expanded and appears as follows: Assets = Liabilities + Owner’s Equity (Capital) + Revenue – Expenses Accounts are classified and listed under each heading. Transactions are recorded by listing amounts as either addition to or deductions from the various accounts. The equation must always remain in balance. 1 Copyright © Houghton Mifflin Company. All rights reserved. .

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Concepts/Principles, Accounting Equation
Accounting Notes Characteristics of Business Organizations: Sole Proprietorship Partnership Corporation 1) Owner(s) One Owner Two or more Many owners (partners) (shareholders) 2) Life of organization Limited by owners Limited by partners Unlimited choice or death choice or death 3) Personal Liability of Owner is personally Partners are Shareholders Owner(s) for business debt liable personally liable are not personally liable 4) Accounting Status Business is separate Partnership is Corporat ion is from the owner separate from separate from the partners the shareholders Accounting Concepts and Principles: The Entity Concept - An organization is a separate entity from the owner(s) of the organization. The Reliability (Objectivity) Principle - Accounting records and statements should be based on the most reliable data available so that they will be as accurate and useful as possible. The Cost Principle - Acquired assets and services should be recorded at their actual cost not at what they are believed to be worth. The Going-Concern Concept - The assumption that the business will continue operationing for the foreseeable future. The Stable-Monetary Unit Concept - Accounting transaction are recorded in the monetary unit used in the country where the business is located. Page 1 Student Learning Assistance Center, San Antonio College, 2004 Accounting Notes The Accounting Equation: Assets = Liabilities + Owner ˇs Equity Anything that belongs to or A debt owed by the The owners claim to the is owed to the business business to its creditors assets of the business. The assets that are left over after t he liabilities are paid Difference between Accounts Receivable and Notes Receivable: Accounts Receivable - The promise by a customer to pay the business for a service or product provided Note Receivable - The WRITTEN promise for a future collection of cash within a specified period.
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