Accounting 11 Unit 1 Financial Position Financial Position

Accounting 11 Unit 1 – Financial Position

Financial Position What is your net worth? How does one calculate their net worth? * List the items that you own & their value * List your debts that are owed to others

Financial Position A business owns things such as cash, equipment, and supplies, which it uses to conduct its activities. Asset – anything of value that is owned by a person or a business

Financial Position A business’ owner has a financial interest in the business and therefore has rights to its assests. Individuals and other businesses to whom a business owes money also have rights to the business assets. Equities – Financial rights to the assets of a buisness

Financial Position There are two kinds of equities: (1) Equity of persons to whom the business owes money (see liability) (2) Equity of the owner of the business Liability – amount of money owed to others by a person or a business.

Financial Position Personal Equity – is a term that represents a person’s net worth. The net worth is the determined by calculating the cost of items owned and subtracting the debts. Owner’s Equity – is the business owner’s claim against the assets of the company.

The Balance Sheet Equation shows the relationship between Assets, Liabilities and Owner’s Equity. Assets = Liabilities + Owner’s Equity

Business: Owner: Lawnmaster Mr. Harry Walters operates a lawn care service business. A business owned by one person is called a Proprietorship Lawnmaster rents the building in which it is located and the equipment used to operate the business. When Mr. Walters starts a new accounting system for his business, he makes a list of all the business assets and equities as of September 1, 2009 What is Owned (Assets) What is Owed (Liabilities) Cash in bank $1500. 00 Dixon Company Supplies $1700. 00 Topp Supply Ltd. Prepaid Insurance $ 600. 00 Total Owned $3800. 00 Total Owed $350. 00 $200. 00 $550. 00

The Balance Sheet Equation for Lawnmaster Mr. Walters places all his information into the accounting equation: Assets = Liabilities + Owner’s Equity $3800. 00 = $550. 00 + ? To determine his equity, Mr. Walters subtracts the company liabilities from the assets. Mr Walter’s equity is (3800. 00 – 550. 00) $3250. 00 Assets = Liabilities + Owner’s Equity $3800. 00 = $550. 00 + $3250. 00 $3800. 00

Assignment Terms you should know: Asset Liability Personal Equity Owner’s Equity Balance Sheet Equation Balance Sheet Complete: Student Guide Exercise #1, 2, 3 page 12 -13