Assets on the Balance Sheet Current Assets are
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: Title and Account # + Debit side + Credit side • 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.
Double-entry Bookkeeping A = L + OE Asset + Account Type Assets Liabilities Owners’ Equity Liabilities = - + Owners’ Equity + + Debit Effect Increase Decrease - + + Credit Effect Decrease Increase
The Journal
Chart of Accounts
The Ledger
The Cycle at Work
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