Chapter 2 The Balance Sheet 1 Review AP

Chapter 2. The Balance Sheet

1. Review

A/P and A/R Accounts Receivable (A/R) Accounts Payable (A/P) Asset or Liability ? Debtors? Customers who owe money to the business Asset or Liability ? Creditors? Suppliers to whom the business owes money

Fix the Errors

2. Claims against the Asset

Claims against the Assets $43 763. 10 = $9 000 + $1 905 + $750 + $32 108. 10

Creditors’ Claims First When the business closes down, the assets belong to the owners and creditors. BUT the claims of the creditors are settled first, followed by the claim of the owner. Suppose Janet Korey closed down her business and suffered a loss of $7 200 $43 563. 10 763. 10 = $9 000 + $1 905 + $750 + $32 $36 $24108. 10 908. 10

3. GAAP

What is GAAP? ‘’ GAAP stands for Generally Accepted Accounting Principles. These are set of rules or standrads followed by accountants. Some are formal regulations; others conventions that have become common practice over the years.

The Business Entity Concept ‘’ It provides that the accounting for a business organization must be kept separate from the personal affiars of its owner, or from any other business or organization. The balance sheet of the business must reflect the financial position of the business alone.

‘’ The Continuing Concern Concept It assumes that a business will continue to operate unless it is known that it will not. (also known as the going concern concept)

‘’ The Principle of Conservatism The principle of conservatism provides that accounting for a business should be fair and reasonable. Accountants have the duty to ensure that assets or profits are neither overstates nor understated.

4. Review Questions and Exercises