# Acc 107

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1. The Accounting Equation
[ Assets ] = [Liabilities + Owner's Equity]

Left side shows the assets.

• Right side shows where the money came from to buy the assets.
- Economic event that has a direct impact on the business.

- Usually requires an exchange with an outside entity.

- We must be able to measure this exchange in dollars.

- All business transactions affect the accounting equation through specific accounts.
3. Account
A separate record used to summarize changes in each asset, liability, and owner's equity of a business.
4. Owner's Equity Transactions
Four Types:

Decrease: Increase:

• Expenses Revenues
• Drawing Investments
5. Revenues
- The amount a business charges customers for products sold or services performed.

- Recognized when earned (even if cash has not been received yet)

- Increases both assets (cash or accounts receivable) and owner's equity.

• Examples:
• Delivery Fees, Consulting Fees, Rent Revenue (if the business rents space to others), Interest Revenue (for interest earned on bank deposits), Sales (for sales of merchandise).
6. Expenses
- Represent the decrease in assets (or increase in liabilities) as a result of efforts made to produce revenues.

- Separate accounts are maintained for each type of expense.

- Either decrease assets or increase liabilities, but ALWAYS decrease owner's equity.

• Examples:
• Rent, Salaries, Supplies consumed, Taxes
7. Net Income
REVENUE > than EXPENSES= NET INCOME

Example: Luke P performed \$6,000 of tax services (revenue) this year and incurred expenses of \$1,500 for rent, \$500 for supplies, and \$3,000 in salaries.

Revenue - Expenses = Net Income

\$6,000 - \$5,000 = \$1,000

\$1,500 + \$500 + \$3,000 = \$5,000
8. Accounting Period Concept
- The concept that income determination can be made on a periodic basis (month, quarter, year, etc.)

- Any accounting period of 12 months is called a fiscal year
9. Withdrawals
- The owner taking [withdrawing] cash or other assets from the business for personal use

- Reduces owner's equity assets

- Also referred to as drawing
10. Financial Statements
Three commonly prepared financial statements:

• 1. Income Statement
• 2. Statement of owner's equity
• 3. Balance Sheet
11. Income Statement
-Reports the prfitability of business operations for a specific period of time.

-Expenses are subtracted from revenues to determine net income/ loss.

-Also called the profit and loss statement or operating statement.

Revenue - Expense = Net Income/Loss
• 1st Line: The name of the company
• 2nd Line: The title of the statement
• 3rd Line: The time period covered or the date of the statement

• Example:
• Jessie J Campus Delivery
• Income Statement
• For Month Ended June 30, 20--
13. The Statement Of Owner's Equity
- Reports the activities that affected owner's equity for a specific period of time

- Uses Net Income from the oncome statement
14. Balance Sheet
-Confirms the accounting equation has remained in balance

-Also referred to as a statement of financial position or statement of financial condition

- Reports assets, liabilities, and owner's equity on a SPECIFIC DATE, not a period of time.
15. Accounting Process

Three Basic Phases
• [Input] --> [Processing] --> [Output]
• Transactions provide the neccesary input
• Identify Accounts
• Classify Accounts
• Determine Wether Increase or Decrease
• Enter transaction and verify balance

• Income Statement
• Revenues - Expenses = Net Income

• Statement Of Owner's Equity
• Beginning Capital + Investements + Net Income - Withdrawals = Ending Capital

• Balance Sheet
• Assets = Liabilities + Owners Equity
• [Ending Captital]
 Author: natalya19 ID: 130454 Card Set: Acc 107 Updated: 2012-01-25T09:42:29Z Folders: Description: Terms Show Answers: