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CHAPTER 8- ACCOUNTING.docx - CHAPTER 7: THE ACCOUNTING EQ...

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CHAPTER 7: THEACCOUNTING EQ
BASICA CCOUNTING EQUATIONAssets = Liabilities + EquityThe left side of the equation represents what the company owns. These are the resources that the entity controls inorder to attain future benefits. On the other hand, the right side represents the claims of the different parties to thecompany’s assets. Liabilities represent the claims of the entity’s creditors while equity represents the residualinterest of the owners of the entity.ELEMENTS OF THE ACCOUNTING EQUATIONAssetsAssets are resources that an entity owns in order to derive some future benefits. These assets are used byThe company in its normal operations such as the manufacture of goods or delivery of services. The mainFeature of these assets is this capability to give benefits to the entity. These benefits are usually in the formOf their ability to directly or indirectly increase the inflow of cash to the entity or a reduction of its outflow.Examples:1.CashGenerally, it is the money that we use comprising of the bills and coins we use in our everyday lives in orderto buy the goods that we want and also avail the services we need. However, when accounting for cash, wealso consider cah as money that is deposited in the banks and even undeposited checks from thecustomers.
2.Accounts ReceivableThis represents amounts of collectible from customers. They arise when a business sells its goods orservices on account or on credit.3.InventoriesWhen going to a sari-sari store, you would notice piles of assorted products being offered to be sold. Onecan easily find various items such as food and household items to satisfy whatever he or she needs.Such products are normally owned by the sari-sari store. These products are inventory which are normallyHeld for sale by the store in its normal operations.4.EquipmentPandesal shops would need ovens and furnaces in order to properly and actually create their goods. Theproduct of these ovens is the pandesals which would be sold later on and eventually increase the cash ofthe shop.5.Land and BuildingA physical store is necessary for them to operate. These buildings are owned by the company so that theycan use them for their business to operate normally.INTANGIBLE ASSETSWhen we think of the things we can own, we normally think of tangible things or those that can be seen andtouched. However, assets also encompass intangible things that can neither be seen nor touched.LIABILITIESLiabilities are one of the claims of external parties from the entity. Basically, they are the debts of the entity toexternal creditors. These debts do not always have to be paid in money. Some of these liabilities are in the form ofobligations to do some service or even give something.

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Term
Spring
Professor
N/A
Tags
Balance Sheet, Revenue, Generally Accepted Accounting Principles

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