Accounting Review Updated 2014 04 14 - PRINCIPLE OF ACCOUNTING REVIEW Chapter!1!The!balance!sheet 1!Financial!position!of!an!individual

Accounting Review Updated 2014 04 14 - PRINCIPLE OF...

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Unformatted text preview: ! ! ! ! ! ! ! ! ! ! ! PRINCIPLE OF ACCOUNTING REVIEW ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! Chapter!1.!The!balance!sheet! ! 1.!Financial!position!of!an!individual! A"creditor"is"a"person"or"business"that"has"extended"credit"or"loaned"money."" Creditor"is"a"person"or"business"that"extended"credit"when"goods"or"services"were"purchased"or"who"loaned"money" used"to"purchase"possession.""" Personal!net!worth"is"the"difference"between"the"cost"of"items"owned"and"debits"owed." """"""The"purpose!of!accounting"is"to"provide"financial"information"for"decision"making." " 2.!Accounting!terminology! Assets"are"items"of"value"owned"by"a"business"or"a"person." Liabilities"are"the"debits"of"a"business"or"a"person." Personal!equity"is"a"person’s"net"worth." Balance!Sheet!Equation!is"the"basic"equation"that"underlies"double>entry"accounting."(A"="L"+"OE)! Cash"in"asset"is"including"currency"(bills"and"coins),"bank"deposits,"cheques,"money"orders,"and"credit"card"receipts." Account!Receivable:"The"amount"of"money"that"should"be"receivable"but"haven’t"been"paid"by"a"customer."It""""""""""""""""""""""""""" """"""""""""""""""""""""""""""""""""""refers"to"the"total"amount"due"to"from"debtors"(customers)."" """"""Account!Payable"refers"to"the"total"amount"owed"to"creditors"for"the"purchase"of"goods"or"services"by"the" """""""""""""""""""""""""""""""""""""business." """"""Equities"are"claims"against"the"assets"of"a"company." """"""Accounting!period"is"the"period"of"time"covered"by"financial"statement."Accounting"period"refers"to"the"length"of"" """""""""""""""""""""""""""""""""""""""""time"between"the"preparations"of"each"financial"statement." " 3.!Business!Entity!Principle!! It"requires"that"each"business"be"considered"a"separate"entity,"and"that"the"financial"data"for"the"business"be"kept" separate"from"the"owner’s"personal"financial"data." """"" Own!idea:"the"money"in"a"company"should"have"two"sources>>>>recorded"as"liability"and"owner’s"equity."One"is"from" the"outside"of"the"company"like"some"people"or"organization"(bank)"lend"to"the"company."" For"example,"the"account"payable"can"be"some"money"owed"to"other"companies"since"bought"something"from"them;" it"also"can"be"looked"like"the"seller"lent"this"amount"of"money"to"the"company."Another"source"can"be"looked"like" from"the"inside"of"the"company,"like"investment"of"the"company’s"owner."This"amount"will"go"into"owner’s"equity.""""""" " 4.!Balance!sheet! Balance!sheet!equation:"it"is"the"equation"that"underlies"double>entry"accounting."" """"""""""""""""""""""""""""""""""""Assets!=!liabilities!+!owner’s!equities! A"balance!sheet"is"a"financial"statement"that"lists"the"assets,"liabilities,"and"owner’s"equity"of"a"specific"date."" Owner’s"equity"is"the"owner’s"claim"against"the"assets"of"the"company." Here$is$a$template$for$Balance$Sheet$in$next$page$ " The"outside"liability"is"about"the"big"companies."There"are"inside"liability"and"outside"liability." Inside"liability"is"the"liability"for"the"amount"owed"inside"the"company,"like"the"employee’s"salary"payable." Outside"liability"is"the"liability"for"the"amount"owed"by"the"debtor"out"of"the"company,"like"the"supplier"payable." " ! 5.!Order!of!the!items!in!each!column!is!very!important.! In"assets,"list"the"short"term"assets"(cash"""account>receivable"office>supply)"at"first."In"this"group"u"need"to"list" those"by"the"order"in"which"assets"would"likely"be"converted"to"cash."After"short"term"assets,"you"need"to"list"the" long>term"assets"such"as"land,"building"and"automobile,"equipment."You"need"to"list"them"as"the"order"in"which"the" length"of"the"useful"to"the"business." """""""""""""""""The"liquid!order>>>>>>>>>>>>>>>>>>>>is"the"order"in"which"assets"that"last"a"short"time"are"listed"on"the"Balance""" """""""Sheet,"depends"on"the"ability"to"convert"to"cash." """"""""""""" "In"liabilities,"you"need"to"list"them"as"the"order"in"which"that"the"date"they"due"to"be"paid." """""""""""""""""Maturity!date">>>>>>>>>>>>>>>>>>>>>>governs"the"order"of"liabilities.it"is"the"date"that"the"liability"must"be"paid." ! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Mouradian!Realty! ! ! ! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Balance!Sheet! ! ! ! ! ! ! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!October!14,!20O! " " " !!!!!!!!!!!!!!!!!!!!!!ASSETS! """""CASH" " " !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!LIABILITY! """"""""""""""""""""""""$"84"570"""""""""""ACCOUNT"PAYABLE"" """""ACCOUNT"RECEIVABLE" """""SUPPLIES" !!!!!!!!!!!!!!!!!!!!!!! """""""""""""""5"325" """""""BANK"LOAN"""""""""""""""""""" " ! """$"""7"325" """"""27"570" """"""""""""""""""""""""""""""1"075"""""""""""MORTGAGE"""""""""""""""""""""""""""""""""105"000" """""LAND""""""""""""""""""""""""""""""""""""""""""""""""""""""103"200"""""""""""TOTAL" " """""""""""""""""""139"895" """""BUILDING"""""""""""""""""""""""""""""""""""""""""""""""182"100"""""""""""""""""""""""""""""""!Owner's!Equity! """""EQUIPMENT" " """""""""""""""""""""""""""""12"875" """"""""T.Mouradian",Capital!!!""""""""""""""267"500" " """""AUTOMOBILE""""""""""""""""""""""""""""""""""""""""""18"250" """""TOTAL"ASSETS""""""""""""""""""""""""""""""""""""$"407"395"""""""""""Total"liability"and" """""""""""""""""$407"395" """""" """""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""Owner's"Equity""""""""""""""""""""""" " (TEMPLATE"OF"BALANCE"SHEET)" """""""""""""" 6.!Reasons!for!interest!in!balance!sheet! For!owner:"this"will"show"the"financial"position"of"the"business"that"can"help"them"to"make"decision.! For!creditor:"company"that"consider"extending"the"credit"or"lending"more"money"are"interested"in"the"liquid"assets" available"to"meet"payment"as"well"as"the"claims"on"assets." For!investor:"in"order"to"protect"themselves"and"get"some"information."As"the"creditor"they"want"to"see"the"financial" position"to"decide"whether"or"not"to"invest"a"business." For!government:""government"department"need"information"for"policy"decision>making,"statistical"reports,"and"taxation." "" 7.!Business!transaction!and!transaction!analysis!sheet! A"business!transaction"is"an"exchange"of"things"of"value." A"Transaction"Analysis"Sheet"will"be"used"to"assist"in"the"examination"of"transaction"and"their"effect"on"the"balance" sheet." Transaction"analysis"sheet"is"not!used!in!business"but"they"will"help"your"business." " There"is"an"example"of"Transaction"Analysis"Sheet:" " """""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""Owner’s" """""""""""""""""""""""""""""""""""""""""Assets"""""""""""""""""""""""""""""""""""""""""="""""""""""""""""""""""""""""Liabilities""""""""""""""""""""""""""+""""""""""""Equity" """"""""""""""""""""""""""""""""""Accts.""""""""Off."""""""""""Train""""""""""""""""""""""""""""Acct.""""""""""""Bank""""""""""""Mtge.""""""""""""""""""""R."Millar," """"""""""""""""""""Cash"""""""Rec."""""""Supps.""""""""Equip."""""""""""""""""""""""""""Pay."""""""""""""Loan""""""""""""Pay."""""""""""""""""""""""Capital" Bal.""""""""""""$1,000"+""$50""+"""$500"""""+""""$1,000"""""""""""="""""""""""$1,000""+"""""""$50"""""+"""""$500""""""""""+""""""""""$1,000" Jul."1"""""""""""""">500"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""">500" New"Bal.""""""""500""+"""50"""+"""""500"""""+""""""1,000"""""""""""=""""""""""""""""500""""+""""""""50"""""+"""""""500""""""""""+""""""""""""1,000""""" " " (TEMPLATE"OF"TRANSACTION"ANALYSIS"SHEET)" Accountant"can"use"this"sheet"by"the"same"way"of"using"T>account."Record"each"transaction"and"then"calculate"the" balance."" " 8.!GENERALLY!ACCEPTED!ACCOUNTING!PRINCIPLES!!!(GAAPs)! """"""""This"is"the"standard"accounting"rules"and"guidelines."""""""" The!business!entity!principle!! The"Business"Entity"Principle"requires"that"each"business"be"considered"a"separate"entity,"and"that"the"financial"data"for" the"business"be"kept"separate"from"the"owner’s"personal"financial"data.""" The!cost!principle!! Assets"are"shown"on"the"Balance"Sheet"at"the"cost"of"their"acquisition"or"construction."" " " " " " " " " " " " " " " " " " " Chapter!2!Balance!sheet!account! An"account"is"a"form"in"which"changes"caused"by"transaction"are"recorded.For"every"item"on"the"balance"sheet,"an" account"is"prepared."As"transactions"occur,"the"changes"that"result"from"these"transactions"are"recorded"in"accounts."" In"TOaccounts,"Debit"refers"to"the"left"side"of"an"account"and"Credit"refers"to"the"right"side"of"an"account."" There"is"a"separate"account"for"each"asset"and"liability"and"each"owner’s"equity." Assets"balances"are"recorded"on"the"left"side"of"assets"account;"and"liability"and"owner’s"equity’s"balance"are" recorded"in"the"right"side"of"its"account."(here"may"not"be"different."Some"depreciation"account"is"recorded"its" balance"in"the"right"side)" !!!!!!!!!!!!!!!!!!!Office!Supplies!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Mortgage! (Example"of"T>account)" Ledger!A"ledger"is"a"group"of"accounts.! Total"debit"balance"must"be"equal"to"the"total"credit"balance." !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!CASH!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!ACCOUNTS!PAYABLE! !!!!!!!!May!31!!!!!!!!!!!5000!!!!!Jun!2!!!!!880!!!!!!!!!!!!!!!!!!!!!!!!!!!!Jun!!!!3!!!!!!1300!!!!May!31!!!!!!16!000!! !!!!!!!!Jun!!!!6!!!!!!!!!!!!3000!!!!!Jun!3!!!1300!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Jun!!!1!!!!!!!!!!!!!780!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!8000!!!!!Jun!5!!!!280!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Jun!!!!5!!!!!!!!!!!!320! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!2460!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!17!100! !!!!!!!!Balance!!!!!!!!!!5540!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Balance!!!!15!800!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!SUPPLIES!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!MORTGAGE!PAYABLE! !!!!!!!May!31!!!!!!!!!!10!000!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Jun!!!!!2!!!!!!!!880!!!!May!31!!!!!84!000! !!!!!!!Jun!!!5!!!!!!!!!!!!!!!!!600!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!Balance!!!!!!!!!10!600!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Balance!!!!!83!120!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!LAND!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!X.Diaz,Capital! !!!!!!!May!31!!!!!!!!!!40!000!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!May!31!!!!!!!205!000! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Jun!!!6!!!!!!!!!!!!!3!000!!!!! !!!!!!!Balance!!!!!!!!!40!000!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Balance!!!!!!!208!000!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!BUILDING! !!!May!31!!!!!!!!200!000! !!!Balance!!!!!!!200!000! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!EQUIPMENT! !!!!May!31!!!!!!!!!50!000! !!!!!!!!Jun!!!1!!!!!!!!!!!!!!!!!780! """"""""Balance!!!!!!!!50!780! OOOOOOOO!Ledger!for!Dominicana!Restaurant!in!January!31,!20O!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!(example!of!Ledger)! DoubleOentry!accounting"requires"a"debit"account"equal"to"the"credit"amount"for"each"transaction."" ! How!to!record!data!in!a!Ledger:! Step"1."Determine"which"accounts"change"in"value"as"a"result"of"the"transaction."Note"that"two"or"more"" """"""""""""""accounts"will"change"in"value"as"a"result"of"each"transaction." Step"2."Identify"the"type"of"account"that"has"changed."Is"the"account"an"asset,"liability"or"an"owner’s"equity?" Step"3."Determine"whether"the"change"is"an"increase"or"a"decrease"in"the"account." Step"4."Decide"whether"the"change"is"recorded"as"a"debit"or"a"credit"in"the"account."Note"that"the"ledger"must"" """"""""""""""remain"in"balance."" ! RECORDING!THE!TRANSACTION!IN!ACCOUNTS:!to!see!the!Assignment!5.! " The"difference"between"two"sides"of"an"account"is"called"balance"of"the"account.""" The"account’s"balance"is"recorded"on"the"side"with"the"highest"amount,"highest"total."" " A"trial!balance"is"a"list"of"the"ledger"account"balances."The"total"of"the"debit"balance"and"the"total"of"the"credit" balance"should"equal"to"each"other."" " The"trial!balance"indicates"the"mathematical"accuracy"of"the"ledger." The"trial"balance"has"a"limitations"of"indicating"errors"that"is"when"an"accountant"records"a"transaction"opposite"but" the"same"amount"only"their"column"is"opposite,"the"total"credit"still"equals"to"the"total"debit."" """"" " " " " " " " " " " " " " " " " " " " " " ! ! Chapter!3.!The!income!statement! ! 1.!Definition!and!introductions!of!principle.! Profit:"is"the"increase"in"owner’s"equity"that"results"from"the"successful"operation"of"a"business." Revenue"is"amounts"earned"from"the"sale"of"goods"or"services"during"the"routine"operation"of"a"business." Expenses"are"the"costs"of"items"or"services"used"up"in"the"routine"operation"of"the"business." Net!income"is"the"difference"between"revenue"and"expenses"when"revenue"is"greater"than"expenses." Net!loss"is"the"difference"between"revenue"and"expenses"when"expenses"are"greater"than"revenue." The"income!statement"presents"the"revenue,"expenses,"and"net"income/loss"for"a"specific"period"of"time." The"accounting!period"is"the"period"of"time"covered"by"the"financial." The"Balance!sheet"is"a"financial"statement"that"lists"the"assets,"liabilities,"and"owner’s"equity"at"a"specific"time"" period." The"income"statement"is"prepared"before"the"balance"sheet,"so"that"accountant"can"get"an"accurate"owner’s"equity" on"balance"sheet."" ! GAAP! The"timeOperiod!principle"requires"the"definition"and"use"of"the"same"period"of"the"time"for"the"accounting"period." According"to"the"matching!principle,"expenses"should"be"recorded"and"matched"with"the"revenue"they"help"to" generate"during"the"same"accounting"period." ! Key!idea:" The"accrual!basis!of!accounting"matches"revenue"earned"with"expenses"incurred"to"produce"the"revenue"during"the" accounting"period.(When"there"is"a"kind"of"mistake"of"recording"a"transaction"that"hasn’t"been"recorded"but" happened"before,"that"should"use"this"key"idea"to"convince"accountant.)" The"cash!basis!of!accounting"recognizes"revenue"and"expenses"on"a"cash"basis."" ! 2.!How!to!record!the!Income!Statement.!! Revenue"is"recorded"on"the"credit"side" Expenses"decrease"owner’s"equity,"are"recorded"on"the"debit"side" The"drawings!account"records"the"withdrawal"of"assets"from"the"business"by"the"owner" The"account"form"balance"sheet"lists"the"assets"on"the"left"side"and"the"liabilities"and"owner’s"equity"on"the"right"side" The!four!steps!to!prepare!an!Income!statement:" Step"1."Prepare"Income"Statement’s"Heading." Step"2."Prepare"Revenue"Section." Step"3."Prepare"Expenses"Section." Step"4."Determine"Net"Income"or"Net"Loss." """""""""""""""""""""""""(When"the"total"revenue"greater"than"the"total"expenses,"there"is"a"net"income.)" """""""""""""""""""""""""(When"the"total"expenses"greater"than"the"total"revenue,"there"is"a"net"loss.)" " 3.!Summary!of!Debit!and!Credit!Theory.! Income!Statement:"1."Owner’s"Equity"increases"on"the"right"side"or"credit"side." """"""""""""""""""""""""""""""""""""2."Revenue"increases"owner’s"equity." """"""""""""""""""""""""""""""""""""3."Revenue"is"recorded"on"the"credit"side"or"revenue"account." """"""""""""""""""""""""""""""""""""4."Owner’s"Equity"decrease"on"the"left"side"or"debit"side." """"""""""""""""""""""""""""""""""""5."Expenses"decrease"owner’s"equity." """"""""""""""""""""""""""""""""""""6."Expenses"are"recorded"on"the"debit"side"or"left"side." 4.!Template!of!chart.! " """""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""!Mountainview!Cleaners! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Income!statement! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!For!the!month!ended!September!30,!20>" """"""Revenue!! """"""Cleaning"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""$12"000" """"""Repairs"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""1"000" """""!Total!Revenue!!"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""$13"000" """"""Expenses! !!!!!!Salaries""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""4"000" !!!!!!Advertising""""""""""""""""""""""""""""""""""""""""""""""""""""""""""1"000"" """"""Telephone""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""600" """"""Deliveries""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""2"000" """"""Office"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""2"000" """"""Rental""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""4"000" """"""Total!Expenses!!!""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""13"600" !!Net!Loss!!!!!!!!!!"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""$600""""""""""""""""""""""""" (Example"of"Income!Statement)" The"report!form"balance"sheet"lists"the"assets,"liabilities,"and"owner’s"equity"vertically" Withdraw"decrease"the"owner’s"equity" " """""""""""""""""""""""""""""""""""""""""""""""""""""""""""""Ted’s!Golfing!School! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Balance!Sheet! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!April!12,!20>" !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Assets! Cash"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""$"3"305""" Account"Receivable/P."Moores"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""95" Account"Receivable/L."Troop"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""45" Equipment"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""5"200" Total!Assets!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!$!8!645! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Liabilities!and!Owner’s!Equity!! !Liability! """""Account"Payable/Jack’s"Repair"Shop""""""""""""""""""""""""""""""""""""""""$"1"125" """""Total!Liability!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!$!1!125! ! """""Owner’s!Equity! """""T."Craig,"Capital"on"April"1"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""7"100" """""Add:"Net"Income"for"October"""""""""""""""""""""""""""""""""420" """""Less:"Drawing"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""0""""" """""Increase"in"Capital""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""420" """""T.!Craig,!Capital!on!April!12!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!7!520! """""Total!Liabilities!and!Owner’s!Equity!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!$!8!645! " """(Example"of"Report!form!of!Balance!Sheet)" " 5.!Introduction!of!the!owner’s!Drawing!account.! A"withdrawal"is"an"amount"that"the"owner"of"the"company"withdraws"from"the"company"" A"withdrawal"of"asset"is"recorded"in"an"account"is"called"Drawing."" Since"the"withdrawal"of"assets"affects"the"owner’s"investment,"the"Drawing"account"is"an"equity"account."""" The"Drawing!account"records"the"withdrawal"of"asset"from"the"business"by"the"owner." " The"Owner’s"Drawing"account"is"debited"whenever"assets"withdrawn"by"the"owner"of"the"company"for"personal"use:" """"""a."Withdraw"cash;" """"""b."Removing"merchandise"for"personal"use;"(remove"a"computer"to"the"owner’s"house"for"personal"use.)" """"""c."Taking"equipment...
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