ORIE 350 Lecture 2 - ORIE 350 Lecture 2 Recall Activities...

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ts = Liability + Stockholder’s Equity A = L +SE ORIE 350 Lecture 2 Recall Activities of Business Financing We can raise money by: 1. Borrowing 2. Selling Stock 2 categories are used: When borrowing, we incur a liability; when we sell stock, we gave shareholder equity Investing We use this money to buy resources. Or keep it in cash for future use. All these resources are known as assets. Operating If we borrow money, Assets 1 = Liability If we sell stock, Assets 2 = Stockholder’s Equity When we add them both together, Assets 1 +Assets 2 = Liability + Stockholder’s Equity This is known as the accounting equation This is always true: non-equality indicates an error
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We are going to break down the assets value into a number of accounts. We want to keep track of different accounts to keep track of what type of assets we have. For liability, we keep track to keep in mind when we have to pay back the loan. For equity, we break it down too to keep track of what equity we sell. Each account that is broken down has a description of the account type and an amount. However, we keep the number of breakdown reasonable to prevent it from being too complicated. For
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ORIE 350 Lecture 2 - ORIE 350 Lecture 2 Recall Activities...

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