m3l4 - Fall 2010 Module 3 Accounting Finance Lecture 4...

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David Robinson © D. Robinson, 2010 Fall 2010 Module 3 Lecture 4: Balance Sheet
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Accounting Managerial Financial Finance Auditing How investors use their money How firms raise money Three financial statements Forms of business Income St. Balance Sheet St. Cash Flows
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Financial Accounting II • Double Entry Bookkeeping • Fundamental Accounting Equation 2 • Balance Sheet
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How Much is our Simple T-Shirt Business Worth? • We paid $90 for the screens last year • We begin this month with $1,200 • Buy 100 t-shirts for $9 $900 • Cash we have left: $300 Is our “firm” only worth $300?
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How Much is our Simple T-Shirt Business Worth? • We paid $90 for the screens last year • We begin this month with $1,200 • Buy 100 t-shirts for $9 $900 • Cash we have left: $300 Is our “firm” only worth $300? No. We still have $900 inventory
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At the beginning of the month: • We paid $90 for the screens last year • We begin this month with $1,200 cash Value of our firm is $1,200
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Later on in the month: • We paid $90 for the screens last year • We now have $ 300 cash and Inventory of $ 900 Value of our firm is still $1,200
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Double Entry Bookkeeping Keeping the books “in balance” shows good record keeping
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Double Entry Bookkeeping • A system in which each transaction results in two entries • A system of debits and credits in which the Accounting Equation must always remain in balance
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Example: Double Entry Bookkeeping • We have $1,200 in Cash, and buy 100 t-shirts at $9each The two entries Cash goes down by $900 ± Inventory goes up by $900 “Inventory” is an account
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Simple T-Shirt Balance Sheet: Assets • Cash $ 300 • t-shirts (inventory)$ 900 • Assets are: $ 1,200
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Format for the Balance Sheet “The Fundamental Accounting Equation” Assets = iabilities + Owners’ Equity 22 Liabilities + Owners’ Equity ALE
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m3l4 - Fall 2010 Module 3 Accounting Finance Lecture 4...

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