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LECTURE NOTES FOR CHAPTER ONE The first rule in the study of accounting is: Learn how to translate “accountingese’ into plain English . Accountants love to use big words and fancy phrases. (Makes us look smart and we can therefore charge more) For example, accountants don’t say “The company has a debt”, they say “The company has a liability” Once you cut through all the big words and fancy phrases, a liability is just a fancy name for a debt. The accountant’s motto is “Never use a simple term if you can use a complicated term instead”. Throughout the course, I will be sending out memos in which I translate ‘accountingese’ into plain English. You are going to be amazed at how simple and logical accounting is once you learn how to put it into plain English. Please cut me some slack regarding my typing and my grammar. I am not a typist so margins and centering means nothing to me. Also “This ain’t no English class” so when I’m sending out these pearls of wisdom , I’m not going to spend a lot of time pondering whether I should use a comma or a semi-colon. HEAR YE, HEAR YE Just because an item isn’t discussed in these lecture notes, doesn’t mean it isn’t important. The only items that are discussed here are items that I think can be explained in more “down to earth” terms than the book uses. Something might be very important but if I don’t think I can explain it any better than the book did, then it won’t be mentioned here. THIS STATEMENT APPLIES TO THE ENTIRE COURSE, NOT JUST TO THIS CHAPTER. ACCOUNTING TERMINOLOGY IN PLAIN ENGLISH ASSETS- Anything that has value is an asset. Common examples are land, building . equipment and cash. You might refer to your personal assets as “your stuff”. Things like your car, clothes, CD equipment, books are referred to as “your stuff”. Assets are simply the company’s “stuff” LIABILITIES- As stated previously, a liability is just a fancy name for a debt. 99% of the time a liability will have the word “payable tacked on the end. The item might be named Accounts Payable, Notes Payable, rent payable etc. Regardless of what word is attached, if it contains the word “payable” it is a liability. OWNERS EQUITY – That is the part of the business that is owned by the owner. To illustrate, assume you want to purchase a new car for $30,000. However, you only have $25,000, so you borrow $5,000 from the bank and purchase the car. You now have a $30,000 car sitting in your garage, but how much of that car do you own? $25,000. Many people overlook the fact that the bank owns $5,000 of your car. 1
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Thus, owners equity is how much of the asset is owned by the owner. This is true whether you’re talking about one asset or an entire company. Another name for owners equity is CAPITAL REVENUE – Anytime you do something that makes you better off financially, that’s revenue. There is only one way to acquire revenue and that is to earn it.
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