1. Debits and Credits (3).docx - Debits and Credits – The...

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Debits and Credits – The mechanics of Accountinga.Basic definitions:I.Business Transaction: “Act of exchanging something”. Could be for:Purchasing food products, employee labor, or any other resource needed bythe company during the conduct of business.Using as a medium betweenparties: Money in the form of cash, check, credit card, or promise of futurepayment.II.Basic accounting equation:The “things” owned by the company are called Assets.Those Assetsare being provided by:a. “Third parties, such as banks or other lenders”, in this case we willcall them Liabilities, or by,b. “The company owners”. We will call it: Owners ‘Equity.Assets = Liabilities + Owner’s EquityLiabilities: Are OBLIGATIONS (money owed) to outside entities. (3RDPARTIES RESOURCES)Examples: Amounts owed to suppliers, a Long-term Bank Loan(Mortgage), a Short-Term loan to a Lender, Salaries earned but not yetpaid to the employees.Owners ‘Equity:The CAPITAL invested by the company “owners”,which was then invested in the companyassets. (OWN RESOURCES)Assets - Liabilities = Owner’s EquityIII.

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Term
Spring
Professor
Mr.chen
Tags
Generally Accepted Accounting Principles, Double entry bookkeeping system, Owner s Equity

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