Understanding the Balance Sheet
One of the most important uses of accounting data is to show the financial position of a person or a
business or other organization.
1. List and total the things that you own that have a dollar v
Financing - acquiring money for business purposes
Purpose of Financing
Nature of Financing
To finance operations
To acquire assets
Type of Financing
Some Sources of Financing
- Promissory notes
- Contract signed between two parties, where one is promising to repay a certain sum of
money (principal amount), at a certain rate of interest (contract rate) within a certain
period of time (maturity period)
- Can al
- Also called long term assets, plant and equipment, and capital assets
- Subject to depreciation (except for land)
- Used in production
- Long loved assets (lasts for a long time)
Fixed Assets Classification
- Tangible assets (plant, propert
What is Equity?
Our accounting class was given an assignment where we are to create a concept map
about a specific topic. This visual representation is has to illustrate our understanding about the
topic and its relationship to important terms learned. My
Advantages of Corporation
o In case of a lawsuit or bankruptcy, the liability of shareholders is limited to the
amount that they pay for the shared. Their personal possessions are protected
because corporation is a separ
Easy (E) Answers
1. What is the synonym of a long term asset?
2. Within what period should current liabilities be paid?
3. Are automobiles a fixed asset?
4. Is the net income and drawings included on a classified balance sheet?
Accounting: a system of dealing with financial information that provides information for
What is accounting? 5 main activities
Gathering financial info about the activities of a business
Prepare and collect permanent records provide evi
Analyzing Financial Transactions on the Balance Sheet
Business Transaction: Are events, which cause a change in financial position.
E.g. #1 A business buys an automobile for $15 000 cash
o Is an event called a business transaction because it causes a cha
GAAP- The Business Entity Concept:
Accounting for a business must be kept separate from the personal affairs of its owner, or from
any other organizations
This means that the owner of the business should not be place any personal assets such as the
What is accounting?
5 main activities.
Gathering Financial information
o about the activities of the business or other organization
Preparing and collecting permanent records
o Records provide evidence of purchase, payment, details of payrol
The Simple Ledger
Account and ledger used to maintain an up-to-date financial position
An account is a page designed to record changes in each item affecting the financial position, each such
item is one account
All accounts together
The Expanded Ledger: Revenue, Expense, and Drawings
Expanding the Ledger
there is a number of accounts in the equity section
each new account reflect a particular transaction that affects owners equity
you will see accounts for
o Revenue: w
Debit and Credit Theory
Also called the balance column account
Normal balance is the side where the account increases
Prepaid insurance/expenses = Asset Account
Unearned Revenue = Liability Account