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Property and Financial Claims

Property and Financial Claims. Chapter 3 Section 1. Key Terms. Assets Equities Owner’s Equity Liabilities Accounting Equation. Property Financial Claim Credit Creditor. What is Property?. Property is anything of value that a person or business owns and therefore controls. Examples….

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Property and Financial Claims

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  1. Property and Financial Claims Chapter 3 Section 1

  2. Key Terms • Assets • Equities • Owner’s Equity • Liabilities • Accounting Equation • Property • Financial Claim • Credit • Creditor

  3. What is Property? • Property is anything of value that a person or business owns and therefore controls. • Examples…

  4. Financial Claim • Financial Claim is the legal right to an item. • When you purchase an something you gain legal right to that item. • In Accounting, Financial Claim is measured in dollar amounts.

  5. Financial Claim Cont.. • If you purchase an iPad for $500, your financial claim over the iPod is $500. Property (Cost) = Financial Claim iPod = Your Claim to the iPod $500 = $500

  6. Purchasing on Credit • When you buy an item and agree to pay for it later is purchasing on Credit. • The business or person selling you the item on credit is called a creditor. - A Creditor is any person or business to which you owe money.

  7. How Credit Affects Financial Claims • If you purchase a car for $25,000 by making a down payment of $3,000 while financing the remaining $22,000 (using a bank loan) the Financial Claim to the car is shared by you and the bank.

  8. Credit and Financial Claims Cont… Property (Cost) = Financial Claim Car = Claim is shared by you and the bank $25,000 = $3,000 (you) + $22,000 (bank)

  9. Financial Claims in Accounting Assets - property or items of value owned by a business • Cash • Office equipment • Manufacturing equipment • Buildings • Land

  10. Financial Claims in Accounting Cont… Equities - The Accounting term for Financial Claims to an Asset

  11. Financial Claims Cont… A small company named Roadrunner Delivery Service purchases a Delivery Truck for $10,000. Roadrunner makes a down payment of $3,000. A bank loans the remaining $7,000 to RDS. Both RDS and the bank have a financial claim to the truck.

  12. Financial Claims in Business Purchases Property = Creditor’s Financial Claim + Owner’s Financial Claim Truck ($10,000) = Bank ($7,000) + RDS ($3,000)

  13. Repayment of Loan • As RDS repays the loan, the Bank’s financial claim over the Truck will decrease as RDS’ financial claim will increase. • When the loan is completely repaid, the creditor’s financial claim will be canceled.

  14. Two Types of Equities • Owner’s Equity - Owner’s Financial Claim over an asset. • Liabilities - Creditor’s Claim over an asset. - These are debts a company owes to another organization.

  15. The Accounting Equation Property = Creditor’s Financial Claim + Owner’s Financial Claim Assets = Liabilities + Owner’s Equity

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