Chapter 1 Asset, Liability, Owner’s Equity, Revenue, and Expense Accounts
Assets • Assets are ________ and other things of value owned and controlled by an ______________ or ______________ . • ____________ • ____________ • ____________ • ____________ • ____________
Owner’s Equity • The owner’s right, claim, or financial interest is expressed by the word ___________in the business. • Another term that could be used is ___________
Owner’s Equity • Suppose the total value of the assets is $80,000 and the business entity does not owe any amount against the assets. What is the owner’s equity?
Creditor • An entity’s assets consist of a truck that costs $35,000. The owner has invested $12,000, and the business entity has borrowed the remainder from the bank, which is a ________.
Liabilities • We have now introduced a new classification, ___________, which represents debt. The creditors’ claims to the assets have priority over the claims of the owners.
Fundamental Accounting Equation • An equation expressing the relationship of assets, liabilities, and owner’s equity is called the _________________ ____________ __________________. = +
Determine Assets • Millie Adair has $17,000 invested in her travel agency, and the agency owes creditors $5,000; that is, the agency has liabilities of $5,000. What is the amount of assets?
Determine Owner’s Equity • Larry Roland owns a car repair shop. His business has assets of $40,000, and it owes creditors $16,000. What is the amount of owner’s equity?
Determine Liabilities • Theo Viero’s insurance agency has assets of $86,000; his investment (his equity) amounts to $46,000. What is the amount of the agency’s liabilities?
Recording Business Transactions • The ________________ of the fundamental accounting equation _________ always equal the _______________________.
Recording Business Transactions • J. Conner establishes her own business and calls it Conner’s Whitewater Adventure. Conner’s Whitewater Adventure is a sole proprietorship, a one-owner business.
Transaction (a) - Conner deposited $90,000 in a bank account in the name of the business. Conner deposits $90,000 cash in a separate bank account in the name of Conner’s Whitewater Adventures. Treating the business as independent from its owners, creditors, and customers is called the _________________ concept.
Four Steps Used to Analyze Transactions • Are the accounts increased or decreased? • Yes What accounts are involved? • _______ and J. Conner, ________ • What are the classification of the accounts involved? • _______ is an _______ and J. Conner, _______ is an _______ _________ account • Cash is _______ because Conner’s Whitewater Adventures has _______ cash now than it had beforeJ. Conner, Capital is _______ because Conner has a _______ investment now than she had before. • Is the equation in balance after the transactions have been recorded?
Transaction (a) - Conner deposited $90,000 in a bank account in the name of the business. The account denoted by the owner’s name followed by the word ____________ records the amount of the owner’s investment (or ________) in the business.
Transaction (b) - Conner bought equipment, paying cash, $38,000. It is important to note at this point that Conner does not invest any new money. She simply exchanges part of the business’s cash for equipment.
Transaction (c)- Company bought equipment on account from Signal Products, $4,320. The ________________ account shows an increase because the business owns $4,320 more in equipment. The liability account ________________ is used for short-term liability or charge accounts. The company to which money is owed, Signal’s Products, is called a ________________ .
Transaction (c) - Company bought equipment on account from Signal Products, $4,320.
Transaction (d)- Company paid Signal Products, a creditor, $2,000 on account. The amount paid will be applied against the firm’s liability of $42,320.The asset _________ and the liability _________are both _________ by $2,000
Transaction(e) - Owner invested equipment with a fair market value of $5,200 in the business. Conner invested her own computer equipment in the company. It has a ________________ of $5,200. The _________________ is the present worth of an asset.
The following observations apply to all types of business transactions: _______ transaction is recorded as an _________ and/or _________ in _________ accounts _______ side of the equation is _________ to the _______ side of the equation Note:
Revenue and Expense Accounts • ___________ are the amounts ____________ by a business. • _________ earned for performing services • _________ from selling merchandise • _________ income for the use of property • _________ income for lending money Revenues may be in the form of _____________ or _________________________ .
Revenue and Expense Accounts • ___________ are the costs that relate to earning revenue (or the ____________________________ ). • ___________ expense for labor performed • ___________ expense for the use of property • ___________ expense for the use of money • ___________ expense for the use of various media If a business earns revenue, an ______________ in ______________ occurs. When a business incurs or pays expenses, ______________ _____________.
The chart of accounts is the official list of accounts tailor-made for the business.
Transaction (f)- Company sold whitewater rafting tours for cash, $8,000. Conner receives _____________ of $8,000 in return for whitewater rafting tours performed for customers over two weeks.
Transaction (g)- Company paid rent for the month, $1,250. Shortly after opening the business, Conner pays the month’s rent of $1,250.
Transaction (h)- Company bought supplies on credit, $675. Conner’s Whitewater Adventures buys office supplies costing $675 on credit from Fineman Company.
Transaction (h)- Company paid for insurance, $1,875. The company paid for a one-year liability insurance policy. Because it is paid ____ ____________ for a period longer than one __________, it has value and is recorded as an __________ .
Recap Steps in Analyzing Transactions • ________ the ___________ to understand what is happening and how it affects the business. • Decide on the ____________ of the __________ involved. • Decide whether the accounts are ____________ or ____________ . • After recording the transaction, make sure the __________ __________ is in ____________ .
Transaction (i)- Company receives a bill for an expense, $620. The company receives a bill from the Times for newspaper advertising. _______ is not used because the bill has ____ ______ paid.
Transaction (k)- Company sold services on account. Conner’s Whitewater Adventures signs a contract with Crystal River Lodge to provide rafting adventures for guest. Whitewater Adventures provides 27 one-day rafting tours and bills Crystal River Lodge for $6,750. The company uses the ____________________ account to record amounts due from charge customers. ____________________ is an _________.
Transaction (l)- Company paid ________ on account. Conner’s Whitewater Adventures pays $1,500 to Signal Products, its _______ as part payment on account.
Transaction (m) - Company paid an expense in cash, $225. Conner’s Whitewater Adventures receives a bill from Solar Power, Inc. for $225. This bill has not been previously recorded.
Transaction (n) - Company paid creditor on account, $620. Conner’s Whitewater Adventures pays $620 to the Times for advertising. Recall that this bill had been previously recorded as a liability in transaction (j).
Transaction (o) - Company paid an expense in cash. Conner’s Whitewater Adventures pays wages of a part-time employee, $2,360.
Transaction (p) - Company buys equipment on account for $3,780, making a cash down payment of $1,850 and charging $1,930. Conner’s Whitewater Adventures buys additional equipment from Signal Products for $3,780, paying $1,850 down with the remaining $1,930 on account. Because buying an item on account is the _________ buying on _____________, both terms are used to describe such transactions and involve __________________.
Transaction (q) - Company buys equipment on account for $3,780, making a cash down payment of $1,850 and charging $1,930. Note that three accounts are involved in this transaction – ______________