Accounting … Chapter 1

Basic Accounting equation :

Assets = liabilities + owner's equity
 This equation must be in balance after each transaction
then the assets may be change plus + or minus - and
liabilities may be change + or – also , owners equity may
be + or -.
Note that :
 Assets are claimed either creditors or owners.
 Claims of creditors must be paid before owner ship
claims.
Ex :
 Matrix company has total , liabilities of 12.7 million and
owner's equity of 11.8 million.
What is total assets of matrix company ?
 Answer : total asset of 24.5 million.
Assets
 Are resources owned by a company or by organization
that have future benefits or service.
Ex :
 Campus pizza owns a delivery truck that provides
economic benefits from like tables , chairs , cash , oven
and mugs.
Example of assets :
a- Cash.
b- Supplies.
c- Land.
d- Equipment.
e- Account receivable (A/R) : the amount of goods and
services that sold on credit.
f- Notes receivable (N/R) : the amount of goods and
services that sold on bill and has interest receivable.

Types of assets

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Accounting … Chapter 1

Current Assets Fixed Asset

1- Current assets : short – term assets that can be converted
into cash quickly.
2- Fixed assets : long – term assets that purchased by the
company for using not selling it.
Note that :
 Fixed assets could not be converted into cash quickly.
Ex :
 Land , Equipment , Buildings.
Liabilities
 Are claims against assets like debts and obligations that
the company owes these money to creditors.
Ex :
 Campus pizza purchases cheese , and sausage and flour
on credit from suppliers, these obligations are called
Accounts payable. Campus taxes payable to government.
 Notes payable to national bank for the money borrowed
to purchase the delivery
Examples of liabilities :
a- Accounts payable (A/P) : good that company
purchased account.
b- Notes payable (N/P) : note to be paid by the company
later.
c- Interest payable.
d- Tax payable.

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Accounting … Chapter 1
Owner's equity
 The ownership claims on total assets . it is equal to total
asset minus total liabilities.
(assets – liabilities = owners equity)
 The assets of A business are supplied by either creditors
or owners.
 We substract the creditors' claims from assets the
reminder is by the owners so , owners equity is often
referred as (residual equity) as creditor paid first.
Examples of owners equity :
a- Capital.
b- Drawings.
c- Revenue.
d- Expenses.
Note that :
1- Capital is increased by owner investment.
2- Capital is increased by revenue or earnings from sales.
3- Capital is decreased by owner with drawls that takes
from the company for personal use.
4- Capital is decreased by expenses and cost of assets or
services use to earn revenue .
 Owners equity = capital – drawings + revenues –
expenses
 Assets = liabilities + owners equity
 So , Assets = liabilities + capital – drawings + revenue –
expenses
 Net income = revenues – expenses (revenues ˃ expenses)
 Net lose = revenues – expenses (revenues ˂ expenses)

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