CHAPTER 7 AND 8

ASSETS = LIABILITES + EQUITY

1. ASSETS
2. LIABILITIES
3. EQUITY
Resources controlled by the enterprise as a
result of past events and from which future
economic benefits are expected to flow to
the enterprise.
Assets which are expected to be realized
within the ordinary course of business, or a
span of 12 months, whichever is longer.
Realization means to be converted into
cash, sold, disposed or consumed.
1. CASH
These include money such as bill and coins.
Bank deposits are also considered as part
of cash. Cash equivalents are short-term
investments which are considered to be
subject to negligible change in fair value.
2. ACCOUNTS RECEIVABLE
Oral promises to received cash at a later
date. Trade receivables arise from the
ordinary course of business and those
which do not, are called Non-trade
receivables.
2. ACCOUNTS RECEIVABLE
Not all receivables are collectible, hence,
the account Allowance for Doubtful
Accounts or Bad Debts Allowance is
recorded.
3. SHORT TERM INVESTMENTS
Investments that are expected to be
liquidated in less than a year.
4. NOTES RECEIVABLE
Written promises to received cash at a
later date. Also called Promissory Notes.
5. INVENTORIES
Items purchased for the purpose of selling
it to customers. It also includes Finished
goods, Raw Materials, Work-in-process,
and certain supplies.
6. PREPAYMENTS
Amount paid in advance for goods or
services anticipated to be received by the
entity in the future.
Assets that do not meet the definition of
current assets are classified in this
category.
1. INVESTEMENTS
The most liquid form of non-current assets.
Includes long-term notes, government
treasury bills, and funds set aside for long-
term purposes.
2. FIXED ASSETS
The most tangible assets. Examples are
Land, Land improvement, Buildings,
Machineries, Equipment, and Furniture
and Fixture.
3. INTANGIBLE ASSETS
Assets lacking physical substance. Prime
examples are patents, copyrights,
franchises, goodwill, trademarks, and
licenses.
Obligations of the entity to outside parties
Liabilities which are expected to be settled
or paid within 12 months.
1. ACCOUNTS PAYABLE
Oral promises to pay cash in the near
future.
2. NOTES PAYABLE
Written promises of the entity to pay a
sum certain in a future determinable time.
Notes Payable can be paid in Lump Sum or
in Installments.
3. ACCRUED LIABILITIES
Expenses already incurred but not yet paid.
Also called Accrued Expenses.
4. UNEARNED REVENUES
Cash received in advance from customer
for services yet to be rendered or
inventories yet to be delivered.
5. CURRENT PORTION OF LONG TERM
DEBT
The current portion of the long-term debts,
that is, the principal maturing within 12
months.
Liabilities which are expected to be settled
or paid after more than 12 months.
Reflects the residual claims of the owners
of an entity. This is similar to the net worth
of the SALN of our public servants.
Factors affecting equity:
1. Revenues
2. Expenses
3. Capital Contribution
4. Income Distribution to Owners
1. Revenue
Earnings through selling of products or
performance of services.
2. Expenses
Amounts incurred/consumed in support
for the business operations. Examples are:
Utilities, Office Supplies, Insurance,
Salaries and Interest.
1. Initial Investment. Manang Rosie has
been well known for her delicious
barbeques. As such, she decided to open
up a barbeque store in her neighborhood.
The store would be a sole proprietorship.
In order to do so, she invested 25,000Php
as initial capital.
2. Purchase of equipment. She
went to the local hardware store
and bought the necessary
equipment such as grills and
utensils for 20,000Php.
3. Purchase of inventories.
Manang Rosie bought meat
amounting to 10,000Php
promising to pay the amount
due within 30 days.
4. Payment of Expenses.
Manang Rosie obtained
business and other permits. She
paid 1,000Php.
5. Sale of Barbeques. Manang
Rosie was able to sell barbeques
for 20,000Php. Half was paid in
cash and the other half was to
be paid in 5 days.
a. Owner invested cash in the business
amounting to 300,000Php.
b. Purchased equipment for cash
amounting to 50,000Php.
c. Purchased inventories through credit
amounting to 35,000Php.
d. Purchased furniture amounting to
30,000Php. Partial payment with cash
for 10,000Php and the balance is
payable in 30 days.
e. Paid cash to the local government for
permits, 9,000Php.
f. Made cash sales of 12,000Php and
5,000Php credit sales.
g. The cost of the sales made in (f)
amounted to 8,500Php.
h. Paid the accounts payable in (d).
i. Collected 50% of the credit sales.
j. Paid employee salaries, 12,000Php.