Accounting

*Assets
An asset is a resource controlled
by the entity (as a result of past
events) from which future
economic benefits are expected.
Or in other word, assets are ‘what
the business owns’.
 ASSETS are the
RESOURCES OWNED BY A BUSINESS .
Here are some types of assets that might
be owned by a business company:

Cash
Accounts
Receivable

Vehicles ASSETS Land

Buildings

Equipment
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 *Changes in assets
Decrease Assets Increase Assets
Purchasing Supplies Purchasing Supplies
(The asset account (The asset account
Cash decreases) Supplies increases)
Owner Draws Owner Contributions
Repaying bank loans Receiving bank loans
Credit purchases
 *Liabilities
Liabilities are present obligations
of the entity (arising from past
events), the settlement of which
is expected to result in an
outflow of economic benefits. Or
in other word, liabilities are
‘what the business owes’.
 LIABILITIES are the
CREDITOR’S CLAIMS ON ASSETS.
• Creditors are the people or companies to whom a business
owes something (like money).
• Here are some types of liabilities that a company might owe:

Accounts Rent
Payable Payable

LIABILITIES

Taxes Wages
Payable Payable

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 *Examples
*The most common liability is a loan.
*Another common liability is called creditors.
*A creditor, also known as a payable, is any
business or person (apart from the bank) that
you owe.
*Suppliers (who you owe for products purchased
on credit) would fall under creditors.
 *Owner’s equity
Owner’s Equity is defined as
the residual interest in the
assets of the entity after the
deduction of its liabilities.
 *Owner’s equity
*Represents the value of the assets that the
owner can lay claim to.
*The value of all the assets after deducting
the value of assets needed to pay
liabilities.
*It is the value of the assets that the
owner really owns.
OWNER’S EQUITY = ASSETS - LIABILITIES
 EQUITY is the OWNER’S CLAIM ON ASSETS
In a business EQUITY is composed of four
parts that either increase or decrease equity:
EQUITY

CAPITAL: WITHDRAWALS: REVENUES: EXPENSES:

What the owner
puts into the
− What the owner
takes out of the
+ What the
company − What the
company pays
business business receives for to operate the
sales business.

INCREASE DECREASE INCREASE DECREASE

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 *Changes in owner’s equity
Decrease Owner’s Increase Owner’s
Equity Equity

Expenses Revenues

Losses Gains

Owner withdraws Owner investments

Beginning Capital
 *Revenues
*Income
*Example: a service company earns
revenue when it provides services to
its clients
*Recorded as an increases in owner’s
equity and an increase in assets
 *Expenses
*The costs the company incurs in
carrying on operations in its effort to
create revenue
*Decrease owner’s equity
*Can be paid for with cash (decreases
assets)
*Or charged (increase liabilities)
 *Net income vs. net loss
*Net Income: The company is bringing in more money
than it is spending to continue operations.
*Revenues > Expenses
*Net Loss: The company is bringing in less money than
it is spending to continue operations
*Revenues < Expenses
*Break Even: When a company’s revenues are equal to
their expenses
 *Owner’s equity
Beginning Capital Net Income*
PLUS Withdraws
Additional + Revenues -
Investment -- Expenses

If expenses are greater than revenues, then a

net loss would result. This loss would be
subtracted from capital because it would be a
negative number.
*Equation
The word equation comes from the word
equal.

It is a state of being essentially equal or

equivalent; equally balanced.

For any equation, one side always equals

another.
 *Accounting equation

Assets = Liabilities + Owner’s Equity

 *The accounting equation
ASSETS = EQUITY + LIABILITIES
*The accounting equation indicates how much
of the assets of a business belong to, or are
owned, by whom.
*Assets can only ‘belong’ to two types of people:
*people outside the business who are owed
money (liabilities)
*the owner himself (owner’s equity).