LESSON 3

• Accounting Equation

  A=L+OE
• The accounting equation is composed of?

  Assets  , liabilities, Owner's Equity(capital)
• Assets - It is the sum of liabilities and owner's equity
• Liability/Liabilities - It is the difference after the owner's equity is deducted to asset.
• Assets - Are the items that a company owns that can provide future economic benefit.
• Assets - These are valuable resources controlled by the company
• Liabilities - are the financial obligations of a company that results in the company's future sacrifices of economic benefits to other business
• Owner's Equity - Is the money that is bought by owner's of the company for running the business.
• Owner's Equity - It is the residual interest of the owners which means any asset left paying liabilities is the right of the owner of the business
• Four(4) Elements that Affect Equity

  • Investment
  • Withdrawal
  • Revenue
  • Expenses
• Investment - Is an asset of item acquired with the goal of generating income or appreciation
• Withdrawal - Occurs when funds are removed from an account for personal use
• Revenue - Is the total amount of income generated by the sale of goods or services related to the company's primary operations
• Expenses - Is the cost of operations that a company incurs to generate a revenue
• 5 Major Accounts Namely:

  Asset

  Liabilities

  Owner's Equity

  Revenues

  Expenses
• These are real or permanent accounts -

  Assets, Liabilities and Owner's Equity
• It is a Nominal or temporary accounts -

  Revenues And Expenses
• Assets - These are resources owned and controlled by the company
• Two Classification of Assets -

  Current Assets

  Non-Current Assets
• Current Assets - Are assets that can be collected,sold and even used up to one year after year end date
• Non-current Assets - Are assets that cannot be collected,sold and even used up to one year after year end date
• CURRENT ASSETS (CANISPAS) -

  Cash

  Accounts receivable

  Notes Receivable

  Inventories

  Suppliers

  Prepaid Expenses

  Accrued Income

  Short term Investments
• Cash - Is money on hand, or In banks, and other items considered as a "medium of exchange" in business transactions
• Accounts Receivable - Are amounts due from customers arising from debts
• Notes Receivable - Are amounts due from clients supported by a written note or promise
• Inventories - Are assets held for resale in the course of the business
• Supplies - Are items purchased by the enterprise that is unused as of reporting date
• Prepaid Expenses - Are advanced payment for expenses
• Accrued Income - Is an income or revenue earned by the firm but not yet collected
• Short Term Investments - Are the investments made by the company that is intended to be sold immediately
• NON CURRENT ASSETS -

  Property, Plant and Equipment

  Long term Investments
• Property,Plant and Equipment - Are long-lived assets that have been acquired for use in operations Examples: Furniture, land,machinery etc.
• Long Term Investments - Are the investments of the firm made for long term purpose
• Non current assets may be subdivided into:

  Tangible Assets

  Intangible Assets
• Tangible Assets - Are physical in nature; can be touched. Fixed assets such as furnitures and fixtures and property plant, and equipment
• Intangible Assets - Are non physical assets in the form of trademarks, copyrights, or patents(intellectual property )
• Liabilities - are the obligations of the company arising from past events which are to be settled in the future.
• Liabilities - These represent what the company owes to other people,organization, and financial institutions
• There are two classification of liabilities:

  Current Liabilities

  Non-current Liabilities
• Current Liabilities - Are those that reach it due date for payment within one year after year end date