12 ABM Practice

• Accrued Expense


  An expense that has been incurred but not yet paid
• Assets


  Resources owned by the company
• Equity


  The owner's residual interest
• Liability


  Obligation payable to another entity
• Prepaid Rent


  Rent paid in advance
• The Statement of Financial Position is also known as the balance sheet
• The Statement of Financial Position includes the amounts of the company's total assets, liabilities and owner's equity which in totality provides the condition of the company on a specific date
• Types of accounts in the Statement of Financial Position

  • Permanent Accounts
  • Temporary Accounts
  • Contra-assets Accounts
• Permanent Accounts


  Accounts that have balances that remain intact from one accounting period to another
• Assets, liabilities and equity accounts are permanent accounts
• Temporary Accounts


  Accounts found in the Statement of Comprehensive Income that will have zero balances at the end of the accounting period
• Contra-asset Accounts


  Accounts presented under the assets portion of the Statement of Financial Position that are reductions to the company's assets
• Allowance for Doubtful Accounts


  A contra asset to Accounts Receivable that represents the estimated amount the company may not be able to collect from delinquent customers
• Accumulated Depreciation


  A contra asset to the company's Property, Plant and Equipment that represents the total amount of depreciation booked against the fixed assets
• Assets


  What the business owns, the resources controlled by the entity as a result of past events and from which future economic benefits are expected to flow
• Liabilities


  What the business owes or the claims against the business, the obligations arising from past events that are expected to result in an outflow of economic benefits
• Equity or Owner's Equity

  What the business is worth, the residual interest of the owner in the business (assets minus liabilities)
• For a single proprietorship and partnership, the words "owner's equity/partner's equity" are used on the balance sheet
• For a corporation, the words "stockholder's equity" are used on the balance sheet
• Accumulated Depreciation


  A contra asset to the company's Property, Plant and Equipment. This account represents the total amount of depreciation booked against the fixed assets of the company.
• Elements of the Statement of Financial Position

  • Assets
  • Liabilities
  • Equity or Owner's Equity
• Assets


  What the business owns. They are the resources controlled by the entity as result of past events and from which future economic benefits are expected to flow to the entity.
• Liabilities


  What the business owes or the claims against the business. They present obligations arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits {assets}.
• Equity or Owner's Equity

  What the business is worth. It is the residual interest of the owner in the business (assets minus liabilities).
• Examples of Stockholder's Equity Accounts

  • Common stock
  • Preferred stock
  • Paid-in capital in excess of par value
  • Paid-in capital from treasury stock
  • Retained earnings
  • Accumulated other comprehensive income
• Classification of Assets


  • Current Assets
  • Non-Current Assets
• Current Assets


  Assets that are expected to be converted to cash, sold or consumed during the next 12 months or within the normal operating cycle of the business if it is longer than 1 year.
• Normal Operating Cycle


  The period it takes for an entity to buy its inventories, sell them and collect the related receivables.
• Examples of Current Assets

  • Cash and Cash Equivalent
  • Trade Accounts Receivable
  • Notes Receivable
• Examples of Liabilities


  • Trade Accounts Payable
  • Notes Payable
  • Interest Payable
  • Other Accrued Expenses
  • Income Tax Payable
• Non-Current Liabilities


  Debts or financial obligations that are expected to be paid after a year.
• Examples of Non-Current Liabilities


  • Long-term Debts
  • Bonds Payable