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Controlled by the entity as a result of past events and from • Residual interest in the assets of the entity after
which future economic benefits are expected to flow to the deducting all liabilities.
enterprise.
• Simply stated, equity means
Classification: Current and Non-current Assets
“NET ASSETS” or total assets minus liabilities.
Examples of Assets
Owner’s Equity = Assets - Liabilities
Current Assets
Liabilities and Equity
• Cash and Cash Equivalents
• Both liabilities and owners' equity represent
• Accounts Receivable CLAIMS on the assets of a business.
Balance Sheet
• “Results of Operations”
Classification of Income
Service Income
– Revenues earned by performing services.
Sales
– Revenues earned as a result of sale of
merchandise.
Classification of Expenses
Income Statement
(Merchandising Business)
• ACCOUNT
• The analysis of transactions should follow these
four (4) basic steps:
Source Documents
4. bank statements
What is a TRANSACTION?
5. checks
– a particular kind of event that involves the
transfer of something of value between 6. purchase orders, etc.
two entities.
A transaction may do one of several things:
Example:
• It may increase both the asset side and the
• Acquiring assets from owner(s)
liabilities and owners' equity side.
• Borrowing funds from creditors
Transaction Analysis • It may decrease both the asset side and the
liabilities and owners' equity side.
• Is the central component of the financial
accounting process. (-)Assets = (-)Liabilities + (-)Owners' Equity
– Remember that every transaction must A transaction may do one of several things:
keep the accounting equation in balance.
• It may cause both an increase and a decrease on
the asset side.
(+ & -)Assets = Liabilities + Owners' Equity Journal Entry
Note:
Journal Entry
Transaction Analysis