this is understood to be accounting connected with a

merchandising organization devoted solely and exclusively to

buying and selling goods and obtaining a profit after covering
expenses

MERCHANDISER: EXPENSES PROFIT SALE

BUYS

CONVERTS
MANUFACTURER: EXPENSES PROFIT SALE
BUYS

COST
ACCOUNTING
 CAPITAL
Financial resources provided by
DEFINITION
partners or shareholders, in order
to obtain benefits.
CHARACTERISTICS It is key to produce goods and
services
• Money for real estate.
• Investment in bonds and
EXAMPLES shares.
LIABILITIES
Debts and obligations
incurred by a company to
carry out its activity
Finances activities of the
company.
• Mortgage loans.
• Debts to pay.
we have stated that those who will enjoy them or will be
if there are: injured by them are:
PROFITS
PROFITS OWNERS
OWNERS

ENTERPRISE
ENTERPRISE
LOSSES
LOSSES CAPITALIST
CAPITALIST

CAPITAL
CAPITAL
is the only factor with a
right to the profits or to
absorb the losses
 In theory the revenue should be added to the capital or the expenses
subtracted from it

A single capital account is used to record the capital with which the
bussines initiates its operations, as well as any additions that may be
made to it at the decision of the owners or the board of directors.

As many accounts as may be necesary are opened for the revenue and
expense transactions.

The revenue and expenses of a bussines are those resulting from the activities for
which the business was established. In the case of abusiness the major source of
revenue would be its sales and consequently, among its revenue accounts there
would be one headed sales.
 asset = liabilities + capital + revenue - expenses
thus far we have the following accounts

asset accounts this equiation is valid so long as the asset-

the enterprise's property- include the value
of the net income or net loss.
liability accounts

capital account or
proprietorship or LIABILITIES
owners ASSETS
+
CAPITAL
revenue accounts
+
REVENUE
- NOMINAL
ACCOUNTSS
EXPENSESS
expense accounts
 supposing that after a year in operation, by December 31,
the explain what we've stated with an we find that the business has lent a variety of customers a
example, let us return to the initial balance of total of $70,000 that it has collected all that it lent out and
our firm that, including the interest received, it has obtained a sum of
$120,000. Obviously the asset- what the business owns- will
have risen by $50,000, which is the difference between
Initial Balance , January 1° what was taken in (revenue: $120,000) and what was
loaned out (expenses: $70,000)
ASSET
$150,000 LIABILITIES $105,000
CAPITAL As a result, the assets would stand at:
45,000 $150,000 + $50,000 = 200,000
150,000 Balance Sheet, December 31

150,000 LIABILITIES $105,000

ASSET $200,000 CAPITAL $ 45,000
S
Plus revenue 120,000
165,000
Less expenses 70,000 95,000

$200,000
$200,000
 REAL ACCOUNTS
Are comprised of
• Asset accounts
everything relating to the
property or debts of the
• Liability accounts
business and are
subdivided into:
• Capital account

NOMINAL ACCOUNTS
Refer to the business • Revenue accounts
activities or transaction • Expense accounts
and are broken down
into:

It should be observed that the real accounts concern the property or debts of the business and the nominal
accounts, its transaction
 In order for all of the terms of
equation to bear a plus sign, we
shall pass the expenses from the
second to the first part of the
equation

ASSET = LIABILITIES + CAPITAL + REVENUE -

EXPENSES LIABILITIES
REAL ASSETS
REAL
ASSET + EXPENSES = LIABILITIES + CAPITAL + ACCOUNTSS
ACCOUNTSS
REVENUE

EXPENSES CAPITAL
NOMINAL
All of the elements carry a plus ACCOUNTSS S
sign because in accounting all
entries should bear this sign REVENUE NOMINAL
ACCOUNTSS
S
For purposes of clarity and to enable the different items of
the balance sheet to be analyzed and studied, the asset and
liability accounts are broken down.

We have stated that the balance sheet shows the condition of

business at a given moment

because their balance pass directly into the balance sheet

and because of their lasting nature, the capital, asset and
liability accounts are given the name of real or permanent
accounts
 REVENUE ACCOUNTS EXPENSE ACCOUNTS

These represent revenue-producting These represent disbursement-producing

transactions or ones involving less expence transsanctions or ones involving less revenue
for the business for the business

For example: For example:

- sales - purchases
- purchases allowances - sales allowances
- transportation of purchases
 We are in a position to perform the following activities for a business

- Open the accounts , an operation wich must be carrierd out

before the business can initiate its activities

- Make entries in the accounts during the fiscal year or

accounting period, as the firm carries out its transactions

These two aspects shall be taken up in the following chapter , the

opening of accounts and making of entries during the fiscal year
or accounting period is called book keeping