Assets liabilities capital
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Assets, liabilities, and capital are the three key components that make up the accounting equation. The entrepreneur Conner invested $1000 cash and a $500 cooler as capital to start his new soft drink business, Cee Drinks. As assets, Cee Drinks owns the cooler, $760 cash, an $800 ice maker purchased on credit, and $240 in soft drink stock. The sole liability is the $800 owed to Keenan Ltd for the ice maker. When applied to Cee Drinks, the accounting equation balances with total assets of $2300 equaling the $800 liability plus $1500 in capital invested.
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3. The accounting equation is not balanced. Assets should equal the sum of liabilities and capital.
Please let me know if you would like me to review the corrected balance sheet.
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For more such innovative content on management studies, join WeSchool PGDM-DLP Program: http://bit.ly/SlideshareFaccounting
Join us on Facebook: http://www.facebook.com/welearnindia
Follow us on Twitter: https://twitter.com/WeLearnIndia
Read our latest blog at: http://welearnindia.wordpress.com
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Eighth Edition
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Chapter 8
Reporting and Analyzing Receivables
This slide deck contains animations. Please disable animations if they cause issues with your device.
1
Financial Accounting: Tools for Business Decision Making
2
Copyright ©2017 John Wiley & Sons, Inc.
Chapter Outline:
Learning Objectives
Explain how companies recognize accounts receivable.
Describe how companies value accounts receivable and record their disposition.
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Describe the statement presentation of receivables and the principles of receivables management.
3
Copyright ©2017 John Wiley & Sons, Inc.
L O 1: Explain How Companies Recognize Accounts Receivable
4
Copyright ©2017 John Wiley & Sons, Inc.
Types of Receivables
5
Copyright ©2017 John Wiley & Sons, Inc.
Recognizing Accounts Receivable (1 of 6)
Service organization records a receivable when it performs service on account.
Merchandiser records accounts receivable at the point of sale of merchandise on account.
Seller may offer a discount to encourage early payment.
Buyer might return goods found to be unacceptable.
Sales returns reduce receivables.
6
Copyright ©2017 John Wiley & Sons, Inc.
Recognizing Accounts Receivable (2 of 6)
Illustration: Assume that Jordache Co. on July 1, 2017, sells merchandise on account to Polo Company for $1,000 terms 2/10, n/30. Prepare the journal entry to record this transaction on the books of Jordache Co.
Jul. 1
Accounts Receivable
1,000
Sales Revenue
1,000
7
Copyright ©2017 John Wiley & Sons, Inc.
Recognizing Accounts Receivable (3 of 6)
Illustration: On July 5, Polo returns merchandise worth $100 to Jordache Co.
Jul. 5
Sales Returns and Allowances
100
Accounts Receivable
100
8
Copyright ©2017 John Wiley & Sons, Inc.
Recognizing Accounts Receivable (4 of 6)
Illustration: On July 11, Jordache receives payment from Polo Company for the balance due.
Jul. 11
Cash ($900 − $18)
882
Sales Discounts ($900 ×.02)
18
Accounts Receivable
900
9
Copyright ©2017 John Wiley & Sons, Inc.
Recognizing Accounts Receivable (5 of 6)
Illustration: Some retailers issue their own credit cards. Assume that you use your JCPenney Company credit card to purchase clothing with a sales price of $300.
Accounts Receivable
300
Sales Revenue
300
10
Copyright ©2017 John Wiley & Sons, Inc.
Recognizing Accounts Receivable (6 of 6)
Assuming that you owe $300 at the end of the month, and JCPenney charges 1.5% per month on the balance due
Accounts Receivable
4.50
Interest Revenue
4.50
11
Copyright ©2017 John Wiley & Sons, Inc.
Anatomy of a Fraud
Tasanee was the accounts receivable clerk for a large non-profit foundation that provided performance and exhibition space for the performing and visual arts. Her responsibilities included activities normally assigned to an accounts receivable clerk, such as recording revenues from va.
Financial Statement PreparationBusiness Transactions must be r.docx
Financial Statement Preparation
Business Transactions must be recorded
Generally Accepted Accounting Principles (GAAP) are employed to record transactions
GAAP requires that business transactions be recorded using the following classifications:
ASSETS Property owned by the business
LIABILITIES Debts of the business
EQUITY Stock, Retained Earnings, Treasury Stock
REVENUE Sales of Services or Products
EXPENSES Costs of Doing Business
Sample Transactions
SOLD SERVICES FOR CASH $ 5,000
CASH INCREASES =ASSET
SERVICES INCREASES = REVENUE
PAID RENT $ 2,000
RENT EXPENSES INCREASES = EXPENSES
CASH DECREASES = ASSET
PURCHASED INVENTORY ON ACCOUNT
INVENTORY INCREASES = ASSET
ACCOUNTS PAYABLE INCREASES = LIABILITY
JOURNALIZED AND POSTED TRANSACTIONS
TRIAL BALANCE
Financial Statements
*
A business is usually defined as a commercial enterpriseSome are run by only one person who carry out all of the required functionsOthers employ thousands of people and provide goods and services to people all over the worldEach business can be defined or described by its type of ownership, the goods produced or services offered,
the types of jobs provided, or the functions
it performs in a community
*
Businesses are started by entrepreneurs who see a need, recognize the opportunity, and go into business to meet that need Business and people need each other – there are many stakeholders – we depend on businesses for products and services, but also for employmentBuy inputs – raw materials, labour, machinery and equipment, and landProduce outputs – goods and servicesFocus on efficient use of resourcesGenerate profit/surplus
Who are the stakeholders? – Anyone who has an interest in the success of a business
Customers
Managers
Employees
Owners
Local Community/Environment
Suppliers
Government
Creditors
*
Take Inputs
Process/Manufacture
Output
Costs – Fixed and Variable
Revenue
Profit
*
A group of businesses that all produce similar products is called an industry
Example: Automobile manufacturers and automobile parts is the Automobile Industry
Separated into three categories – primary, secondary, and tertiary
*
*
*
*
*
*
*
*
© The McGraw-Hill Companies, Inc., 2002
McGraw-Hill/Irwin
BASIC FINANCIAL STATEMENTS
Chapter
2
2
© The McGraw-Hill Companies, Inc., 2002
McGraw-Hill/Irwin
Introduction to Financial Statements
Companies prepare interim financial statements and annual financial statements.
2000
X
© The McGraw-Hill Companies, Inc., 2002
McGraw-Hill/Irwin
Introduction to Financial Statements
Three primary financial statements.
Income Statement
Balance Sheet
Statement of Cash Flows
We will use a corporation to describe these statements.
© The McGraw-Hill Companies, Inc., 2002
McGraw-Hill/Irwin
Introduction to Financial Statements
Describes where the enterprise stands at a specific date.
Income Statement
Balance Sheet
Stat.
Chap-1: Accounting in Action
We take references from The book of Accounting Principals which is written by (Weygandt Kimmel Kieso)
Statement of Financial Position
1. Equipment P 15,000
2. Annual depreciation P 3,000
3. Accumulated depreciation as of Dec 31, 2016 (P 3,000 x 2 years) P 6,000
4. Net book value of Equipment as of Dec 31, 2016 (P 15,000 - P 6,000) P 9,000
Statement of Financial Position
Introduction to accounting
This document provides an overview of accounting concepts including the five basic account types (assets, liabilities, equity, income and expenses), the accounting equation, and who uses accounting information. Key points include:
- Assets are resources owned that provide future benefits, liabilities are debts owed, and equity is the owners' claim on assets. The accounting equation is Assets = Liabilities + Equity.
- Income increases assets and equity, expenses decrease assets. Common income examples are sales revenue and expenses include supplies and wages.
- Individuals, businesses, investors, creditors, governments and non-profits all use accounting information for purposes like managing finances, evaluating investments, and making decisions.
Similar to Assets liabilities capital (20)
ACC 291 GENIUS NEW Knowledge Specialist--acc291genius.com
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Chapter 2 Basic Financial Statements exercise and solutions
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Question 2The Trial Balance of the Hope, Faith and Cha.docx
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Assets liabilities capital
- 1. Assets, Liability and Capital 1. Assets Anything that has economic value, that a business owns or has use of in generating income. 2. Liability Amounts owed to lenders and suppliers by the business. 3. Capital Cash or other assets introduced into the business by the owners to generate income. ______________________________________________________________________________
- 2. Scenario 1 Conner, the Entrepreneur decided to open a business selling soft drinks. The business is called Cee Drinks CONNER THE BUSINESSMAN/THE OWNER Conner has $1000.00 and a Cooler worth $500, both of which he plans the invest in the business. $1000.00 + $500 He also decided to purchase an Ice maker on credit from Keenan Ltd for $800.00 Ice Maker $800 Keenan Ltd He also bought 10 cases of soft drinks @ $24.00 per case paying with cash. The soft drinks purchased is the stock of the business. Stock are the items which are bought (purchased) to be sold to customers
- 3. Cee Drinks Capital Cash or other assets introduced into the business by the owners to generate income. Conner introduced $1000.00 in cash and a Cooler worth $500, as the above definition states these items are the Capital of the business, thus total capital is $1500.00. Assets Anything that has economic value that a business owns or has use of, in generating income Cee Drinks owns or has use of the following items Cooler - $500.00 Cash Balance $760.00($1000-240) Ice maker $800.00 Stock (Soft drinks) $240.00 Total Assets = $2300.00 $1000.00 + $500 = $1500.00
- 4. Liability Amounts owed by the business to lenders and suppliers. Creditor a Liability, is person or Business to whom money is owed. Cee Drinks owes Keenan Ltd for $800.00 the Ice Maker Keenan Ltd is a Creditor of Cee Drinks
- 5. The Accounting Equation The Accounting Equation also called the Balance Sheet Equation states that: - Assets = Liabilities + Capital Assets – Liabilities = Capital Liabilities = Assets - Capital Let’s look at the equation using Cee Drinks Shop Assets Liabilities . Capital Cooler - $500.00 Cash Balance $760.00($1000-240) Ice maker $800.00 Stock (Soft drinks) $240.00 Total Assets = $2300.00 Cee Drinks Shop owes Keenan Ltd for $800.00 the Ice Maker Keenan Ltd is a Creditor of Cee Drinks shop Conner introduced $1000.00 in cash and a Cooler worth $500, as the above definition states these items are the Capital of the business, thus total capital is $1500.00. $1000.00 + $500 = $1500.00
- 6. The Accounting Equation of Cee Drinks Shop Assets = Liabilities + Capital $2300 = $800 +$1500 The equation can also be written as Asset – Liabilities = Capital $2300 – $800 = $1500 Liabilities = Assets – Capital $800 = $2300 - $1500