ACCT201 Heller Fall 2024 Chapter 1 and 2

4 types of statements

1. Balance Sheet

2. Income Statement

3. Statement of Owner’s Equity

4. Statement of Cash Flow

Economic Entity assumption

Business transactions are separate from individual transactions

Types of business entities

1. Sole proprietorship

2. Partnership

3. Corporation

Sole proprietorship

1 owner

Partnership

• 2+ owners

• Ownership of a partnership is based on how much money you put into the partnership

• Liability is unlimited

• Bankruptcy—> Each partner is responsible for 100% of the debt regardless of partnership percentage

• Lots of partnerships happen with family

Corporation

• Many owners

• If you own stock, you own that corporation

• Corporation goes on even if you die, as you are not responsible for their debt

• usually denoted by “inc”

Balance Sheet components

• Assets

• Liabilities

• Capital

Balance sheet equations

A = L + C

A - L = C

A - C = L

Types of Assets

• Cash

• Accounts Receivable

• Equipment

• Supplies

• Prepaid Insurance

Types of Liabilities

• Anything that ends in “payable”

• Accounts Payable

• Notes Payable

Types of Owner’s Capital

• Expenses

• Revenues

Where does drawings go?

In its own table, NOT in Owner’s Capital

What increases capital?

1. Owners puts $ into business

2. Net income

What decreases capital?

1. Owner withdraws $ (drawing)

2. Net loss

Income Statement composition

Revenue - Expenses = Net Income or Net Loss

Statement of Owner’s Capital composition

• + Owners’s $ into business

• + Net income

• - Net loss

• - Drawing

• = Ending Capital 12/31/24

For every transaction, at least ___ accounts are affected

two

Accounts payable _________ interest

does not charge

Notes payable ________ interest

does charge

Steps for recording Ch2

1. General Journal - Transactions

2. General Ledger - Chart of accounts

3. Trial Balance - Prove total debits = total credits

Assets numbered account in GL

100s

Liabilities numbered account in GL

200s

Capital and Drawings numbered accounts in GL

300s

Revenue numbered accounts in GL

400s

Expenses numbered accounts in GL

500s

When you find a transaction… (more)steps

1. Dollars and cents?

2. Record in General Journal

3. General Ledger

4. Total up each category

5. Ending balance for each account

6. Move to trial balcne

Accounts with normal balance + -

Assets, Expenses, Drawings

Accounts with other balance - +

Liabilities, Capital, Revenue

Drawing will always be _ _____

A debit

Unearned Revenue is a

Liability

Prepaid insurance is a

Asset

All expenses are

debits

Every GJ transaction you should lead with a ____, not credit

Debit

Every time you post your transaction to the __________, put the number of the __________ in the General Journal

General Ledger, General Ledger

Balance sheet and trial balance is a _____ in time

point

Income statements represent a _____ of time

period