B EC 226 ch 1 section 3-5

asset

resource a company owns or controls to yield future benefits

receivable

asset that promises a future inflow of resources

liabilities

creditors’ claims on assets with obligation to provide assets, products, or services to others

payable

liability that promises future outflow of resources

equity

owner’s claim on assets and equal to assets minus liabilities

accounting equation

assets=liabilities+equity

four parts of equity

owner capital-owner withdrawals+revenues-expenses

owner,capital

inflows of cash and other net assets

owner, withdrawals

outflows of cash and other assets

revenues

increase equity from sales

expenses

decrease equity from costs

external transactions

exchange of value between two entities

internal transactions

exchanges within an entity

income statement

net income when revenue exceeds expenses and net low when expenses exceed revenue over a period of time

owner’s equity

how equity changes over reporting period

balance sheet

financial position at a point in time and lists assets, liabilities, and equity

cash flows

cash inflows and outflows over a period of time. operating activities, investing activities, financial activities

return on asset

help evaluate if management is effectively using assets to generate net income

return on assets=

net income/average total assets