Abm006

Accounts Receivable

is considered an asset.

Liabilities are best defined as

Obligations a business must settle in the future

Example of an asset

 Cash

 Equipment

 Inventory

Accounts Payable

is a current liability.

Owner’s equity represents

The owner’s residual interest in the company after liabilities are deducted

Payment of expenses

affects owner’s equity.

the basic accounting equation.

Assets = Liabilities + Owner’s Equity

Assets increase, liabilities increase

If a company purchases equipment worth $5,000 on credit, how does it affect the accounting equation

The transactions decreases owner’s equity

Withdrawing cash for personal us

Long-term liability - Notes Payable

(due in 5 years)

A company receives P100,000 from an investor

Increases assets and increases owner’s equity

Owner’s Equity

Account is retained earnings

Transactions will increase both assets and liabilities

by borrowing money from a bank

When an owner invests additional cash into the business, the effect on the accounting equation is

Increase in assets, increase in owner’s equity

If total assets are P50,000 and total liabilities are P20,000, the owner’s equity

is P30,000

The primary purpose of a journal in accounting

To record transactions in chronological order

The first step in the accounting cycle

Recording transactions in the journal

Transactions is recorded in the purchases journal

Purchase of inventory on account

….

The type of journal is used to record cash receipts - Cash Receipts Journal

In a journal entry, account is debited when a company pays rent - Rent Expense

The purpose of a ledger

To classify and summarize financial transactions

Ledger

are account balances transferred after journalizing transactions?

…

The process of transferring journal entries to the ledger called Posting

…

Ledger account tracks the amounts owed by customers – is accounts Receivable

A general ledger is - contains all accounts used in a company’s financial system

The main purpose of preparing a trial balance

To check the equality of debits and credits

Accounts normally has a credit balance

is Sales Revenue

If the debit and credit columns of a trial balance do not match, the accountant should first

Look for

missing or incorrect entries

Errors can cause a trial balance to be unbalanced

is a debit entry recorded as a credit

A trial balance includes the following

 Asset accounts

 Liability accounts

 Owner’s equity accounts

The Statement of Cash Flows is divided into

3

Included in cash flows from operating activities

Collection of accounts receivable

Type of activity is purchasing a building

Investing

The statement of cash flows includes dividend payments

Financing

Depreciation expense is added back to net income in the cash flow statement because

It is a non-

cash expense

Financial statement reports revenues and expenses

Statement of Comprehensive Income

Included in other comprehensive income

Unrealized gains on investments

Does net income represent

Total revenue minus total expenses

Statement shows changes in an owner’s investment

Statement of Changes in Equity

Affects owner’s equity

Dividend payments