The Accounting Equation

Assets = Liabilities + Owners Equity

  1. Assets
    1. Economic resources expected to benefit company in future
      1. Cash: Money, certificates of deposit, and checks
      2. Accounts Receivable: Oral or implied promise, usually arise from sales made to customers, no promissory note exists
      3. Notes Receivable: Promissory notes
      4. Inventory: Merchandise the entity holds or manufactures to sell
      5. Land: Property the business owns and uses in operations
      6. Building: Cost of an office, warehouse, garage, etc.
      7. Equipment, furniture, & fixtures: Accounts that record the cost of office equipment and store equipment
  2. B. Liabilities: Economic obligations, debts
    1. Accounts Payable: Oral or implied promise to pay debts which arise from credit purchases
    2. Notes Payable: Amounts the company must pay as a result of signing a promissory note for goods or services.
    3. Taxes payable: Wages payable, Salary payable
  3. C. Owners’ Equity: Claims held by owners, divided into two main categories
    1. Accounts Payable: Oral or implied promise to pay debts which arise from credit purchases
    2. Retained Earnings (Income earned from operations)
      1. Expenses: Decreases in retained earnings resulting from operations.
      2. Revenues: Increases in retained earnings resulting from operations
      3. Dividends: Distributions of assets to shareholders decreases
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