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