Accounting - Unit 1/2

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Accounting - Unit 1/2

Transactions

DR means Debit, record change on the left side.

CR means Credit, record change on the right side.

Ledger

A group of accounts

Rules for Creating a Ledger

For Capital : You start on the credit side as well.

For all Liabilities : You start on the credit side (right).

For all Assets : You start on the debit side (left).

Trial Balance

A trial balance checks the accuracy of th ledger

DEBITS = THE CREDITS

Types of Business Ownerships

Corporation

Part Owner of higher businesses, you purchase shares which is a share of profit the company makes. (Ex; Each share is worth 50 cents, you have 5 shares...you would then have made $2.50)

Disadvantages : If the business isn't doing well and making no profit, you're also gaining nothing

Advantages : You only lose the amount of money you invest.

Partnership

In partnership businesses, you there is a legal agreement so, if anything happens you aren't only responsible and there is equal payment.

Multiple person business

Disadvantages : Profits have to be distributed.

Advantages : Able to do other things on the side without worrying. Both are investing money, which means able o afford more things. More ideas/pitches.

Sole Proprietorship

Your own business

Disadvantages : Can't afford to be sick, no holidays, etc. You're also using your own limited money.

Advantages : You're your own boss and it's inexpensive.

Accounting Terminology

Balance Sheet

A financial statement that lists assets, liabilities and owner's equity on a specific date.

Balance sheets are used to show the financial position of a business or even individual on a certain date.

Fundamental Accounting Equation

Owner's Equity = Assets - Liabilities

Assets = Liabilities + Owner's Equity

Equity

The net worth of a person or business.

Liabilities - The debts of a person or business. (They are listed in a order they're paid)

Accounts payable (Paid within 30 days), Bank Loan and, Mortgage

Assets - "Items of value owned by a person or business."

Fixed Assets - Assets that have a long life. They aren't intended to be sold.

Land (longest life), Building, Equipment, Automobile

Current Assets - An asset that will be converted to cash, sold or consumed within one year.

Cash, Accounts Receivable, Office Supplies