Summerfuel FinanceClass 2: 7-7-2016

Balance Sheet

P 3

2

Income Statement

P 3 3

Land

Equipment

Buildings

Cash

Notes Receivabl

e

Supplies

Prepaid Accounts

Accounts Receivable

AssetAccounts

Asset Accounts

C 2 4

Accrued Liabilities

Unearned

Revenue

Notes Payable

Accounts Payable

LiabilityAccounts

Liability Accounts

C 2 5

EquityAccounts

Revenues

Owner’s Capital

Owner’s Withdraw

als

Expenses

Equity Accounts

C 2 6

A Business TransactionAny event that has a monetary impact on

the businessGets into the company's accounting

system and on the company’s financial statements

Debits ALWAYS equal Credits

Debits and CreditsA T-account represents a ledger account and is a tool used

to understand the effects of one or more transactions.

C 4 8

Liabilities EquityAssets = +Double-Entry Accounting

C 4 9

Double-Entry Accounting

C 4

Here is the expanded accounting equation showing the equity section.

10

Increases to Asset Accounts

Are Posted as Debits !

11

And That’s Normal ?The balance

expected on Fin statements

If it’s abnormal something is wrong Credit cash

balance . overdrawn

12

Chart of AccountsThe chart of accounts is a list of all accounts and includes an

identifying number for each account.

C 3 13

Lets Try Some

Beatriz’s Best Bubblegum Company

What’s the Accounting EntryBeatriz invested $25,000 that her grandma

gave her into her new business: “

Breatriz’s Best Bubblegum”

15

What’s the Accounting EntryBeatriz took a 10 year loan from the 1st Bank of

Aboud for $10,000 at 2% to purchase the world’s best bubblegum making machine.

Do a T Account Breatriz made her 1st Sale !She sold $6,000 of her gum to “ the Dentist’s

Pleasure Candy Store ( DPCS) . DPCS was invoiced but has not yet paid cash

17

Do a Accounting EntryBreatriz bought the supplies to create her best

Bubblegum : $5,000 on credit from her supplier

18

Do an Accounting EntryBreatriz paid all of her Miscellaneous Expenses

for the period of $100 with Cash

19

Do an Accounting EntryPablo bought in on Beatriz’s company with

$5,000 in cash

Do a Accounting EntryBeatriz paid 1 year's interest to the Bank of Aboud

Now Use the Entries to Build:

1. Income Statement Beatriz’s tax rate is 20%

2. Balance Sheet

22

The Capitalists One company’s right side of the balance sheet

liabilities and equity

Is another's company's left side of the balance sheet assets

Assets ( stuff you have to run the business)

= Liabilities + Equity (how its paid for)

Wow !

DebtA loan in a number of different ways to a

companyThe loaned amount will repaid at some

defined timeAn interest rate will be assessed as the

cost for the use of the moneyNo ownership stakeBut senior to equity stake

EquityOwnership (equity) in a

corporation

Dividends paid or notResidual claim

Riskier than debt from investors’ perspective

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

RiskUncertainty associated with

earning the expected return

Realized return may differ from the expected return

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Sources of Risk

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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