Accounting Chapter 1 Week 1 Notes
Accounting Chapter 1 Week 1 Notes Acc 1500- A1512
Oakland Community College
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This 2 page Class Notes was uploaded by Nicky Franklin on Monday September 26, 2016. The Class Notes belongs to Acc 1500- A1512 at Oakland Community College taught by Keith Sherry in Fall 2016. Since its upload, it has received 4 views. For similar materials see Acct for the Sm Business Owner in Accounting at Oakland Community College.
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Date Created: 09/26/16
Accounting Chapter 1 The Meaning of Accounting Accounting - tracking how much you are worth Net worth = what you own - what you owe liabilities - things you owe **liabilities still have value exp: you owe a friend - this debt has value - the value of a liability is the amount of Cash that would be paid if the debt would be paid today. It is possible to have a high net worth and little to no cash The Balance sheet Balance Sheet - permanent document - used to record - what you own (assets) - what you owe (liabilities) The Income Statement Accounting Concept- "For every transaction there is an equal and opposite reaction" Transactions that affect net worth are recorded on an income statement Revenues represent increases to net worth while expenses represent decreases. Income statements - track changes in net worth over a period of time Net worth is decreased by increasing an expense account. Revenue - Exp = Surplus (+) or Deficit (-) Income statements are temporary accounting periods, that can be any length of time. The Accounting Equation Assets - Liabilities = Net Worth Assets = Liabilities + Net Worth T- Accounts are used to help record transaction & keep the accounting equation balanced **an account's normal balance is shown on the increase side of the T- Account Accrual Based Accounting Cash based accounting records revenue and expenses, ONLY when cash is paid or received. **It is not entirely accurate because it does not reveal true net worth. Accrual Based accounting measures net worth more reliably than cash based accounting. ***Unpaid Accounts*** If you pay cash to your unpaid account there is no change to the net worth If you pay for your groceries by a credit card your net worth decreases. Borrowing Money and Repaying Debt the interest reduces net worth; the principal piece does not. Buying & Selling Assets an exchange of one asset for another does not change net worth. Prepaid Expenses There are three possible timings for the payment of an expenses: 1. Pay before the expense is incurred (Prepaid Expense) 2. Pay as the expense is incurred (Cash) 3. Pay after the expense is incurred (Unpaid Accounts) Cash decrease, prepaid expenses, increases no impact on net worth. Prepaid expenses are ASSETS Quiz Notes: *** Accrual accounting states that revenue and expenses are to be recorded in the period that they are earned, regardless of what cash is exchanged. *** When you borrow money, you increase your assets & your debts
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