Accounting Chapter 2 Notes
Accounting Chapter 2 Notes Acc 1500- A1512
Oakland Community College
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This 3 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 8 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 2 Business Accounts - the primary difference between personal and business accounting relates to the various accounts used. **the terms change but the accounting concepts remain the same. Personal Accounting: Assets Liabilities Cash Unpaid Accounts Prepaid Expenses Mortgage Contents of Home Loans Auto Net Worth House Business Accounting: Assets Liabilities Cash Accounts Payable Accounts Receivable Unearned Revenue Prepaid Expenses Loans PPE Net Worth Contents of home, automobile, house = property, plant and equipment Unpaid accounts = accounts payable Net Worth = Equity Revenue (salary) = Service Revenue or Sales Revenue Instead of having a surplus or deficit at the end of an accounting period, businesses have either a net income or net loss. In business accounting, the order that accounts are listed in is very important. Assets are listed in order of liquidity, (the ability to convert an asset into cash) Liabilities are listed in order of what is due in the shortest amount of time to the longest. Accounts payable usually have terms of 1 or 2 months Owner's Equity Major difference between equity & net worth = net worth is only 1 account on a balance sheet, equity is a section which consist of multiple accounts. - owners capital and owners drawing. - owners capital - increase and decrease with net income/ loss from the income statement - withdrawals are recorded in the owner's drawings account - * owner's drawings result in a decrease in owner's equity **To properly calculate the value of owner's equity at the end of an accounting period.... 1. start with beginning owner's equity 2. add owners contributions 3. add net income / sub net loss 4. subtract owner withdrawals In a proprietorship, owner's drawings decrease the value of owner's equity. exp: cash - 2,000 for personal use ENDING OWNERS EQUITY + BEGINNING OWNER'S EQUITY + OWNER'S CONTRIBUTIONS + NET INCOME/ LOSS - OWNER WITHDRAWALS. Recording Expenses: Three ways to record an expense: 1. Pay before the expense is incurred 2. Pay as the expense is incurred 3. Pay after the expense is incurred. **The income statement is impacted when expenses are recognized. Recording Revenue - Revenue is always recorded when it's earned. There are three possible timings for the cash receipt of revenue 1. Cash received before services are performed. 2. Cash received immediately when services are rendered. 3. Cash received after services are performed. Unearned Revenue occurs when payment is received BEFORE services provided. - cash is treated as a liability because the company is now obligated to provide product/ service - this liability is called UNEARNED REVENUE - exp: Insurance Premiums, Newspaper Subscription, Web Hosting fees, *** equity stays the same. **When a sale is made but cash is received on a later date, equity increases.
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