important considerations ◦ assets ◦ liabilities ◦ owner’s equity accounting equation ◦ and...
TRANSCRIPT
Important Considerations◦ Assets◦ Liabilities◦ Owner’s equity◦ and the Accounting EquationAccounting Equation.
We’ll discuss more about these over the next few slides.
Decide on a service business ◦ A service business
Sells services, not merchandise Less complex and thus is a preferred scenario when time is limited
For purposes of the provided case, the service business is:◦“LightSpeedLightSpeed Networks: A Gaming Service”
AssetAsset◦ Property or economic resources owned by a business or
individual Examples?
LiabilityLiability◦ Amounts owed to creditors
Examples? Owner’s EquityOwner’s Equity
◦ Owner’s claim to or investment in the assets of a business Examples?
Determine what “things” are needed to start the business◦ i.e., Cash Account, basic equipment, maybe a vehicle,
supplies, etc. These are “things” that a business has possession and
control of; we call these “things” ASSETSASSETS.
Determine what liabilities the business may need to incur.
Plan to purchase at least one item “on-account.”◦ This entails the use of a liability account, representing the
amount owed for a purchase. The amount owed is called a LIABILITYLIABILITY.
The difference between the total ASSETASSET amount and the total LIABILITYLIABILITY amount is defined as NET NET WORTHWORTH.
The business proprietor is the owner◦ The owner’s name should be included in the capital and
drawing accounts Accounts that represent increases/decreases to the Net Worth. Typically investments/withdrawals made by the owner.
AssetsAssets = LiabilitiesLiabilities + Owner’s EquityOwner’s Equity The accounting equation should never be “out of
balance”◦ If it is, then there is an error in the accounting records that
must be located and corrected! The Balance Sheet is the financial statement that
contains the Asset, Liabilities and Owner’s Equity information for a moment in time.