1. Introduction to Accounting Preparing for a User’s Perspective
Define standard asset accounts
Debits and Credits Trainer
By Kevin C. Kimball, CPA
with support from
Free Jan. 2014
Available on the Google Play Store

2. How are assets defined by the FASB?
“Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.”
Statement of Financial Accounting Concepts No. 6 Elements of Financial Statements—a replacement of FASB Concepts Statement No. 3 (incorporating an amendment of FASB Concepts Statement No. 2) CON Copyrighted by, and reproduced with permission of, the Financial Accounting Foundation, 401 Merritt 7, Norwalk, CT 06856, USA.
Let’s look at some standard asset accounts and see how they meet this definition

3. Common Asset Accounts
Cash
Accounts receivable
Inventory
Office supplies
Prepaid insurance
Prepaid rent
Notes receivable (5 year)
Warehouse equipment
Land
Patents
Trademarks
Copyrights
Goodwill

4. Common Formats for Computing Ending Balances for Asset Accounts
Horizontal equation format
Beginning Balance + Increases – Decreases = Ending Balance
Vertical equation format
Beginning Balance + Increases – Decreases = Ending Balance
T-Account Format Assets Beg. Balance
+ Increases Decreases
End. Balance

5. T-Account Format = + Assets Liabilities Equity Beg. Balance
+ Increases Decreases
End. Balance =
Liabilities
Beg. Balance
- Decreases Increases
End. Balance +
Equity
Beg. Balance
- Decreases Increases
End. Balance

6. CASH & CASH EQUIVALENTS
Currency & Coin
Money orders
Checks
Bank deposits
US Treasury bills (original maturity < 3 months)
Money market funds
Cash
Beg. Balance
+ Increases Decreases
End. Balance
Cash received from:
Cash paid to
Customers
Sale of long-term assets
Lenders
Issuance of stock
Suppliers
Purchase long-term assets
Lenders
Owners as dividends

7. Here’s the money I owe you.
Accounts Receivable
Here’s the money I owe you.
Can I pay you later?
Accts Receivable
Beg. Balance
+ Increases Decreases
End. Balance
Sales on acct to customers (also known as credit sales)
Reversals of A/R write-offs
Customer payments
Customer sale returns
Write-offs of bad A/R

8. Inventory Inventory Beg. Balance + Increases - Decreases
End. Balance
Cost of goods sold
Destroyed inventory
Stolen inventory
Obsolete inventory
Inventory purchases
Direct materials, direct labor, manufacturing overhead

9. Office Supplies Office Supplies Beg. Balance + Increases - Decreases
End. Balance
Using up of supplies
Destruction of supplies
Theft of supplies
Obsolescence of supplies
Purchase of office supplies

10. Prepaid Rent Pay $12,000 in rent for next 12 months
Use up prepaid rent
December, X2
January to December, X3
Prepaid Rent
Beg. Balance
+ Increases Decreases
End. Balance
Using up of rental period
Refund of prepaid rent
Prepayments for future rent

11. Prepaid Insurance Pay $600 to insure car for next 12 months
Use up prepaid car insurance
December, X2
January to June, X3
Prepaid Insurance
Beg. Balance
+ Increases Decreases
End. Balance
Using up of insurance period
Refund of prepaid insurance (cancellation)
Prepayments for future insurance

12. Notes Receivable Lender Lender Borrower Borrower Notes Receivable
Beg. Balance
+ Increases Decreases
End. Balance
Receive loan repayments
Write-off bad loans
Make loans to borrowers

13. Warehouse Equipment Warehouse Equipment Beg. Balance
+ Increases Decreases
End. Balance
Sell Warehouse Equip
Destroy Warehouse Equip
Dispose Warehouse Equip
Purchase Warehouse Equip.

14. Land Land Beg. Balance + Increases - Decreases End. Balance Sell land
Purchase land
Sell land
Destroy land

15. Patent
A government issued, and protected right to a unique design, process or developed species (usually a plant). Patents have a limited life of 20 years.
For more on patents see:
Patent
Beg. Balance
+ Increases Decreases
End. Balance
Purchase patent
Legal fees to register patent
Sell patent
Expiration of patent

16. Trademark
Trademark owners are allowed to protect unique numbers, words, phrases, symbols, and designs that distinguish their products and services from those of others.
™ = Unregistered Trademark for a product; SM = Service Mark for a service ® = Registered Trademark
For more on trademarks see:
Trademark
Beg. Balance
+ Increases Decreases
End. Balance
Purchase trademark
Register trademark (fees)
Sell trademark
Expiration of trademark

17. Copyright
Copyrights protect creative works created by the original authors such as music, writings, and art.
Copyright
Beg. Balance
+ Increases Decreases
End. Balance
Copyright fees
Legal fees paid for successful defense
Sell copyright
Expiration of copyright

18. Goodwill
The excess purchase price paid to acquire another business in excess of its net identifiable assets.
Example: Assume Company B were to purchase Company A’s net identifiable assets (i.e. $12 m in assets less $3 m in liabilities = $9 m) for $20 m. The excess $11 m payment would be goodwill and could be justified by Company A’s reputation or potential synergistic effects.
Goodwill
Beg. Balance
+ Increases Decreases
End. Balance
Purchase Goodwill
Goodwill impaired
Sell company, remove goodwill

19. Introduction to Accounting Preparing for a User’s Perspective
Define standard asset accounts
Debits and Credits Trainer
By Kevin C. Kimball, CPA
with support from
Free Jan. 2014
Available on the Google Play Store