2. Accounting Categories Accounting is organized into Categories – The 5 categories we will use this semester are: 1.Assets—what the company owns 2.Liabilities—what the company owes 3.Owner’s Equity —the owner’s financial right to the company 4.Revenue—money coming in from the operation of the business 5.Expenses—money paid out from the operation of the business

3. Accounts Each category contains accounts which are individual records of a single item. – Categories and accounts used in Chapter 2 & 3: 1.Assets—Cash, Prepaid Insurance, Supplies 2.Liabilities—Biggler Company, Accounts Payable 3.Owner’s Equity —John Smith, Capital (Investment) John Smith, Drawing (Withdrawals) 4.Revenue—Sales, Fees 5.Expenses—Advertising Expense, Miscellaneous Expense, Rent Expense, Repair Expense, Utilities Expense

4. The Accounting Equation The relationship between Assest, Liabilities, and Owner’s Equity is written as an equation – Serves as the basis for all accounting organization Is the root of all concepts we will learn TOTAL ASSETS = TOTAL LIABILITIES + TOTAL OWNER’S EQUITY Or more simply put: A=L+OE

5. Transactions A business activity that changes the amounts in the accounting equation A=L+OE Transactions are stated in numbers that have a common value (Concept: Unit of Measurement). – In the United States, business transactions are recorded in dollars $ and cents

6. How Transactions Change The Accounting Equation ASSETS = A change to one Assets = + Increase Cash - Decrease Cash A change to two Assets = + Increase Supplies - Decrease Cash Liabilities + Owner’s Equity A change to either a Liability or to Owner’s Equity + Increase Capital - Decrease Accts. Pay. (Liability) No change

7. Transactions Sample: Received cash from the owner as an investment $10,000 ASSETS = + Cash $10,000 Liabilities + Owner’s Equity + Capital $10,000

8. Transactions Sample: Paid cash for supplies $200 ASSETS = - Cash $200 + Supplies $200 Liabilities + Owner’s Equity

9. Transactions Sample: Paid cash for insurance $500 ASSETS = - Cash $500 + Prepaid Insurance $500 Liabilities + Owner’s Equity

10. Transactions Sample: Bought supplies on account from Biggler Company $300 ASSETS = +Supplies $300 Liabilities + Owner’s Equity + Biggler Co. $300

11. Transactions Sample: Paid cash on account to Biggler Co. for amount owed $100 ASSETS = - Cash $100 Liabilities + Owner’s Equity - Biggler Co. $100

12. Balance Sheet A financial statement prepared on a specific date used to report details about a company’s Assets, Liabilities, and Owner’s Equity Smith Delevery Service Balance Sheet September 5, 2012 Assets Liabilities Cash5000 Biggler Supply1000 Prepaid Insurance1600 Owner's Equity Supplies1400 John Smith, Capital7000 Total Assets8000 Total Liab. + Ow. Eq.8000