...Accounting Equation Paper The accounting equation is quite simply expressed as: Assets = Liabilities + Shareholder Equity or the accounting equation can also appear as the following: Liabilities = Assets – Shareholder Equity and also Shareholder Equity = Assets – Liabilities. The common theme is balance, no matter how the accounting equation is written it must reflect the total number of company assets are equal to the total number of liabilities the company has and those numbers are equal to shareholder equity and balance on the balance sheet. Though simply put, the accounting equation is a complex network of data displayed on the balance sheet and any transaction can offset the equation. On the same token a sale or perhaps a purchase will also be reflected on both sides of the accounting equation. At its conception a company begins at zero, $0 = $0 + $0 (Assets = Liabilities + Shareholder Equity) and any type of transaction should be reflected on both sides of the accounting equation. For example, if the owner of a new company secures a small business loan for $5,000 and decided to deposit the money in to the company account then the accounting equation will reflect: (Assets) $5,000 = $0 (Liabilities) + (Shareholder Equity) $5,000. As the company begins to get off the ground, operating costs begin to accumulate as well as supplies and expenses, those respective amounts would be reflected under Liabilities and would be subtracted from Assets and the Shareholder Equity. Thus...
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...Accounting Equation ACC/300 October 6, 2014 Accounting Equation From the smallest sole proprietorship to the largest corporation, all transactions in a business setting will have an effect on a company’s monetary status. The monetary status of a business is defined by three things: liabilities, assets and owner’s equity. The liabilities are debts or obligations to other people and assets are property or funds owned by the company. The owner’s equity is the total assets of a company minus its total liabilities. The accounting equation: Assets = Liabilities + Owner’s Equity shows the association between the three types of accounts in the accounting world. The accounting equation differs slightly between a corporation and a sole proprietorship. The reason is because a sole proprietorship owns all the equity while a corporation shares the equity with stockholders. Thus, the accounting equation for a one-owner business is: Assets = Liabilities + Equity. The accounting equation for a corporation would be the same except the last part of the equation which would read as stockholder’s equity. Examples of assets include cash, account receivables, and equipment (Kimmel, Weygandt, & Keiso, 2010). From the accounting equation, the amount of assets must equal the combined amount of liabilities plus the equity. Examples of liabilities include notes payable, accounts payable, and salaries payable (Kimmel, Weygandt, & Keiso, 2010). Examples of owner’s or stockholder’s...
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...Accounting Equation It is necessary to understand the accounting equation to know and understand the components of a balance sheet. The accounting equation is simply stated assets – liabilities = Shareholder equity and is necessary to balance the books of a company. The accounting equation is best understood in the balance sheet. The balance sheet essentially shows how much money the company has, how much it owes, and what is left for the stockholders. There are many ways that the accounting equation relates to the components of the balance sheet which can be explained more in depth. Examples will also provide more in-depth understand of how the components of the accounting equation affect each other and how transactions affect the accounting equation. Essentially, a balance sheet is created when one subtracts everything that is owed from everything that is owned to come up with a net worth. Just as an individual would put this information together as a balance sheet to evaluate one’s credit worthiness, companies are required to put their balance sheets together several times a year for shareholders. This also allows investors to gauge the company’s finances, and is usually the first report to look at when determining the value of a company. The balance sheet has three main parts which are the assets, liabilities, and shareholder equity. Every balance sheet must balance, and relates to the accounting equation in the sense that the balance sheet shows the...
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...Individual Assignment - Accounting Equation Paper Dennis R Ware ACC/300 October 1, 2012 Kimberly McMillon Individual Assignment - Accounting Equation Paper From the largest corporation all the way down to the mom and pop store, every business transaction will have an effect on a company’s financial position. According to Investopedia.com, the financial position of a company is measured by the following three things: assets, liabilities, and owner’s equity. The assets are what the company owns. The liabilities are what the company owes to others. The owner’ equity is the difference between the assets and liabilities. The accounting equation offers a simple way to understand how the three amounts relate to each other. The accounting equation for a sole proprietorship is as follows: Assets = Liabilities + Equity. The accounting equation for a corporation is as follows: Assets = Liabilities + Stockholders’ Equity. Examples of assets include cash, account receivable, and equipment (Kimmel, 2011). From the accounting equation, you can that the amount of the assets must equal the combined amount of liabilities plus owner’s (or stockholders’) equity. Examples of liabilities include notes payable, accounts payable, and salaries payable (Kimmel, 2001). Examples of owner’s or stockholders’ equity include common stock and retained earnings. The balance sheet is also known as the statement of financial position. It reflects the accounting equation. The balance sheet reports...
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...Accounting Equation Paper k Accounting Equation Paper Assets that are financed by borrowing money and assets that are bought with money of the company shareholder can be demonstrated in the accounting equation. In a company, assets are owned by the company. Liabilities are the debts and obligations of the company, also liabilities characterize claims of creditors on the assets of a company. Stockholders’ equity shows the entitlements of owners on the assets of the company. The equity is divided into two parts retained earnings and common stock. The balance sheet reports assets and claims to assets at one particular point in time. Claims to assets are subdivided into two categories and they are claims of owners and claims of creditors. The accounting equation has to stay balanced at all times (Kimmel, Weygandt, & Kieso, 2011, Chapter 1). A good example of this is if an individual asset goes up, there must be a corresponding asset that goes down, or an increase in a specific liability, or an increase in stockholders’ equity. Two or more items could be affected when an asset is increased. If a company were to buy a piece of gear costing $16,000 for example, they decide to pay $8,000 in cash and sign a note for the remaining $8,000. One asset (gear) goes up $16,000, another asset (cash) goes down $8,000, and a liability (notes payable) increases $8,000. As you can see the accounting equation in this example balances, the asset was worth $16,000, the liability, the notes...
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...Accounting Equation Paper Keegan Mueller ACC 300 University of Phoenix 2/9/2015 Brian Lichau The Accounting Equation The accounting equation consists of three different entities within an organization; assets, liabilities, and stockholders’/owner’s equity. With these three principles, a company can measure their financial position. The main purpose behind the accounting equation is to figure out what assets the company has. In doing so, they must take into account the liabilities and owner/stockholder equity. The equation is simple: Assets = Liabilities + Owner/Stockholder Equity. The equation is able to illustrate what the company owns versus what it owes. The difference will either be a positive or negative based on how much money the company is making. Broken down, the assets are the company’s resources (what the company owns), liabilities are a company’s obligations (what the company owes), and owner/stockholder equity illustrates the amount of money invested in the company by the owners along with the net income that has not been paid out through dividends yet. The balance sheet is what reports the company’s assets, liabilities, and owner/stockholder equity at any given time. Entries are made on the balance sheet that correlates with each category of the assets, liabilities, equity. Debits and credits are made based on whether money is coming in or going out; debits on the left and credits on the right. The balance sheet should show that the total amount...
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...Brief Exercise BE1-7 Indicate which statement you would examine to find each of the following items: income statement, balance sheet, retained earnings statement, or statement of cash flows. Income Statement (a) Revenue during the period. Balance Sheet (b) Supplies on hand at the end of the year. Statement of Cash Flows (c) Cash received from issuing new bonds during the period. Balance Sheet (d) Total debts outstanding at the end of the period Brief Exercise BE1-8 Use the basic accounting equation to answer these questions. (a)The liabilities of Cummings Company are $90,000 and the stockholders' equity is $230,000. What is the amount of Cummings Company's total assets? (b)The total assets of Haldeman Company are $170,000 and its stockholders' equity is $90,000. What is the amount of its total liabilities? (c)The total assets of Dain Co. are $800,000 and its liabilities are equal to one-fourth of its total assets. What is the amount of Dain Co.'s stockholders' equity? Assets = Liabilities + Stockholders' Equity $ 320000 $ 170000 $ 800000 $ 90000 ]$ 80000 $ 200000 $ 230000 $ 90000 $ 600000 Brief Exercise BE1-9 At the beginning of the year, Fuqua Company had total assets of $800,000 and total liabilities of $500,000. (a)If total assets increased $150,000 during the year and total liabilities decreased $80,000, what is the amount of stockholders' equity at the end of the year? (b)During the year, total liabilities increased...
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...Hi Class, Please let me know specifically if there are problems you are having trouble understanding. If it is just the overall basic principles of accounting, we can go through them until you get the idea. Below is a brief overview: The financial position of a company is measured by the following items: 1. Assets (what it owns) 2. Liabilities (what it owes to others) 3. Owner’s Equity (the difference between assets and liabilities) The accounting equation (or basic accounting equation) offers us a simple way to understand how these three amounts relate to each other. The accounting equation for a sole proprietorship is: Assets = Liabilities + Owner’s Equity The accounting equation for a corporation is: Assets = Liabilities + Stockholders’ Equity If a company keeps accurate records, the accounting equation will always be “in balance,” meaning the left side should always equal the right side. The balance is maintained because every business transaction affects at least two of a company’s accounts. For example, when a company borrows money from a bank, the company’s assets will increase and its liabilities will increase by the same amount. For instance, if the company borrows $10,000, Cash (a normal debit balance account) would be increased (debited, left side) for $10,000, and Notes Payable (this is a normal credit balance account) would be increased for $10,000 (credited, right side). The entry in the General Journal (the record of all...
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...Bank of America had total liabilities of $1,898,945,000 at the end of the 12/31/2011 fiscal reporting year. The liabilities that represented this number included the non-interest bearing deposits, the interest bearing deposits, short term debt, other liabilities, federal funds purchased and securities sold and long term debt. The largest of Bank of America’s liabilities would be the interest bearing deposits while the lowest liability that Bank of America reported was the short term debt which means their operational debt is fairly reasonable. The liabilities that are reported by Bank of America for the previous fiscal year of 12/31/2010 are $2,036,661,000 which is substantially higher than the reporting year of 12/31/2011. The decrease in liabilities for the financial reporting year of 12/31/2011 is a 6.76% decrease from the fiscal year 12/31/2010. This is mainly in part due to decreases in many of the different liabilities not just one. For instance the non-interest bearing deposits were the only journal entry on the balance sheet which showed an increase of liabilities from 2010 to 2011. The non-interest bearing showed a total of $291,301,000 in 2010 with a 14.08% increase from fiscal year 2010 to 2011. The decreases in the liabilities were tremendous for Bank of America in the short term liability area as short term liabilities illustrated a 40.47% decrease from $59,962,000 in fiscal year 2010 to an astonishing $35,698,000 for fiscal year 2011. The decreases were felt...
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...MISSIE DUNLAP HSM/260 DR. MARY JOHNSON WEEK 1 5/25/2013 1. GGAP- (Generally Accepted Accounting Principles) These are a set of rules, standards ,conventions, and procedures that were established by The Financial Accounting board for reporting financial information. www.investorworld.com 2. Basic accounting formula- Assets = Liabilities + Capital This formula is for double entry bookkeeping systems. This formula must always balance so that the company has the assets and funds it needs to operate. www.accountingtools.com 3. Transaction, T-account- is also a set of financial records that also use double entry bookkeeping. The name T-account comes from the appearance of the records. www.investopedia.com 4. Debit and credit- entries made in account ledgers to show changes in value because of transactions made by the business. www.wikipedia.org 5. Trial balance- A list of general ledger accounts, they contain the name of the nominal ledger account, as well as the value. It will hold either a debit or credit balance value. www.wikipedia.org 6. Journal- a file in a book or on a computer of monetary transactions that are entered the first time they are processed. The list is in chronological sequences by date. www.wikipedia.org 7. Assets and liabilities- assets are things you own such as car, house, or business. Liabilities are things that are owed such as mortgage, car payment, and student loans. These can determine...
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...transaction to understand what is happening and how it affects the business. Example, the business has more Revenue, or has more Expenses, or has more Cash, or Owes less to Creditors. Identify the accounts involved, and decide whether the accounts are increased or decrease. Look for Cash first; you will quickly recognize if Cash is coming in or going out. Decide on the Classifications of the accounts involved. (for Example, Equipment is something the business owes, and it's a liability; Rent is an Expense. After recording the transaction, make sure the accounting equation is in balance. THE FIVE CLASSIFICATIONS: Accounts Category Normal Balance Increase Decrease 1. ASSETS DEBIT DEBIT CREDIT 2. LIABILITIES CREDIT CREDIT DEBIT 3. OWNER'S EQUITY CAPITAL CREDIT CREDIT DEBIT WITHDRAWALS DEBIT DEBIT CREDIT 4. REVENUE CREDIT CREDIT DEBIT 5. EXPENSES DEBIT DEBIT CREDIT STEPS IN THE ACCOUNTING PROCESS 1. Record the transactions of a business in a JOURNAL book of original entry - the day - by day record of the trasactions of a firm). Entry should be based on some source document or evidence that a transaction has occurred, such as an invoice, a receipt, or a check. 2. Post entries to the accounts in the LEDGER. Transfer the amounts from the JOURNAL to the Debit or Credit column of the specified accounts in the LEDGER. Use a cross reference system. Accounts are placed in the LEDGER according to the account numbers assigned to them in the CHART OF...
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...Working Capital at Dell 1. How was Dell’s use of working capital a competitive advantage? Dell minimized its working capital as a result of its made-to-order manufacturing process. Dell focused on building computers to fit the orders placed by actual present and already-committed buyers. By building to order, Dell was able to significantly reduce its inventory on hand (in components, work in process and finished goods), accounts payable, and sunk labor costs thus reducing its working capital. By reducing those costs, Dell freed up funds not necessary to run the day-to-day business for other purposes such as expansion or investment. Those funds could also be used to ease/speed purchasing from suppliers as new technology, such as the Pentium chip, developed. Dell’s competitors, meanwhile, repetitively built several lines of stock computers in advance of any customer being identified, let alone committing to buy. As they compiled ever-aging/obsolescing inventory, labor costs, and accounts payable costs, in anticipation of customers that may or may not actually ever present to the company to make a purchase, Dell’s competitors tied up significant funds in working capital. By committing those funds, Dell’s competitors were prevented from using that cash for other purposes. Additionally, as technology improved, these firms were slowed from incorporating the new technology into their products due both to a lack of cash and an inventory of out-of-date products...
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...Lizet Moreno Professor Allen October 7, 2013 Rich Dad Poor Dad In the book rich dad and poor dad basically was summons up that for an individual to be wealthy, one must aim to own the system or means of the production. In other words the book shows you how to strive for success, there is different types of ways to succeed like the book tells you. The rich dad and poor dad both had strong point of views in earning and succeeding in life, in my opinion I would have followed on the same footsteps Kiyosaki did in following his rich dad. It is true when his poor dad says in order to get somewhere in life you have to get a good education and have a secure safe job but that really isn’t the path to become a wealth person. The rich dad’s opinion differ from the poor dad, he said in order to become wealth you first need to understand how money works. Based on the book rich dad poor dad it taught me and changed my mind in how to deal with money and finance. That financial literacy is key, also rather own business instead of work at them. Also it thought me to understand taxes and the power of corporations. One thing that he helped me understood was when he was explaining that the rich don’t work for money; they force money to work for them, when the rich required assets then liabilities. To know the difference an asset and liability, He quoted that “in order to be truly wealthy, your asset column must be robust and able to offset your living expenses” and that most people think...
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...Accounting Equation Jarred Evans ACC/300 May 12, 14 Brandy Havens Abstract The purpose of this essay is to give a better understanding of the accounting equation, how the accounting equation relates to the components of the balance sheet, how the components of the accounting equation affect each other and how transactions affect the accounting equation. In business, the accounting equation is used to help us understand how assets, liabilities, and owner’s equity relate to each other along with measures the financial position of a company. The equation is set up as “Assets = Liabilities + Owner’s Equity” for an unincorporated business and “Assets = Liabilities + Stockholder’s Equity” for larger corporations. Assets are the business owned resources, such as money, building, equipment, and inventory. For assets in the equation, it must equal the liabilities plus owner’s equity amount. Liabilities are what companies or small business owe and is considered their duty. “Liabilities can be viewed in two ways, as claims by creditors against the company's assets, and a source—along with owner or stockholder equity—of the company's assets.” Finally, the owner’s equity is what remains after you deduct the liabilities away from the assets. In any transaction, the expressions get altered in order to fit the equation and make the numbers equal properly. “A balance sheet is a financial statement that reports the assets and claims to those assets at a specific point in time” (Kimmel...
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...Kamran Burki Build-A-Bear Case – Lease a. Companies lease assets rather than by them because the company might need the asset for only a short period of time. The company might also not want to report an asset or liability or the company simply might not have enough cash to buy the asset. In addition, the company also might have difficulty getting a loan to finance the purchase. b. An operating lease is very similar to a rental agreement. The company does not have ownership of the asset and all the risk and benefits of ownership stay with the lessor. The lessor only transfers the right to use the asset. A lease is considered a capital lease if it meets the following rules: 1) lease life must be greater than 75% of the life of the asset 2) transfer of ownership at the end of the lease term 3) bargain purchase at end of lease term 4) present value of minimum lease payments exceeds 90% of the FMV of the asset A direct financing lease is is defined as a lease where the present value of the lease payments is equal to the cost of the asset. The lessor does not report a gain/loss at the beginning of the lease, but earns interest revenues. A sales type lease is a lease where the present value of the lease payments is greater than the cost of the asset. The lessor records a profit at the beginning of the lease and also earns interest revenue. c. As discussed above, all leases are not the same. Hence, the need to distinguish between different types...
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