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Chapter 1
The Accounting Equation and Double-entry Bookkeeping
会计等式和复式记账法
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Three primary financial
statements.
Introduction to Financial StatementsIntroduction to Financial Statements
Income Statement
Balance Sheet
Statement of Cash Flows
We will use a sole proprietorship to describe these statements.
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Statement of Financial Position: A Starting Point
Statement of Financial Position: A Starting Point
Vagabond Travel AgencyBalance Sheet
December 31, 2001Assets Liabilities & Owner's Equity
Cash 22,500$ Liabilities:Notes receivable 10,000 Notes payable 41,000$ Accounts receivable 60,500 Accounts payable 36,000 Supplies 2,000 Salaries payable 3,000 Land 100,000 Total liabilities 80,000$ Building 90,000 Owner's EquityOffice equipment 15,000 Terry Crane, capital 220,000 Total 300,000$ Total 300,000$
Vagabond Travel AgencyBalance Sheet
December 31, 2001Assets Liabilities & Owner's Equity
Cash 22,500$ Liabilities:Notes receivable 10,000 Notes payable 41,000$ Accounts receivable 60,500 Accounts payable 36,000 Supplies 2,000 Salaries payable 3,000 Land 100,000 Total liabilities 80,000$ Building 90,000 Owner's EquityOffice equipment 15,000 Terry Crane, capital 220,000 Total 300,000$ Total 300,000$
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Assets(资产 )Assets(资产 )
Vagabond Travel AgencyBalance Sheet
December 31, 2001Assets Liabilities & Owner's Equity
Cash 22,500$ Liabilities:Notes receivable 10,000 Notes payable 41,000$ Accounts receivable 60,500 Accounts payable 36,000 Supplies 2,000 Salaries payable 3,000 Land 100,000 Total liabilities 80,000$ Building 90,000 Owner's EquityOffice equipment 15,000 Terry Crane, capital 220,000 Total 300,000$ Total 300,000$
Vagabond Travel AgencyBalance Sheet
December 31, 2001Assets Liabilities & Owner's Equity
Cash 22,500$ Liabilities:Notes receivable 10,000 Notes payable 41,000$ Accounts receivable 60,500 Accounts payable 36,000 Supplies 2,000 Salaries payable 3,000 Land 100,000 Total liabilities 80,000$ Building 90,000 Owner's EquityOffice equipment 15,000 Terry Crane, capital 220,000 Total 300,000$ Total 300,000$
Assets are economic resources
that are owned by the business and
can be measured in monetary term.
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Liabilities(负债 )Liabilities(负债 )
Vagabond Travel AgencyBalance Sheet
December 31, 2001Assets Liabilities & Owner's Equity
Cash 22,500$ Liabilities:Notes receivable 10,000 Notes payable 41,000$ Accounts receivable 60,500 Accounts payable 36,000 Supplies 2,000 Salaries payable 3,000 Land 100,000 Total liabilities 80,000$ Building 90,000 Owner's EquityOffice equipment 15,000 Terry Crane, capital 220,000 Total 300,000$ Total 300,000$
Vagabond Travel AgencyBalance Sheet
December 31, 2001Assets Liabilities & Owner's Equity
Cash 22,500$ Liabilities:Notes receivable 10,000 Notes payable 41,000$ Accounts receivable 60,500 Accounts payable 36,000 Supplies 2,000 Salaries payable 3,000 Land 100,000 Total liabilities 80,000$ Building 90,000 Owner's EquityOffice equipment 15,000 Terry Crane, capital 220,000 Total 300,000$ Total 300,000$
Liabilities are debts that a
business owes its creditors.
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Owner’s Equity(所有者权益 )Owner’s Equity(所有者权益 )
Vagabond Travel AgencyBalance Sheet
December 31, 2001Assets Liabilities & Owner's Equity
Cash 22,500$ Liabilities:Notes receivable 10,000 Notes payable 41,000$ Accounts receivable 60,500 Accounts payable 36,000 Supplies 2,000 Salaries payable 3,000 Land 100,000 Total liabilities 80,000$ Building 90,000 Owner's EquityOffice equipment 15,000 Terry Crane, capital 220,000 Total 300,000$ Total 300,000$
Vagabond Travel AgencyBalance Sheet
December 31, 2001Assets Liabilities & Owner's Equity
Cash 22,500$ Liabilities:Notes receivable 10,000 Notes payable 41,000$ Accounts receivable 60,500 Accounts payable 36,000 Supplies 2,000 Salaries payable 3,000 Land 100,000 Total liabilities 80,000$ Building 90,000 Owner's EquityOffice equipment 15,000 Terry Crane, capital 220,000 Total 300,000$ Total 300,000$
Owner’s equity represents the
owner’s claim to the net assets of
the business.
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Owner’s EquityOwner’s Equity
Vagabond Travel AgencyBalance Sheet
December 31, 2001Assets Liabilities & Owner's Equity
Cash 22,500$ Liabilities:Notes receivable 10,000 Notes payable 41,000$ Accounts receivable 60,500 Accounts payable 36,000 Supplies 2,000 Salaries payable 3,000 Land 100,000 Total liabilities 80,000$ Building 90,000 Owner's EquityOffice equipment 15,000 Terry Crane, capital 220,000 Total 300,000$ Total 300,000$
Vagabond Travel AgencyBalance Sheet
December 31, 2001Assets Liabilities & Owner's Equity
Cash 22,500$ Liabilities:Notes receivable 10,000 Notes payable 41,000$ Accounts receivable 60,500 Accounts payable 36,000 Supplies 2,000 Salaries payable 3,000 Land 100,000 Total liabilities 80,000$ Building 90,000 Owner's EquityOffice equipment 15,000 Terry Crane, capital 220,000 Total 300,000$ Total 300,000$
Net assets
Net worth
Capital
Proprietorship
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Vagabond Travel AgencyBalance Sheet
December 31, 2001Assets Liabilities & Owner's Equity
Cash 22,500$ Liabilities:Notes receivable 10,000 Notes payable 41,000$ Accounts receivable 60,500 Accounts payable 36,000 Supplies 2,000 Salaries payable 3,000 Land 100,000 Total liabilities 80,000$ Building 90,000 Owner's EquityOffice equipment 15,000 Terry Crane, capital 220,000 Total 300,000$ Total 300,000$
Vagabond Travel AgencyBalance Sheet
December 31, 2001Assets Liabilities & Owner's Equity
Cash 22,500$ Liabilities:Notes receivable 10,000 Notes payable 41,000$ Accounts receivable 60,500 Accounts payable 36,000 Supplies 2,000 Salaries payable 3,000 Land 100,000 Total liabilities 80,000$ Building 90,000 Owner's EquityOffice equipment 15,000 Terry Crane, capital 220,000 Total 300,000$ Total 300,000$
The Accounting Equation会计等式
The Accounting Equation会计等式
Assets = Liabilities + Owner’s Equity
$300,000 = $80,000 + $220,000
Assets = Liabilities + Owner’s Equity
$300,000 = $80,000 + $220,000
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Exercise in classExercise in class
II. Problems:1(on page 33).
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Let’s analyze some transactions for Guangli servic
e!
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Accounts Payable(应付账款)Accounts Payable(应付账款)Accounts Payable is the debt that the business
owes its supplier for the goods or services provided.
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Prepaid Insurance(预付保险费)Prepaid Insurance(预付保险费)Prepaid Assets are the resources paid for
before receiving the actual benefits.
e.g. insurance /advertisement fee
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Accounts(账户)Accounts(账户)The basic recording unit of accounting
information
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Revenue(收入)Revenue(收入)Revenues are the amounts of assets that a
business earns as a result of selling goods or rendering service in form of receiving the credit card receipts or check or receivable.
Receivables are the amounts owed to a business by customers.
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Expense(费用)Expense(费用)Expenses are the amounts of assets that a business
uses up in the process of generating revenues which reduce the owner’s equity.
e.g. utility fee (electricity and water bill), payroll
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Difference between expenses and prepaid assets
Difference between expenses and prepaid assets
Expense: the payment is made after the use of assets.
Prepaid assets: the payment is made before the use of the assets.
Prepaid assets should be transferred into expense when the relevant asset is used up.
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Question oneQuestion one
Mr. Li paid 2000 yuan for the office rent of the month. Is that a kind of expense ?
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Owner’s Equity(所有者权益 )Owner’s Equity(所有者权益 )
Revenue Expense
Changes in Owner’s Equity
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Double-entry Bookkeeping(复式记账法 )
Double-entry Bookkeeping(复式记账法 )
Assets = Liabilities + Owner’s Equity
An accounting system by which each transaction is recorded in at least two accounts and the accounting equation is still kept in balance.
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Accounting EquationAccounting Equation
Assets = Liabilities + Owner’s Equity
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The Use of AccountsThe Use of Accounts
Increases are recorded on one side of the T-account, and decreases are recorded on the other side.
Left or
Debit Side
Right or
Credit Side
Title of Account
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Cash(现金 )Cash(现金 )
(a) 1000000
(f) 2000
100200
(b) 360000
(c) 200000
(d) 9000
(e) 3600
(g) 200
572800
Cash
FootingsBal. 429 200
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Let’s use the previous information and see how debits and credits are recorded in the Cash account for Guangli servi
ces.
Let’s use the previous information and see how debits and credits are recorded in the Cash account for Guangli servi
ces.
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AA = LL + OEOEASSETSASSETS
Debit for
Increase
Credit for
Decrease
EQUITIESEQUITIES
Debit for
Decrease
Credit for
Increase
LIABILITIESLIABILITIES
Debit for
Decrease
Credit for
Increase
Debit and Credit Rules(借贷记账法 )
Debit and Credit Rules(借贷记账法 )
Debits and credits affect accounts as follows:
Debits and credits affect accounts as follows:
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LiabilitiesLiabilities EquityEquityAssetsAssets = +
Each account has a normal balance.Each account has a normal balance.
Normal BalancesNormal Balances
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Debits and Credits for Revenue and Expense
Debits and Credits for Revenue and Expense
EQUITIESEQUITIES
Debit for
Decrease
Credit for
Increase
REVENUESREVENUES
Debit for
Decrease
Credit for
Increase
EXPENSESEXPENSES
Credit for
Decrease
Debit for
Increase
Expenses decrease owner’s equity.
Revenues increase owner’s equity.
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Normal BalancesNormal Balances
Each account has a normal balance.Each account has a normal balance.
RevenuesRevenues ExpensesExpensesOwner’s Capital
Owner’s Capital + _
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Account Receivable (应收账款)Account Receivable (应收账款)Receivable includes all the money claimed against
people, organizations, or other debtors when a business provides the service or sells the merchandise.
e.g. Notes Receivable / Accounts Receivable
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Drawing Drawing
Asset withdrawn from an business by its owners for their personal use.
e.g. You are the owner of a small business. The mortgage payment on your home is due, but you have little money in your personal checking account. Therefore, you write a check for this payment from your business bank account.
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Investments and Withdrawals by the Owner
Investments and Withdrawals by the Owner
EQUITIESEQUITIES
Debit for
Decrease
Credit for
Increase
JILL JONES, CAPITALJILL JONES, CAPITAL
Debit for
Decrease
Credit for
Increase
JILL JONES, DRAWINGJILL JONES, DRAWING
Credit for
Decrease
Debit for
Increase
An owner’s withdrawals
decrease owner’s equity.
An owner’s investments
increase owner’s equity.
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Each account has a normal balance.Each account has a normal balance.
RevenuesRevenues ExpensesExpensesOwner’s Capital
Owner’s Capital
Owner’s Withdrawals
Owner’s Withdrawals
_ + _
Continue
Normal BalancesNormal Balances
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RevenuesRevenues ExpensesExpensesOwner’s Capital
Owner’s Capital
Owner’s Withdrawals
Owner’s Withdrawals
_ + _
Normal BalancesNormal Balances
Each account has a normal balance.Each account has a normal balance.
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AA +E+D= L+C+R+C+R
Double Entry AccountingThe Equality of Debits and Credits
Double Entry AccountingThe Equality of Debits and Credits
Debit balances
Credit Credit balancesbalances=
In the double-entry accounting system, every transaction is recorded by equal dollar amounts of debits and credits.
In the double-entry accounting system, every transaction is recorded by equal dollar amounts of debits and credits.
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Trial Balance 试算平衡表Trial Balance 试算平衡表
A list of all the account balances at a given point of time in the following order: assets, liabilities, owner’s equity, revenue and expenses.
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AssignmentsAssignments
Problems 3, page 33
A4 paper
Better to use pencil
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