INTRODUCTION
Accounting → process of recording/processing information about businesses and
corporations.
Transaction → a transfer of value
THE ACCOUNTING EQUATION: Assets = Liabilities + Owner’s Equity
→ all accounting related activities relate to keeping this equation BALANCED
Asset → something that a company/business owns WITH value (i.e. land, car, cash)
Liability → something that the company/business owes legally (i.e. mortgage)
Owners equity →the percentage of ownership in the business (i.e. landlord over a house)
Source document → proof of a transaction (i.e. invoice, cheque, receipt)
GAAPs → Generally Accepted Accounting Principles (rules to follow
- Objectivity Principle → records based on factual evidence/source documents
- Monetary Unit Assumption →Assumption that business uses a stable currency (such
as CAD or USD)
- Time Period Assumption → Business life is divided into time periods
- Cost Principle → Business lists asset’s value for the price it was bought at
- Going Concern → Assumption that business will indefinitely continue
- Economic Entity → Business is separate from owner
- Revenue Recognition Principle → Transactions are recorded on sale, not when money
is received
- Consistency Principle → Consistent financial documentation
Ownership
- Sole Proprietorship → Individual owner
- Corporation → Shareholders
- Partnership → two people legally share responsibility for a business
- Unlimited Liability → Can lose more than what you invested into a business
- Limited Liability → You can only lose what you invested
BALANCE SHEET ⇒ ACCOUNT FORM
Statement showing financial position of a company or person. The setup is based on the
fundamental accounting equation.
-- Basic Steps --
Heading → Three-row (Who, What, When)
Order → Assets are listed in order of liquidity (ability to be turned into cash)
Liabilities are listed in order of when they should be paid
, Capital / Owner’s Equity → Difference between assets and liabilities
-- Heading --
Who →Name of Business
What → The name of financial statement
When → The date on which the financial position was calculated
-- Content --
All accounts must be specifically shown on the balance sheet and all financial details need to be
disclosed. There are two totals on each side which are indicated by a double
Example:
BALANCE SHEET ⇒ REPORT FORM
This version of the balance sheet is more commonly used in accounting.
It is important to record the capital account in this balance sheet (scroll down for info on
capital):
1. Record name of OWNER of the business
2. Next, record the ending balance of the last period with the corresponding amount (this
is the beginning balance)
3. Next is the net income/loss (determine from last revenues and expenses)
4. The drawings must be indicated in the row below
5. The increase of equity can be calculated by Net Income/Loss - Drawings
6. Now, the new ending balance can be calculated by adding the Beginnining Balance and
the Increase of Equity
Accounting → process of recording/processing information about businesses and
corporations.
Transaction → a transfer of value
THE ACCOUNTING EQUATION: Assets = Liabilities + Owner’s Equity
→ all accounting related activities relate to keeping this equation BALANCED
Asset → something that a company/business owns WITH value (i.e. land, car, cash)
Liability → something that the company/business owes legally (i.e. mortgage)
Owners equity →the percentage of ownership in the business (i.e. landlord over a house)
Source document → proof of a transaction (i.e. invoice, cheque, receipt)
GAAPs → Generally Accepted Accounting Principles (rules to follow
- Objectivity Principle → records based on factual evidence/source documents
- Monetary Unit Assumption →Assumption that business uses a stable currency (such
as CAD or USD)
- Time Period Assumption → Business life is divided into time periods
- Cost Principle → Business lists asset’s value for the price it was bought at
- Going Concern → Assumption that business will indefinitely continue
- Economic Entity → Business is separate from owner
- Revenue Recognition Principle → Transactions are recorded on sale, not when money
is received
- Consistency Principle → Consistent financial documentation
Ownership
- Sole Proprietorship → Individual owner
- Corporation → Shareholders
- Partnership → two people legally share responsibility for a business
- Unlimited Liability → Can lose more than what you invested into a business
- Limited Liability → You can only lose what you invested
BALANCE SHEET ⇒ ACCOUNT FORM
Statement showing financial position of a company or person. The setup is based on the
fundamental accounting equation.
-- Basic Steps --
Heading → Three-row (Who, What, When)
Order → Assets are listed in order of liquidity (ability to be turned into cash)
Liabilities are listed in order of when they should be paid
, Capital / Owner’s Equity → Difference between assets and liabilities
-- Heading --
Who →Name of Business
What → The name of financial statement
When → The date on which the financial position was calculated
-- Content --
All accounts must be specifically shown on the balance sheet and all financial details need to be
disclosed. There are two totals on each side which are indicated by a double
Example:
BALANCE SHEET ⇒ REPORT FORM
This version of the balance sheet is more commonly used in accounting.
It is important to record the capital account in this balance sheet (scroll down for info on
capital):
1. Record name of OWNER of the business
2. Next, record the ending balance of the last period with the corresponding amount (this
is the beginning balance)
3. Next is the net income/loss (determine from last revenues and expenses)
4. The drawings must be indicated in the row below
5. The increase of equity can be calculated by Net Income/Loss - Drawings
6. Now, the new ending balance can be calculated by adding the Beginnining Balance and
the Increase of Equity
