Chapter 4 The Balance Sheet. Individual Balance Sheet Accounts.
Week 2 Slides - Balance Sheet
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Transcript of Week 2 Slides - Balance Sheet
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MSE608C Engineering and Financial Cost AnalysisThe Balance Sheet and Double-Entry Bookkeeping
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Assets on the Balance Sheet
Current Assets are used up, expended or converted into cash within 12 monthsSome expenses are Prepaid in advance. These become an ASSET
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Assets on the Balance Sheet
Non-current Assets are used up or expended in a period longer than 12 monthsNon-current Assets do not have a category title, they are just listed after Current Assets
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Liabilities on the Balance Sheet
Current Liabilities are discharged or paid off within 12 months.
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Owners Equity on the Balance Sheet
Owners Equity is the difference between Assets and Liabilities.The value remaining in the company for the owners.Not a pool of cashRevenues increase Owners Equity; Expenses decrease it.Invested Capital = Voluntary investment of fundsRetained Earnings = residual value from profit-seeking activitiesRetained Earnings help the business to grow
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Double-entry BookkeepingNewton Third Law of MotionFor every action there is an equal and opposite reactionAccounting rulesFor every Debit there is an equal and opposite Credit recorded in the accounting records
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Double-entry BookkeepingDouble-entry bookkeeping is the accepted accounting mechanism for recording and classifying the monetary events of a business entityThe T-account format:
For every monetary event there is at least one entry on the debit side of at least one account and the credit side of another account.
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Double-entry BookkeepingA = L + OE
Account Type+ Debit Effect+ Credit EffectAssetsIncreaseDecreaseLiabilitiesDecreaseIncreaseOwners EquityDecreaseIncrease
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Chart of Accounts
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The Journal
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The Ledger
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The Cycle at Work
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AssessmentOwners Equity is comprised of what two components?What is the basic law of double-entry bookkeeping?What are the first stages of the Accounting Cycle?