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ลำดับตอนที่ #3 : [[R.S.]]Accounting Test::Chapter.3::6.9.11
Review Sheet of Accounting for
Chapter 3 Test* 6.Sep.2011
Chapter.3 :: Business Transactions and the Accounting Equation [[Page.44]]
3-1 Property and Financial Claims [[Page.46]]
- Property is anything of value that is owned or controlled. The right to own property is basic to a free enterprise system.
- When you own an item of property, you have a legal right or financial claim to it. (Ex. If you buy sth on its full price, you own it. If you rent sth, you can only control the use of it on limited time)
- One of the purposes of accounting is to provide financial information about property and rights to that property.
· In accounting, dollar amounts measure both the cost of the property and the property rights, or financial claims to the property.
- When you buy property with cash, you acquire all of the financial claims to that property at the time of purchase.
- When you buy property and agree to pay for it later, you are buying on credit. The business or person selling you the property on credit is called a creditor.
· You owe money and share the financial claim to that property with your creditor.
PROPERTY = FINANCIAL CLAIMS or
PROPERTY = CREDITOR’S FINANCIAL CLAIM + OWNER’S FINANCIAL CLAIM
- Two (or more) people can have financial claims to the same property.
- In accounting, property or item of value owned by a business are referred to as assets. Ex. cash, office equipments, manufacturing equipment, buildings, land.
- The accounting term for the financial claims to these assets is equity.
- Investments are assets, generally long-term in nature, that are not intended to be converted to cash or to be used in the normal operations of the business in the next accounting period.
- The owner’s claims to the assets of the business are called owner’s equity. It is measured by the dollar amount of the owner’s claims to the total assets of the business.
- The creditor’s claims to the assets of the business are called liabilities. They are the debts of the business and are measured by the amount of money owed by a business to its creditor.
- The relationship between assets and both types of equity (liabilities and owner’s equity) is sown in the accounting equation:
ASSETS = LIABILITIES + OWNER’S EQUITY
3-2 Transaction That Affect Owner’s Investment, Cash, and Credit [[Page.50]]
- A business transaction is an economic event that causes a change – either an increase or decrease – in assets, liabilities, or owner’s equity.
- An account shows the balance for a specific item, such as cash or computer equipment. It also is a record of the increases or decreases for that specific item.
- Every business sets up its accounts and its accounting system according to its needs.
- Accounts receivable is the total amount of money owed to a business. It is an asset because it represents a claim to the assets of other people or business which is a future value that eventually will bring cash into the business.
- Accounts payable is the amount of money owed, or payable, to the creditors of a business. It is on liability list because it’s a future obligation requiring the payment of cash or services to other people/business.
- Analyze business transaction include these steps:
1. Identify = identify the accounts affected
2. Classify = classify the accounts affected
3. +/- = determine the amount increase/decrease for each account affected
4. Balance = make sure accounting equation remains in balance
- Various kinds of transactions are categorized as:
· Investments by the owner
ð Cash investment, transfer of property
· Cash transactions
ð Any asset that is purchased for cash
· Credit transactions
ð When a business buys an item on credit, it is buying on account.
ð Purchase on account, sale on account, payment made on account, payment received on account
· Revenue and expense transactions
· Withdrawals by the owner
3-3 Transactions That Affect Revenue, Expense, and Withdrawals by the Owner [[Page.57]]
- Revenue and expense transactions
· Income earned from the sale of goods or services is called revenue. (Ex. fees earned for service performed, cash received from the sale of merchandise)
· Both revenues and investments by the owner increase owner’s equity, but these represent very different transactions.
· To generate revenue by selling goods or services, most businesses must also incur expenses to buy goods, materials, and services.
· An expense is the price paid for goods or services used to operate a business. (Ex. rent, utilities, advertising)
ð Expenses decrease owner’s equity because they decrease the assets of the business or increase liabilities.
- Withdrawals by the owner
· If a business earns revenue, the owner will take cash or other assets from the business for personal use as withdrawal.
· A withdrawal decreases both assets and owner’s equity.
Effects of typical business transactions on accounts:
Transaction | Effects On: | ||
Assets | Liabilities | Owner’s Equity | |
Investment of cash by owner | + |
| + |
Investment of property | + |
| + |
Cash payment (ex. purchase of sth) | +, - |
|
|
Purchase of an asset on account | + | + |
|
Sale of office equipment on account | -,+ |
|
|
Make a payment on account | - | - |
|
Record revenue for a cash sale | + |
| + |
Record a cash payment for an expense | - |
| - |
Record a cash withdrawal by the owner | - |
| - |
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