Unit2

AccountingElements&AccountingEquation2025/3/172Classification

DefinitionAccountingElements

Itreferstothebasicclassificationforaccountingobjectsandthespecificationofaccountingcalculationobjects.

Basedoneconomiccontent,accountingelementscanbedividedintoassets,liabilities,owner’sequity,revenues,expenses,profit.AccountingElements2025/3/173AssetsClassification

DefinitionAssetsAnyeconomicresourcesofmonetaryvalueownedorcontrolledbyabusinessthatareexpectedtobenefitfutureoperation.＊Currentassets＊

Property,PlantandEquipment＊

Intangibleassets2025/3/1742025/3/175Intangibleassets:Patent,Copyrights,Franchises,Trademarks,GoodwillPPE:

Land,Buildings,Machinery,FurnitureandEquipment2025/3/176LiabilitiesClassification

DefinitionLiabilitiesAnoutflowofresourceindicatingeconomicbenefitswillresultfromthesettlementofapresentobligation.＊Currentliabilities＊

Non-currentliabilities2025/3/1772025/3/178Owner’sequityClassification

DefinitionOwner’sequityItreferstotheresourcesinvestedinthebusinessbytheowneroraccumulatedduringthecourseofoperation.＊Paid-incapital/sharecapital＊Capitalsurplus＊Retainedearnings2025/3/179Classification

DefinitionRevenues＊Salesrevenue＊OtherincomeRevenues

Revenuesarecashinflowsorotherenhancementsofassetsofanentityorsettlementofitsliabilitiesoracombinationofbothinthenormaloperationofbusiness

activities.2025/3/1710ExpensesClassification

DefinitionExpensesExpensesareoutflowsorotherusingupofassetsorincurrenceofliabilitiesoracombinationofbothinthenormaloperationofbusinessactivities.＊Operatingexpenses＊Sellingexpense＊Generalandadministrativeexpense2025/3/1711ProfitProfit

referstotheoperatingresultsofabusinessforaperiodoftime.

Itisanimportantindexforevaluatingmanagers.2025/3/1712Classification

DefinitionProfitThematchingresultofrevenuesandexpenses.＊Operatingprofit＊Netamountofnon-operatingincomeandexpense2025/3/1713AccountingEquationItshowstherelationshipamongassets,liabilities,owner’sequity,revenues,expensesandprofit.Itreflecttheruleoffirm’seconomicactivitiesandusageofcapital.Itlaysthetheoreticalfoundationforaccountingpracticeandisextremelyimportantforboththedouble-entrysystemandthepreparationoffinancialstatements.2025/3/1714AccountingEquationAtaspecifictimeAssets=ClaimsDuringaperiodtime2025/3/1715AccountingEquationAssetsCapitalusageCapitalsourceFirmOwner’sequityLiabilitiesAtaspecifictimeAssets=Claimsie.Assets=Liabilities+Owner’sequity(Static)2025/3/1716CashMaterialWIPFGCashsupplyproducesaleProfitExpenses(input)Revenues(output)AccountingEquationDuringaperiodtimeRevenues–expenses=profit(Dynamic)2025/3/1717Assets+Expenses=Liabilities+Owner’sequity+RevenuesComprehensiveAccountingEquation2025/3/1718Example1.Invested$100,000toopenthepetstoreonJanuary1,2009.2.OnJanuary2,2009,Richardpaid$1,350rent.3.OnJanuary3,2009,Richardborrowed$50,000bysigninga4-month,10%notespayable.4.OnJanuary3,2009,Richardpurchasedpetstoreequipmentfor$7,500incash.5.OnJanuary4,2009,Richardhiredtwopeopleinthestoreforamonthlysalaryof$800each.6.OnJanuary10,2009,Richardreceivesacashadvanceof$1,200fromacustomerforaparrot.2025/3/17197.OnJanuary11,2009,Richardreceived$5,500incashfortwolizardssoldtoacustomer.8.OnJanuary13,2009,Richardpurchasedpetsuppliesonaccountatacostof$500fromMolleypetsupplystore.9.OnJanuary17,2009,Richarddeclaredandpaidadividendtostockholdersof$400.10.OnJanuary31,2009,Richardpurchaseda3-yearinsurancepolicycosting$2,400thatwillexpireonJanuary31of2011.11.OnJanuary31,2009,Richardpaidtheemployeesmonthlysalaries.Example2025/3/17201.Invested$100,000toopenthepetstoreonJanuary1,2009.

Cash↑Paid-incapital↑2.OnJanuary2,2009,Richardpaid$1,350rent.

Retainedearnings↓Cash↓3.OnJanuary3,2009,Richardborrowed$50,000bysigninga4-month,10%notespayable.Cash

↑Notespayable↑4.OnJanuary3,2009,Richardpurchasedpetstoreequipmentfor$7,500incash.

PPE↑Cash↑Answer2025/3/17215.OnJanuary4,2009,Richardhiredtwopeopleinthestoreforamonthlysalaryof$800each.6.OnJanuary10,2009,Richardreceivesacashadvanceof$1,200fromacustomerforaparrot.Cash↑Unearnedrevenue↑7.OnJanuary11,2009,Richardreceived$5,500incashfortwolizardssoldtoacustomer.

Cash↑Retainedearnings↑8.OnJanuary13,2009,Richardpurchasedpetsuppliesonaccountatacostof$500fromMolleypetsupplystore.Supplies↑Accountspayable↑2025/3/17229.OnJanuary17,2009,Richarddeclaredandpaidadividendtostockholdersof$400.

Retainedearnings↓Cash↓10.OnJanuary31,2009,Richardpurchaseda3-yearinsurancepolicycosting$2,400thatwillexpireonJanuary31of2011.

Prepaidinsurance↑Cash↓11.OnJanuary31,2009,Richardpaidtheemployeesmonthlysalaries.

Retainedearnings↓Cash↓2025/3/1723SummaryAccountingelements

Assets,Liabilities,Owner’sequityRevenues,Expenses,Profi