EXAM REVIEW - Accounting
Accounting Equation A = L + O.E.
Why do businesses bother to record their transactions?
To assess the health of the company
To ensure accountability
Define the following:
1. Asset – things of value that a person or business owns
2. Liability – a debt of a business
3. Owner’s Equity – the owner’s investment in the business or the financial portion of the business
that actually belongs to the owner
4. Revenue – the money a business receives for the products / services it sells
5. Expense –expenditures that help a business generate revenue
6. Current Asset – assets that are held for a short period of time and can be quickly converted into
cash (eg. Cash, A/R)
7. Long-term Liability – A debt that takes longer than a year to pay in full
For the following accounts, label each one as a(n):
A – Asset
L – Liability
OE – Owner’s Equity
R – Revenue
E - Expense
Cash
A
Bank Loan
L
Utilities
E
Sales
R
Rental Revenue
R
Rent
E
Land
A
Accounts Receivable
A
Accounts Payable
L
Capital
OE
Income Tax
E
Supplies
A
Car Loan
L
Building
A
Hydro
E
Note Payable
L
Note Receivable
A
Bank
A
Truck
A
Internet
E
Inventory
A
A/P – Rebecca
L
A/R – Madison
A
Advertising
E
Salaries
E
Credit Union Loan
L
Land
A
The Balance Sheet
What goes on a Balance Sheet?
1. ASSETS (LEFT SIDE)
2. LIABILITIES (RIGHT SIDE)
3. OWNER’S EQUITY (RIGHT SIDE)
Features of a Balance Sheet:
Three Line Heading – Who, What, When
Assets listed in order of liquidity (how fast they can be converted to cash)
Liabilities listed in the order in which they will be paid
Two final totals are listed on the same line and with a double underline beneath them
The Income Statement
What goes on an Income Statement?
1. REVENUE
2. EXPENSES
3. NET INCOME (OR LOSS) = Revenue – Expenses
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