School of Business
Master of Business Administration
BRMD503
MBA Remedial II
Accounting Introduction & Section A
Accounts Classification
Fall 2020-2021
Outlines
➢ Introduction to Accounting
➢ Accounting
Equation
➢ Assets
➢ Liabilities
➢ Stockholders’ Equity
➢ Revenues
➢ Expenses
Introduction to Accounting
Corporation
➢
A corporation is a legal entity that is separate and distinct from its owners
➢
Corporations enjoy most of the rights and responsibilities that an individual
possesses
➢
The owners of a corporation are known as shareholders or stockholders
➢
The corporation is either a publicly held corporation or a privately held
corporation
➢
The stockholders of a corporation have limited liability
➢
The stockholders control a corporation by electing a board of directors
Capital Stock
➢
Common Stock: When the corporation has only one class of stock
➢
Preferred Stock: Give some preferences or benefits over common stock
➢
Common and preferred stockholders receive dividends from the
corporation.
➢
Dividends are the portion of profit distributed to stockholders.
➢
The portion of profit that is held or saved for future use is called
“Retained Earnings”, they are undistributed profit.
Capital Stock
➢
Authorized Stock: is the total or the maximum number of shares of a capital stock that a
corporation is allowed to issue (allowed to sell).
➢
Issued Stock: is the total number of shares of a capital stock that a corporation actually issued
(actually sold).
➢
Treasury Stock: is the number of shares the corporation repurchases from its shareholders.
➢
Outstanding Stock: is the total number of share of capital stock that are held by the stockholders. It
is the difference between the number of shares issued and the number of treasury shares.
➢
Market Value of Stock: is the market value of the issued shares.
➢
Par Value: The par value is the nominal or book value assigned to the share in the charter when the
corporation is organized.
➢
No-Par Stock, and Stated Value: If the charter does not specify a par value, the stock is considered
to have a no-par value. However the board of directors can later assign the stock's book value, now
known as the stated value.
Section A
Accounts Classification
The Accounting Equation
Assets = Liabilities + Stockholders’ Equity
➢
Assets are the resources of the business.
➢
The rights or claims to the assets are divided into two types.
▪
The rights of creditors: are the debts of the business and
are called liabilities
▪
The rights of owners: are called stockholders’ equity
for a corporation
Assets
Assets are divided into four categories
Assets
Current
Assets
Long Term
Investments
Fixed
Assets
Intangible
Assets
Current Assets
Current assets are cash and other assets expected to be converted to cash or
consumed either in a year. There order is as follows:
1- Cash: includes cash and bank deposit accounts.
2- Short-term investments: include securities bought and held for sale in the near
future
3- Accounts Receivable: money expected to be collected from customers resulting
from selling goods or rendering services on account.
4- Notes Receivable: promises written by others to be collected by company within
one year and includes interest.
5- Inventory: goods owned by the company and are intended to be sold to
customers.
6- Supplies: are assets acquired for use such as printing papers and ink.
7- Prepaid expenses: these are expenses paid in advance and recorded as assets
Long Term Investments
➢
Long-term investments are to be held for many years and are
not intended to be disposed of in the near future.
➢
This group usually consists of two types of investments:
1- Investments in securities such as bonds and stocks
2- Investments in fixed assets not used in operations such as
land held for sale)
Fixed assets
➢
Also referred to as PPE (property, plant, and equipment)
➢
They are purchased for continued and long-term use in earning
profit in a business.
➢
This group includes:
1- Land
2- Buildings
3- Automotive such as trucks and cars
4- Equipment
Intangible assets
➢
Intangible assets lack of physical substance and usually are very
hard to evaluate.
➢
They include:
1- Goodwill: The value of the company’s name, customers,...
2- Patent: A declaration issued by the government declaring a
company the inventor on a new invention
3- Copyright: Intellectual property that provides exclusive
publication, distribution, and usage rights for authors
4- Trademarks: Brands
Liabilities
Liabilities are divided into two categories
Liabilities
Current
Liabilities
Long Term
Liabilities
Current Liabilities
Current obligations reasonably expected to be paid within one year.
They include:
1. Notes Payable (NP): promises written by the company which will be
paid during one year, usually includes interest.
2. Accounts Payable (AP): result from buying assets on account.
3. Accrued Expenses: Expenses due but unpaid such as salaries
payable.
4. Unearned Revenue: money received in advance for services not yet
rendered such as an airline company where customers pay for their
tickets in advance.
Long Term Liabilities
Obligations expected to be paid after one year. They include:
1. Notes Payable due after one year
2. Long-Term Loans due after one year
3. Bonds Payable: where a corporation issues bonds to borrow
money from public.
4. Mortgage Payable, long term loan secured by a property
Stockholders' Equity
➢
The overall capital of the corporation
➢
It consists of the following three basic components:
A. Paid-in capital, or contributed capital, is total cash and other assets
paid by stockholders to acquire the capital stocks
B. Retained earnings, are the portion of net income that is retained in
the corporation.
C. Treasury stock, are reacquired stocks, they are reported as a
deduction from stockholders’ equity.
Stockholders' Equity = Paid-in capital + Retained earnings – Treasury
stock
Revenues
➢
They are fees earned from providing services and the amounts of
merchandise sold
➢
Revenues are recorded at the time of delivering the service or the
merchandise, even if cash is not received at the time of delivery
➢
Examples of revenue accounts include: Sales, Service Revenues,
Interest Revenue, Rent Revenue,…
Expenses
➢
They are the reductions in value of an asset as it is used to generate
revenue.
➢
They are the costs that occurs as part of a company's operating
activities during a specified accounting period.
➢
Examples of Expenses include: Salaries Expenses, Rent Expenses,
Insurance
Expenses,
Advertising Expenses,…
Interest
Expenses,
Utilities
Expenses,
Exercise 1 page 7

Kindly click on the YouTube link below for explanation
https://youtu.be/X2WOnp_P_4A
Exercise 2 page 8
Thank You