By the end of this lecture, you should be
able to:
List the
elements
of the basic
accounting
equation
Define
assets,
liabilities,
and
owner’s
equity and
give
examples
Define
revenues
and
expenses
and explain
how they
affect
owner’s
equity
Perform
basic
tabular
analysis,
and discuss
how it
relates to
financial
statements
Economic resources owned by the business
provides future benefits or services
Current assets
Fixed assets
Claims against assets
(debts and obligations).
Ownership claim on total assets.
Revenues
Result from business
activities entered into for
the purpose of earning
income.
Common sources of
revenue are: sales, fees,
services, commissions,
interest, dividends,
royalties, and rent.
Expenses
are the cost of assets
consumed or services used
in the process of earning
revenue.
Common expenses are:
salaries expense, rent
expense, utilities expense,
tax expense, etc.
▪ Transactions are a business’s economic events recorded
by accountants.
▪ May be external or internal.
▪ Not all activities represent transactions.
▪ Each transaction has a dual effect on the accounting
equation.
transaction
Assets
cash
Acc. Rec.
liabilities
Equi.
Notes
pay.
Acc. Pay.
Owner’s equity
Capital
Transactions analysis
Gomaa started his business as a chartered accountant in
July 1st 2024, during his first month of operations, he
made the following transactions:
1- invested $100,000 in cash in the new business.
2- paid $8000 for July rent
3- purchased office equipment on account with a value of
$30,000
4- provided services to clients for $15,000 cash
5- borrowed $7,000 bank a bank on a note payable
6- performed legal services for a client for $20,000 on
account
7- paid monthly expenses for: $5000 salaries, $3000
utilities, $1000 telephone
Gomaa Chartered Accountant’s Office
Income Statement
For the month ended July 31st, 2024
Revenues
Service revenues
Expenses
Rent expenses
Salaries expenses
Utilities expenses
Telephone expenses
Total expenses
Net Income
Gomaa Chartered Accountant’s Office
Owner’s equity Statement
For the month ended July 31st, 2024
Gomaa’s capital July 1st
Add: investments
Net Income
Gomaa’s capital July 31st
Gomaa Chartered Accountant’s Office
Balance Sheet
For the month ended July 31st, 2024
Assets
Liabilities and owner’s equity
Cash
Liabilities
Accounts receivable
Notes payable
equipment
Accounts payable
Total assets
Total liabilities
Owner’s equity
Gomaa’s capital
Total liabilities & owner’s equity
Describe
briefly the
steps of
analyzing and
recording
business
transactions