Accounting for Entre & SB: Lecture #1 (Chapter 1 and 2)
GAAP: Generally Accepted Accounting Principles
-Created by different organizations, such as FASB and SEC.
-FASB: How should one account for different accounting situations? They release a
statement telling others how to use accounting.
-SEC (Security and Exchange Commission):
-Cost: Cost is always certain, it is not subjective like worth is. Cost is how the value of
something is determined by a company.
A = L + E (The Basic Accounting Equation)
- 100% true all the time.
-A is Assets: Anything a company owns. They are valued by their cost. Something more
expensive is more valuable than something that is not as costly.
-L is Liabilities: Amounts the company owes to employees, landlords, government, bank, etc.
-E is Equity: What is left after subtracting the liability from the assets, what the owner has.
-House cost is $300,000, liability (mortgage) is $100,000, equity is what is left, $200,000.
-Revenue: What you earn doing what you do; income. (Company has $10,000)
-Expense: What gets used up and consumed in the process of earning revenue. (Use up
-Net Income: What is leftover after expenses are paid ($2,000). If you spend more than your
income, that is called net loss.
-Company and owner are separate - personal ﬁnancial decisions of owner should not affect
-Company starts off with $10,000, uses $2,000 to buy a computer. Equity is still $10,000, just
dispersed in different ways. The you buy a desk for $1,000 on credit so you don't use cash.
Now you have a liability, but the equity is still $10,000.
-Financial statements are reports of how money was handled at a company throughout a
period of time. People judge your cpm any through these ﬁnancial statements
-Name of organization is at top, then under that is the type of statement it is, and then the
third line is the date the report encompasses.
-Income statements: Lists revenues and expenses, and calculates net loss and net income.
-Statement of owner’s equity: Start with beginning balance and end with ending balance
over a period of time, same time period as income statement.
-At the beginning you might have an investment. More investment makes equity grow.
You also have the number that is your net income. The equity goes down when you
make a withdrawal from your company, if you wanted to take back money that you didn't
need in the company. Don’t put in $0 if one of the lines doesn’t apply to you - just put in
-Balance Sheet: Reports of the Basic Accounting Equation. Assets, Liabilities, and owner’s
equity are listed throughout time.
-Statement of Cash Flows