Chapter One Notes

Expenses

Costs Always decreases owner's equity

Cash: Decrease assets Credit: Increase Liabilities

Not Equipment!

Equipment can be converted to cash, expenses cannot.

A car is equipment, an asset (future value) Buying gas for that car is an expense (consumable)

Revenues

Income, or making money

Increases equity Increases assets

Net Income

Making more money than you are losing/spending Revenues-Expenses=positive number

Revenues > Expenses

Net Loss

Revenues-Expenses=Net Income or loss

Losing or spending more money than you are making Revenue-Expenses=negative number

Revenues< Expenses

Owner invests personal cash in the business

Assets: Increase Liabilities: No effect Owner's Equity: Increas

Owner withdraws assets for personal use

Assets: Decrease Liabilities: No effect Owner's Equity: Decrease

Company receives a bank loan

Assets: Increase Liabilities: Increase Owner's equity: No net effect

Company pays back a bank loan

Assets: Decrease Liabilities: Decrease Owner's equity: No net effe

Company purchases land by paying half in cash and signing a note payable for the remainder

Company

Assets:

Assets: Increase and decrease with net increase Liabilities: Increase Owner's equity: No net effect b/c net increase in assets=increase in liabilities

Revenues and Expenses

Net Income and Net Loss

Effects on the Accounting Equation