ACC1200 Lecture Notes - Lecture 2: Income Statement, Sole Proprietorship, Accounting Equation
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For example, you and your bank have ongoing business transactions or contracts with vendors: cash transactions: Entity concept: does not involve cash immediately. A(cid:374)(cid:455) pe(cid:396)so(cid:374)al t(cid:396)a(cid:374)sa(cid:272)tio(cid:374)s of the (cid:271)usi(cid:374)ess" o(cid:449)(cid:374)e(cid:396), (cid:373)ust (cid:271)e kept sepa(cid:396)ate from the business records. Contract signed to lease a factory for business. Purchase of a new car for the family. Owner takes out a loan to buy a caravan. O(cid:374)(cid:272)e a t(cid:396)a(cid:374)sa(cid:272)tio(cid:374) has (cid:271)ee(cid:374) (cid:396)e(cid:272)o(cid:396)ded as (cid:862)pe(cid:396)so(cid:374)al(cid:863), it (cid:272)a(cid:374)(cid:374)ot (cid:271)e (cid:396)e(cid:272)o(cid:396)ded in the business records. Any transactions between the business and the owner are recorded as adjust(cid:373)e(cid:374)ts to the o(cid:449)(cid:374)e(cid:396)"s e(cid:395)uit(cid:455). E(cid:374)su(cid:396)es a(cid:373)ou(cid:374)t o(cid:449)ed to the o(cid:449)(cid:374)e(cid:396) (cid:271)(cid:455) the business is always known. Assets (cid:894)a(cid:895) = lia(cid:271)ilities (cid:894)l(cid:895) + ow(cid:374)e(cid:396)"s e(cid:395)uity (cid:894)oe(cid:895) Based off accounting equation: a = l + oe (t-format) Financial position of entity at time of reporting. Extended accounting equation can be used to combine balance sheet and income statement.
