Podcast
Questions and Answers
What is the term for the value of assets that belong to the owner(s) after liabilities are paid off?
What is the term for the value of assets that belong to the owner(s) after liabilities are paid off?
What is the source of increase in owner's equity that represents profit made from business activities?
What is the source of increase in owner's equity that represents profit made from business activities?
What is the term for the cash owner personally puts into their business?
What is the term for the cash owner personally puts into their business?
What happens when the owner withdraws cash from the business accounts?
What happens when the owner withdraws cash from the business accounts?
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What is the classification of liabilities based on time period?
What is the classification of liabilities based on time period?
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What is the type of asset that includes patents, trademarks, or copyrights?
What is the type of asset that includes patents, trademarks, or copyrights?
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What is the result of subtracting liabilities from assets?
What is the result of subtracting liabilities from assets?
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What is the term for the amount of money owed to creditors?
What is the term for the amount of money owed to creditors?
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What is the type of liability that includes employee payroll, invoices, and utility expenses?
What is the type of liability that includes employee payroll, invoices, and utility expenses?
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What is the result of subtracting expenses from revenue?
What is the result of subtracting expenses from revenue?
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Study Notes
Assets
- Can be tangible (physical) or intangible
- Tangible assets: buildings, land, equipment
- Intangible assets: patents, trademarks, copyrights
Liabilities
- Represent assets owed to creditors
- Classified into current (short-term) and long-term liabilities
- Current liabilities: employee payroll, invoices, utility, and supply expenses
- Long-term liabilities: loans, mortgages, and deferred taxes
Owner's Equity
- Represents the value of assets belonging to the owner(s)
- Calculated by subtracting liabilities from assets
- Increases in owner's equity come from:
- Investments by the owner
- Revenue from business activities (sales, fees, renting, lending, commissions, etc.)
- Decreases in owner's equity come from:
- Drawings (owner withdrawals from business accounts)
- Expenses (e.g., capital expenditures, such as purchasing equipment or software)
Shareholders' Funds
- Refers to the amount of equity in a company belonging to shareholders
- Approximates the amount shareholders would receive if the business were to liquidate
Profit and Loss
- Profit: excess of revenue income over expenses
- Loss: excess of expenses over income
- Can be calculated for individual transactions or the business as a whole
Financial Analysis
- Process of evaluating businesses, projects, budgets, and financial transactions to determine performance and suitability
- Used to analyze stability, solvency, liquidity, and profitability before making a monetary investment
Trend Analysis
- Strategy used to make future predictions based on historical data
- Compares data points over time to identify uptrends, downtrends, and stagnation
Accounting Equation
- Basic principle of accounting and fundamental element of the balance sheet
- Equation: Assets = Liabilities + Owner's Equity
- Double-entry accounting system: every transaction affects at least two accounts
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Description
Learn about the different types of assets, including tangible and intangible ones, and understand how to classify liabilities into current and long-term periods. Test your knowledge of business finance and accounting concepts!
