The Accounting Equation
Accounting Equation
Assets = Liabilities + Owner’s Equity
I. ASSET
- Sth of value the company owns
A. TANGIBLE ASSET
1. CURRENT ASSETS
o Assets that the company
expects to use, sell or collect
within one year
o Appears on the Balance Sheet
from most liquid - least liquid
NOTE! Liquid Assets – readily convertible
into cash; generally accepted as payment
for liability
a. CASH – includes:
o Cash on hand (petty cash)
o Bank balances (checking,
savings / money-market acct)
o Cash equivalent – highly
liquid investments with
maturities of 90 days or less
at time of purchase (cert of
deposit, US treasury bills)
b. MARKETABLE SECURITIES
o When company has both the
ability and desire to sell such
within one year
o Eg. Short-term investment in
stocks, bonds (debt), cert of
deposit
c. ACCOUNTS RECEIVABLE
o Amt owed to the company by
customers who have received
products but have not yet
paid for them
d. INVENTORY
o Cost to acquire or
manufacture merchandise for
sale to customers
o Represent a significant
portion of assets in
merchandising &
manufacturing companies
e. PREPAID EXPENSES
o Paid by company to purchase
items that represent future
costs of doing business
o Assets that become expenses
as they expire or get used up
o Eg. office supplies, insurance
premiums, advance payment
for rent
2. PROPERTY, PLANT & EQUIPMENT
o “Fixed Asset” / “PPE”
o Long-lived assets to help
generate revenue
