Chapter 2 Assets,Liabilities and EquityChapter 2 Assets, Liabilities and Owner’s Equity At the time to run the business, there will be transactions taking place. Bookkeeping helps to keep complete records ofall the transactions incurred. However, firstly we need to understand the ‘meaning of assets, lisbilities and owner's equity bec: se these three conespts willbe the major parts of the financial statements Asset-means eny item future economic value owned by an individual or corporation, especialy that which could be converted to cash. Liabtity means an obligation that legally oblidges an individual or company to settle a eb. Owner's equity means the total ownership in assets minus total liabilities ofan individual ‘or company. This concept shows the balanced relationship among, them that ean be expressed through an acoutng equation bso = 4, = ab 1. Assets 2 Liabilities 3. Owner's equity 4, Accounting equation 5. Statement of financial position Basic Accounting 1 Bunyawee Suwannaboo! Chapter 2-1LOL, Tobe able to explain the meaning of asset 102, Tobe able to explain the meaning of liailty LO 3, Tobe able to explain the meaning of owner's equity LO 4, Tobe able to explain the accounting equation LOS, Tobe abletoeafeulate asset, liabilities and owner's equity using the accounting equation 1L0 6, To beable to explain the meaning ofthe statement of financial position LO 7. To be able to prepare a the statement of financial position Assessment 2 Practice exercise 4 Group assignment to do additional research and present othe class on the topics below 3.1 The accounting equation 43.2. Statement of financial position WW © + Basic Accounting 1 Bunyawee Suwannaboo! Chapter 2-23 EEE Any item of future economic value owned by an individual is the meaning of 7 a. Owner's equity b. Liabilities ©. Capital Assets An amount which a business firm is ‘liable to pay’ is legally named as ? a, Assets b. Liabilities Capital : Owner's equity Which ones are assets? a Cash, account payable, a ear b. Office supplies, account receivable, account payable c, Bank account, account receivable, Office supplies ©. Cash, loan, capital Which one is the ownership after deducting liabilities from owner’s equity? a, Capital b. Account payable c. Investment fund ad. Netassets ‘The equation that shows the balance of assets, Liabilities and owner's equity is called? The accounting balance b. The accounting equation ©. The balance sheet 4. ‘The balance of equation ‘What is the financial statement? a. The accounting balance 1b. The accounting equation ‘c, The financial position statement The balance of equation Basic Accounting 1 Bunyawee Suwannaboo! Chapter 2-37. What is the accounting equation? a A=L+5O bo A=L+0E @ L=A+ Bo & A=L+0P 8. What is correct way to prepare a financial position statement? a. Write “Assets inthe middle ofthe le column and write ‘Liabilities and Owner's Equity’ in the midale ofthe right column, Write “Assets in the middle ofthe right column and write “Liabilities and Owner's Equity’ in the middle ofthe left column. . Write ‘financial position statement” as the heading first then write down the company's 4. Write company’s name as the heading first then followed by the date 9. What is the meaning of financial position statement ? 1, The report that shows the performance of'a company as of a specific date b. The report that shows thelist of assets of a company as of a specific date €. The report that shows the owner's equity of a company as ofa specific date 4. The report that shows the financial status of a company as ofa specific date 10, Punpun Shop has 18,000 Baht cash, account receivable 4,000 Baht, decorating items 12,000 Baht, office equipment 40,000 Baht, account payable 7,000 Baht. What is the total amount of the balance sheet of Punpun Shop? a. 74,000 Baht , 67,000 Babs ©, 34,000 Baht «4. 22,000 Babs Basic Accounting 1 Bunyawee Suwannaboo! Chapter 2-4Assets Assets means any item of future economic value owned by an individual or corporation, ‘especially that which could be converted to cash or a resource with ‘economic value that an individual, corporation or country owns or ‘controls with the expectation that it will provide future benefit. Business assets such as cash, bank account, account receivable, note receivable, office supplies, cas, office equipment, buildings, land, bond, copyright, concession, ete Individual's assots such as cash, savings, furniture cars, house, land, bond, stock certificate, ete. Assets can be acquired by purchase, exchange, production, ie. every time an asset is acquired, itis necessary to record the asset at its original cost, The company assets, property or ‘equipment purchased exclusively or primarily for the company use can be divided into the following categories: Cash includes cash on hand, coins, petty cash, banknotes, bank account balance, customer cheque which are not yet deposited Account Receivable means Money owed by aay customers (individuals or corporations) to. Sr cer yin exhng fr od services that have been delivered or used, Dut not yet paid for, Basic Accounting 1 Bunyawee Suwannaboo! Chapter 2-5Office Supplies refers to all supplies regularly used in offices by the company and other organizations such as document file, notebooks, pens, pencils, printing paper, rulers, ete WD tw / Office equipment sich as typewriters, computers, calculators, cash recorders, i facsimiles, copiers, etc. It is important to record these assets into the right account, Besides the “tangible assets", another type of the assets which have no physical shape which cannot be seen or felt but have value are called “intangible assets” such as goodwill, patents, copyright, concession, lease contract, and trademarks. In this book, we will lear only about the tangible assets. The intangible assets will be in the next level, Example 21 TETE Shop has 20,000 Baht cash, 120,000 Baht in bank account, 30,000 Baht office supplies, $00,000 Baht ear and 1,650,000 Baht land, Please calculate the total asset value of TETE Shop. How to calculate the total asset’s value cash 20,000 Baht Bank account 120,000 Baht Oftice supple 30,000 Bake car 500,000 Baht Land 1.650.000 Baht Total asset value 2,820,000 Baht - Basic Accounting 1 Bunyawee Suwannaboo! Chapter 2-6Liabilities A liability means an amount which the company firm is legally “liable to pay’, All the amounts which are claimed by ‘outsiders on the assels of the company ate known as liabilities, Liabilities occur when the company makes a purchase of products, x assets or borrow money from extemal party. The company is liable - to pay for the received produets, services or assets in the future, Liability must be reported on a company’s balance with the word "Account payable” in the account title Apart from the account payable, a company’s liabilities include bbank loan and overdraft Account Payable: ‘his current liability account will show the amount a company owes for items or services purchased on credit. For ‘example, the company bought @ computer worth 30,000 Baht from Shop ‘A with credit. Shop A will become the company’s creditor and will be recorded as “Account Payable Shop A” If the company borrows $0,000 Baht from BB Bank, the bank ‘will become the company's creditor and the money borrowed will be recorded as “Loan”. IF the company makes an agreement with the bank to overdraft and to withdraw the amount ‘of money that exceeds the deposits, the company is liable to pay for this loan and this transaction ‘must be recorded as “Overdraft” Example 2-2 J Trading Company bought 4,000 Baht office supplies from DD Shop and paid only 2,000 Baht. The company hired MAN 2,500 Baht to clean the Shop and has not yet paid. I bought 15,000 Baht office equipment from WOW Shop and paid 3,000 Babi, Caleulate the total liabilities of J) Trading Company Basic Accounting 1 Bunyawee Suwannaboo! Chapter 2-7How to calculate the liabilities of JJ Trading Company Account payable to DD Shop (4.000-2.000) 2,000 Acvount payable to MAN 2500 Account payable to WOW Shop (15,000 ~3,000) 12.000 ‘Total amount of liabilities 16,500 Owner's Equity Proprietorship or Owner's equity means an unincorporated business owned by a single person who is responsible for its Lailities and cnfitled to its profits or the amount of the business assets owned by the business owners. The calculation for owner's equity is assets minus liabilities, ‘After deduction, the amount is called ‘net assets’ and will be recorded under the title of capital Example 2-3. Ploy Shop has alist of assets as shown below: Baht Baht Baht Bant (a) Cash 5,000 Baht Bank account 12,000. Baht Office supplies 8,000 Baht Office equipment 30,000 Baht Please calculate the total capital of Ploy Shop ‘How {o calculate the total capital of Ploy Shop ? Cash 5,000 Baht Bank account 12,000 Baht Office supplies 8,000 Baht > Capital of Ploy Shop $5,000 Baht Office equipment Baht Total Baht 4+ Total assets $5,000 Baht equals capital $5,000 Baht, Basic Accounting 1 Bunyawee Suwannaboo! Chapter 2-8ane $5,000 assets — $5,000 Example 2-4 JOJO Shop has a list of assets and liabilities as shown below Cash 13,000 Baht Bank account 29,000 Baht Account receivable from Nikki 8,000 Babt Office equipment 54,000 Baht Account payable to Mani Shop 12,000 Baht Please calculate the total capital of JOJO Shop How to caleulate the total capital of JOJO Shop. Assets Cash 13,000 Babe Bank account 29,000 Baht |_ Account payable to Mani Shop 12,000 Baht Account receivable from Nikki 8,000 Bat { Capital of 1010 Shop 92,000 Baht Office equipment ‘54,000 Babi Total 104.000 Babe (Assets 104,000 Baht minus account payable 12,000 Baht) ++ Total assets 104,000 Baht equals liability 12,000 Baht plus capital 92,000 Baht From the sample 2-3 Ploy Shop does not have liabilities, so assets equals capital. In 2-4, JOIO Shop has lability which makes the assets equal the sum of liability plus capital because the ‘owner's equity is the amount of asset minus liabilities Basic Accounting 1 Bunyawee Suwannaboo! Chapter 2-9Accounting Equation shows the balance relationship of assets, liabilities and owner's ‘equity which can be written down as follows: Assets = Liabilities + Owner's Equity We can abbreviate the equation to e@ e@:@ A= LHOE Example 2-5 MAX Shop has 4,900 Baht cash, Bank account 28,000 Baht, office supplies 14,000 Baht, office equipment 38,000 Baht and account payable to MANT 14,000 Bat. Please write down the accounting equation of MAX Shop assis(a Lisbites (2 + Owner's Fauity (OP Cash 4,900 Baht Account payable wo MANT 14,000 Baht Bank account 28,000 Baht _Capita's MAX 70,00 Babi ottce supplies 14,000 Baht (84:900~ 14,000) Office equipment 38,000 Baht Total 4.900 Baht $4900 Baht 54,900 /hsser) vows 14.000 Generszauiy — 79,900 Ss Basic Accounting 1 Bunyawee Suwannaboo! Chapter 2-10We can see that the capital’s MAX is the sum of 84,900 Bat assets minus liabilities of 14,000 Baht which equals 70,900 Baht. In the another way around, liabilities of 14,000 plus 70,900 Baht capital will equal 84,900 Bat. The accounting equation can be written down as below: Liabilities + Owner's Equity (Capital) Assets Or Owner's Equity (Capital) Assets ~ Liabilities or AL or Liabilities = Assets = Owner's Equity 1 A- 08 Example 2-6 Please calculate the missing numbers from the table below by using accounting ‘equation Case Assets Owner's Eq) 1 2 65,000 2 67,500 2 3 248,000 1 195,000 4 364,000 138,000 1 5 898,750 1 485,000 Casel Accounting equation Assets (A) Liabilities (L) + Owner's Equity (OB) Applying substitution A 20,000 + 65,000 Assets (A) 35,000 Baht Cased ‘Accounting equation A L+0E Applying substitution 67,500 34,000 + OF 67,500 ~ 34,000 = OF Owner's Equity (OE) = 33,500 Baht Cased Accounting equation A L+0E Applying substitution 248,000 L + 195,000 248,000- 195,000 = Liabilities (L) 53,000 Baht Basic Accounting 1 Bunyawee Suwannaboo! Chapter 2-11Accounting equation A L+0E Applying substitution 364,000 138,000 + OE 1364,000-138,000 or Owner's Equity (OE) 226,000 Babt Cases Accounting equation A L+0E Applying substitution 898,750 L + 485,000 898,750 ~ 485,000 L Liabilities (L) = 413,750 Baht Accounting equation must show a balance result using ~ as the sign of balance Assets = Liabilities + Owner's Equity (Capital) Case 1 85,000 20,000 65,000 Case 2 67,500 = 34,000 + 33,500 Case 3 248,000 = 53,000 + 195,000 Case 4 364,000 138,000 + 226,000 Case § 898,450 = 413,750 485,000 In this Introduction to Accounting book, students have to understand and always remember E equation because this will be an important basis to the next advanced accounting lessons ‘A company without liabilities, we can use below equation Assets = Owner's Pauity A OE Example 2-7 DADA Shop has 7,000 Baht cash, office supplies 12,000 Baht, office equipment 36,000 Baht and 720,000 Baht car. Please calculate the capital of DADA Shop by using accounting equation Basic Accounting 1 Bunyawee Suwannaboo! Chapter 2-12Assets (A) Cash 7,000 Bah Office supplies 12,000 Babe Office equipment 36,000 Baht cor 720.000 Babt Total 775.000 Baht ‘Accounting equation Assets (A) Liabilities (L) + Owner's Equity (OE) A oF Applying substitution 775,000 0 +08 ‘ Owner's Equity (OB) 775,000 - 0 795,000 Babt ‘Assets 775,000 Bat Owner's Equity 775,000 Babt Since DADA Shop does not have any liabilities, the total assets of 775,000 Babt equal the ‘entire amount of owner's equity The accounting equation can be writen in many ways below A L + OE L = AOE OE A-L A or The balance of accounting equation which shows the relationship of assets, liabilities and ‘owner's equity can be included into the financial report. This report is called “Statement of ‘financial position” Statement of financial position is prepared which depits the financial postion of the business as on the lst day of that period, Statement of financial position is also # statement of the assets, liabilities, the owner's equity and capital of the company at current and previous period, Basic Accounting 1 Bunyawee Suwannaboo! Chapter 2-13When we prepare a statement of financial position, member to use accounting equation Assets = Liabilities ~ Owner's Equity We have two forms statement of financial position, including the ‘report form? and the ‘account form’. to this book, students will study the account form which fits with the accounting ‘equation and the accounting basis. We will explore the repot form statement of financial position in chapter 9 under the topic of Financial Statement. ‘Simple steps to prepare an account form the statement of financial positi Bw leading” in the middle ofthe balance sheet paper Line 1 Company's name Line 2 Write down ‘Statement of Financial position * Line 3 Write down the date using “as at ” Store. Statement of financial position Dat Assets Liabilities & Owner's Equity Write "Assets" in the middle of the left column Write "Liabilities and Owner's Equity” in the middle of the right column List down the assets in the let column, List down the liabilities and Owner's Equity inthe right column, Basic Accounting 1 Bunyawee Suwannaboo! Chapter 2-14amount stay at the bottom of both sides. ‘Summarize the total amount in both " sure the underlined sets" and the "Liabilities and Owner's Equity” columns. Write down the result in the amount box. The amount in both sides has to be ‘equally and the 2 numbers must always be on the same line. Double underline the two total Example 2-8 GUY Shop has assets, liabilities and owner's equity as at 31" January 25x1 Cash 9,000 Baht ‘Account receivable from Nikki 8,500 Baht Office equipment 35,000. Bake ble to Chi Shop 60,000 Baht Bank account 25,000 Baht Office supplies 9,800 Baht cat 580,000 Batt Capital of GUY 2 Baht 1. The capital of GUY by using accounting equation 2. Prepare the statement of financial position as at 31" January 25x1 How to calculate the capital of GUY cash Bank account Account receivable - Nikki Office supplies Office equipment car Total value of assets ‘Aveounting equation Assets (A) A Applying substitution 667,300 OE GUY’s capital 9,000 Baht 25,000 Baht 8500 Baht 9,800 Babt 35,000 Baht 580,000 Baht 562,300 Baht Liabilities (L) + Owner's Equity (OE) L+0E 60,000 + OB (667,300 ~ 60,000 607,300 Baht Basic Accounting 1 Bunyawee Suwannaboo! Chapter 2-15Assets (A) Liabilities (L) + Owner's Equity (OF) 667,300 660,000 + 607,300 We can prepare the Statement of financial position as follows: GUY Store Statement of financial position Asat January 31, 25x1 Assets Liabilities & Owner’s Equity Cash 9,000] - | Account payable-Chie Shop | 60,000 | - Bank account 25,000 | ~ | Capital of GUY. 607,300 | - Account receivable ~ Nikki 3,500 | - Office supplies Office equipment Car - 667,300 | + ‘We can see that on the righ side we use “Liabilities and Owner's Equity” not “Liabilities Capital’ as inthe accounting equation because this is the financial statement ~The eft side of the report shows the total assets thatthe business owns ~The right side ofthe report shows the total owner's equity ofthe two people, Chie as the creditor and the capital of GUY. ~The Statement of financial position is based onthe accounting equation (A = L + OE). Therefore, the total amount on the left part equals that of the right part making it balanced. Basic Accounting 1 Bunyawee Suwannaboo! Chapter 2-16Assets mean any item of economic value owned by an individual or corporation, Liability means an amount which a business firm is legally “liable to pay" Owner's equity means the ownership of the total assets after deducting liabilities or ‘net assets" or ‘capital’ in the ease of sole proprietorship. The accounting equation means the equation that refleets the balance between assets, Liabilities and owner's equity ‘Statement of Financial Position is the financial statement of a company at a specific period ‘of time showing the position of a company's asses, liabilities and owner's equity Assets ‘Tangible assets Account receivable, AIR. Account payable, A/P Liabilities ‘Owner's equity Accounting equation Statement of financial position Goodwill Patents Copyright Concession ‘Trademark Overdraft Financial statement funind Aunindtifitam anil vind win douwoaitives sume auutaagnisnsity mation 4 ‘ wfomanomsdh udinfhnkyeunms aunty Basic Accounting 1 Bunyawee Suwannaboo! Chapter 2-17