Week 1 Check point 2
There are three basic elements to an accounting equation and they are Assets, Liabilities, and Owners Equity. You simply need to remember A=L+OE (ALOE) for short. The first element is Assets and they are all the things that basically make up the business. The text reads that assets may include the following cash, property, plant, and equipment. The next element is Liabilities and liabilities are when you borrow money (loan), when you get something financed for example the purchase of a car. The last and final element is called the Owners (Shareholders) Equity. The Owners Equity is basically the money that is left after paying all of that companies bills, for example the employees’ wages, their electric bill, and mortgage/lease for their building etc. If the company is incorporated they can sell stock to people and that person would own small part of the business. If the company is private then that is when you would call this category Owners Equity.
Financial Accounting
Accounts Payable, this is a liability, because this is a financial obligation of the business.
Cash, is an asset, this is the thing that makes up a business.
Cleaning equipment, is an asset, this is what’s in the building.
Cleaning supplies, is an asset, this is what’s in the building.
Accounts receivable, Stockholders, this is money/assets left after owners pay their financial obligations.
Notes Payable. Is a liability, this is the financial obligation of the business.
Salaries payable is a liability, the owner is responsible to pay this.
Common stock, stockholder, this is money