Preface
xii
Detailed Table of Contents
Chapter 1: Financial Statements: Personal Accounting
The Purpose of Accounting ................................................................................................................................ 1
The Balance Sheet.................................................................................................................................................. 2
The Income Statement......................................................................................................................................... 5
Accounting Periods................................................................................................................................................ 6
The Accounting Equation.................................................................................................................................... 6
Introduction to T-Accounts.......................................................................................................................... 9
Accrual-Based Accounting................................................................................................................................10
Cash Flow vs. Accruals.................................................................................................................................11
Cash-Based vs. Accrual-Based Accounting...........................................................................................12
Borrowing Money and Repaying Debt.........................................................................................................14
Buying and Selling Assets..................................................................................................................................16
Prepaid Expenses..................................................................................................................................................17
Capital.......................................................................................................................................................................20
T-Account Transactions.......................................................................................................................................20
The Process......................................................................................................................................................21
In Summary.............................................................................................................................................................23
Review Exercise.....................................................................................................................................................24
Chapter 2: Linking Personal Accounting to Business Accounting
Business Accounts................................................................................................................................................27
Sequence of Assets and Liabilities..........................................................................................................29
Equity vs. Net Worth.....................................................................................................................................29
Financial Statements of Different Types of Businesses...........................................................................31
Service Business.............................................................................................................................................32
Merchandising Business. ............................................................................................................................32
Manufacturing Business..............................................................................................................................33
Recording Revenue..............................................................................................................................................34
Cash Received before the Service is Performed.................................................................................34
Cash Received when the Service is Performed ..................................................................................35
Cash Received after the Service is Performed ....................................................................................35
Recording Expenses.............................................................................................................................................36
Pay Cash before the Expense is Incurred .............................................................................................37
Pay Cash when the Expense is Incurred................................................................................................38
Pay Cash after the Expense is Incurred..................................................................................................38
