27
learning outcomes
1
List the differences between personal accounts
and business accounts
2
Describe the sequence of assets and liabilities as
they appear on the balance sheet
3
Define equity and calculate the balance of the
capital account
4
Describe the three main types of businesses
5
Record revenue based on the concept of accruals
6
Record expenses based on the concept of accruals
7
Record business transactions in T-accounts
Business Accounts
Most of what you have learned about accounting in the personal context is similar to accounting in a
business context. As you may guess, business accounting is more complex than personal accounting.
To begin examining the differences, we will look at some of the differences in terminology between
personal and business accounting.
1.
The personal balance sheet and the personal income statement are now just called the Balance
Sheet and the Income Statement.
2.
Cash in a business is like cash in personal accounting. However, businesses may have several
different bank accounts and all these amounts are included in cash.
3.
Accounts receivable is a new business asset account. This is used when the business sells
services or products to a customer and allows the customer to pay later.
Accounts receivable
is the amount owed to the business by its customers.
4.
Inventory is an asset account used when a business sells products to customers.This account
will be discussed in detail in later chapters.
5.
Equipment, buildings, land and other similar assets that provide the business with benefits
for a long period of time are called
property, plant and equipment
or long-term assets.These
items are not intended to be sold to customers.
6.
Unpaid accounts in the personal context are called accounts payable in a business.
Accounts
payable
is the obligation the business owes to others.
Chapter 2
Linking Personal Accounting to Business Accounting
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