MSE608C Engineering and Financial Cost AnalysisThe Balance Sheet and Double-Entry Bookkeeping

Assets on the Balance Sheet

Current Assets are used up, expended or converted into cash within 12 monthsSome expenses are Prepaid in advance. These become an ASSET

Assets on the Balance Sheet

Non-current Assets are used up or expended in a period longer than 12 monthsNon-current Assets do not have a category title, they are just listed after Current Assets

Liabilities on the Balance Sheet

Current Liabilities are discharged or paid off within 12 months.

Owners Equity on the Balance Sheet

Owners Equity is the difference between Assets and Liabilities.The value remaining in the company for the owners.Not a pool of cashRevenues increase Owners Equity; Expenses decrease it.Invested Capital = Voluntary investment of fundsRetained Earnings = residual value from profit-seeking activitiesRetained Earnings help the business to grow

Double-entry BookkeepingNewton Third Law of MotionFor every action there is an equal and opposite reactionAccounting rulesFor every Debit there is an equal and opposite Credit recorded in the accounting records

Double-entry BookkeepingDouble-entry bookkeeping is the accepted accounting mechanism for recording and classifying the monetary events of a business entityThe T-account format:

For every monetary event there is at least one entry on the debit side of at least one account and the credit side of another account.

Double-entry BookkeepingA = L + OE

Account Type+ Debit Effect+ Credit EffectAssetsIncreaseDecreaseLiabilitiesDecreaseIncreaseOwners EquityDecreaseIncrease

Chart of Accounts

The Journal

The Ledger

The Cycle at Work

AssessmentOwners Equity is comprised of what two components?What is the basic law of double-entry bookkeeping?What are the first stages of the Accounting Cycle?