Lesson 2 - Accounting in Action
Learning Goals: By the end of this lesson you will be able to
Profit results when revenues exceed expenses for the period. Therefore, profit increases owner’s equity.
loss is the result when revenues are less than expenses for the period. Therefore, a loss dec-reases owner’s equity.
Revenues are increases in net assets (i.e. an increase in an asset or a decrease in a liability and an increase in owner’s equity) that result from business activities performed to earn profit.
Expenses are the costs of assets consumed or services used in the company’s ordinary business activities.
Statement of Owner’s Equity shows the changes in owner’s equity for the same period of time as the income statement.
Investments. When an owner invests assets into the business, the owner’s capital account increases by the value of the assets invested. Therefore, investments increase an asset and owner’s equity.
Drawings are withdrawals of cash or other assets from an unincorporated business for the personal use of the owner. Drawings can be recorded as a decrease to owner’s equity directly or they can be recorded in a separate account called drawings. Drawings results in a decrease of an asset and a decrease in owner’s equity.
Practice self study questions and Brief Exercise.