Hence, the net profit of a company will be the total revenue made minus its expenses. Because of their higher costs and longevity, assets are not expensed, but depreciated, or "written off" over a number of years according to one of several depreciation schedules. Also notice that in transactions #1, 2, and 3 above, the account debited is Equipment, an asset (and not Equipment Expense, which would be an expense account). Balance Sheet $30,000 in stock (you and Anne). This can only be done if the corporation has generated a profit over time, which is what the investors will draw from. Accounts Receivable 2,800 Advertising Expense 600 Rent expense management pertains to a physical asset, such as real property and equipment. Ugong Senior High SchoolAccountancy, Business and Management 2Week 1 Lesson 2SY 2020 - 2021 Transaction #4 is recorded when an investor puts money or other assets into a corporation. $. Revenue and expenses are reported on a companys income statement whereas assets, liabilities and equity make up the major accounts on a companys balance sheet. Present your answers in the following form, with transaction (1) given as an example: EX 2-14 Journal Entries OBJ. In a company, the management teams aim to maximize profits which is achieved by boosting revenues while keeping expenses in check. The accounting equation for your company now looks like this: Assets Expenses are the operational costs that a company incurs in order to generate revenue. This equity becomes an asset as it is something that a homeowner can borrow against if need be. Equity may be in assets such as buildings and equipment, or cash. Equity is found on a companys balance sheet together with assets and liabilities. Lets look at what are considered assets and if expenses can be considered as one. The expenses account on the income statement helps the company oversee and organize the various expenses of its business over a certain duration of time. Like revenue accounts, expense accounts are temporary accounts that collect data for one accounting period and are reset to zero at the beginning of the next accounting period. KeyTermsfinancialplancapitalfinancialforecastbudgetaccountinggenerallyacceptedaccountingprinciples(GAAP)propertyassetscurrentassetsaccountsreceivablefixedassetsequityliabilitiesaccountspayableownersequityaccountingequationfinancialstatementsincomestatementbalancesheetcashflowsstatementofcashflowsAcademicVocabularyprojectexpandrequirepredictconvertedgeneratereleaseformulas. While, in the accrual accounting method, they are only recorded when they are incurred. a) Assets - Liabilities b) Liabilities - Assets c) Revenue - Expenses d) Expenses - Revenue e) Cost - Expense 26) About 25% of Zach's pay goes to income taxes and other government deductions. Assets Only two expenses are usually larger than rental expense: cost of goods sold (COGS) and compensation (wages) expense. 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Using the previous example, debit $2,000 to unearned rent and credit $2,000 to rent income at month-end. This equity is found on a companys balance sheet and can represent a companys book value. There are three types of Equity accounts that we need to know about. With the accrual basis of the accounting method, any revenue is listed on the income statement upon earning it, even if the cash hasnt actually been received yet.