Summary
Summary Explanation book the accounting game
- Course
- Institution
- Book
Extensive summary of the accounting game book explaining everything.
[Show more]
Connected book
Book Title:
Author(s):
- Edition:
- ISBN:
- Edition:
More summaries for
-
The accounting game_Mullis, D._Open book exam HU
-
Class notes from New Business Models
-
Summary Accounting Game, ISBN: 9781402211867 New Business Models
Seller
Follow
floortjep
Reviews received
Content preview
On a balance sheet the left side is ALWAYS equal to the right side. The accural METHODCompany starts with $5. This $5 is also called cash (what we have), but also original investment (who
owns it).
After a while, they loan $10, this is also called notes payable (IOU), and goes under ‘who owns it’. But
it also goes by cash because its money you own.
What we have (ASSETS) Who owns it (LIABILITIES)
Cash $5 Notes payable $10
$ 10 (loan)
What you own (OWNERS EQUITY)
Original investment $5
Since there are two owners on the right half, we will draw a horizontal line that divides the right side
into two parts. The upper right side represents the people that the business owes money to…or to
whom you are LIABLE.
Assets = Liabilities + Owner’s Equity
You need 50 lemons and 5 pounds of sugar. Lemons cost $0.20 and sugar is $0.40 per pound = $12
Since you spent twelve dollars on supplies, you need to take that amount out of Cash and record it
somewhere new under Assets, which is called inventory.
What we have (ASSETS) Who owns it (LIABILITIES)
Cash $3 Notes payable $10
Supplies (INVENTORY) What you own (OWNERS EQUITY)
Supplies $12 Original investment $5
50 lemons and 5 pounds of sugar makes 60 glasses of lemonade
Cost of production: $12
60 glasses cost $12
Cost per glass (unit cost): 12 : 60 = $0,20
COST of Production $____
= Cost per Unit (Glass) $_____
# of glasses ____
One glass is $0,50, and you sold 50 glasses, so you earned $25 (SALES). It has cost you 50 x $0,20 =
$10 to make these glasses of lemonade.
SALES – COST OF GOODS SOLD = GROSS PROFIT (earnings so far).
So your profit or earnings are $25 - $ 10 = $15.
$10 is subtracted from supplies and $25 is added to cash (earnings)
What we have (ASSETS) Who owns it (LIABILITIES)
Cash $28 Notes payable $10
Supplies (inventory) $2 What you own (OWNERS EQUITY)
Original investment $5
Earnings week to date $15
,Expenses are the costs of doing business other than those related to producing your product.
You have to pay $2 to your parents for glasses you use, $1 to the kid who made your sign, and $2 to
your neighbours for the place. Together $5 which is paid from cash and earnings week to date. You
also want to pay of the loan so $10 is paid from cash and notes payable.
This together is the income statement. the Balance Sheet is like a snapshot of a business, then the
Income Statement is like a movie.
The balance sheet shows what a company owns (assets) and owes (liabilities) at a specific moment in
time, while the income statement shows total revenues and expenses for a period of time.
What we have (ASSETS) Who owns it (LIABILITIES)
Cash $13 Notes payable $0
Supplies (inventory) $2 What you own (OWNERS EQUITY)
Original investment $5
Earnings week to date $10
, SALES - COGS (Cost of Goods Sold) = GROSS PROFIT
GROSS PROFIT – EXPENSES = NET PROFIT (the bottom line)
Earnings, net profit, net income and the bottom line are all the same.
Income statement:
25
0
2
10
12
2
10
15
Glass rental $2
Advertising $1
Rent $2
$5
$10
Whatever the length of the income statement, it’s called the ACCOUNTING PERIOD.
Businesses create what’s called a GENERAL LEDGER, which is a moment by moment record of
everything that happens.
The lemonade not sold is called ending Inventory.
Take Beginning Inventory + Purchases - Ending Inventory. The result is the actual Cost of Goods Sold.
$0 + $12 - $2 = $10
The thing that connects the beginning and ending balance sheets is the Income Statement.
A loan only shows up on the Balance Sheet when you still owe it.
You need at least three financial statements to present the whole picture. The third statement keeps
track of Cash Flow.
This Ending Inventory from last week becomes a beginning inventory for the new week. The old
inventory automatically becomes the beginning Inventory for the next week.
The ending balance sheet is for last week, so for a new week we have to make a beginning balance
sheet.
Retained Earnings: Earnings that are history, or earnings from past accounting periods
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller floortjep. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $8.65. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
82871 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now