Accounting: Introduction to Business
Types of Businesses
Service company. A service company provides a service (i.e. plumbing, car mechanics) rather than a product.
Merchandising company. A merchandising company sells products purchased from other companies. For example, Walmart sells Kraft macaroni and cheese, making Walmart a merchandising company.
Manufacturing company. A manufacturing company makes products to sell. Following the same example, Kraft makes macaroni and cheese to sell to Walmart, making Kraft a manufacturing company.
Concepts to Keep in Mind
Business Entity. Business entity is the idea that business activities are to be recorded separately from the business owner's personal activities.
Cost Concept. The cost concept is the idea that purchases should be recorded at their original cost despite changes in the current market value.
Assets = Liabilities + Owner's Equity
To understand debits and credits, follow this link.
Steps to Completely a Balance Sheet
- Complete an income statement. An income statement states revenues minus expenses in a given time period to calculate income for a company.
- Complete a statement of owner's equity. This records changes in the business owner's account, such as withdrawals from company funds for personal use and investments into the company.
- Complete the balance sheet. A balance sheet balances assets with the business owner's equity and liability at a specific point in time.