MSE608C Engineering and Financial

Cost Analysis

The Balance Sheet and

Double-Entry Bookkeeping

Assets on the Balance Sheet

Current Assets are used up, expended or converted

into cash within 12 months
Some 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 months
Non-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 cash
Revenues increase Owners Equity; Expenses decrease it.
Invested Capital = Voluntary investment of funds
Retained Earnings = residual value from profit-seeking activities
Retained Earnings help the business to grow

Double-entry Bookkeeping
Newton Third Law of Motion
For every action there is an equal and opposite
reaction

Accounting rules
For every Debit there is an equal and opposite
Credit recorded in the accounting records

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

Title and Account #

+ Debit side + Credit side

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 Bookkeeping
A = L + OE
Asset
+

Liabilities
=

Owners Equity
+

+ Debit Effect

+ Credit Effect

Increase

Decrease

Liabilities

Decrease

Increase

Owners Equity

Decrease

Increase

Account Type
Assets

Chart of Accounts

The Journal

The Ledger

The Cycle at Work

Assessment
Owners 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?