Personal Accounting & Net Worth
Anything of economic value owned by an individual that can be converted into cash, such as a checking account, car, or electronics.
What is a Personal Asset
Money received from employment, allowance, investments, or business sales.
Cash Flow (Income/Revenue)
The fundamental accounting rule requiring business financial records to be kept strictly separate from the owner's personal records.
Business Entity Concept
State the Fundamental Accounting Equation.
Assets = Liabilities + Owner's Equity
A has $50,000 in Assets and $20,000 in Liabilities. Calculate Owner's Equity.
$30,000
($50,000 - $20,000 =$30,000)
Purchasing $400 in store supplies using cash creates this net dollar change on Total Assets.
$0 net change
(Cash decreases by $400, Supplies increases by $400)
A financial obligation or debt owed to another person, bank, or institution.
What is a Personal Liability
Living costs that change depending on usage, personal choices, or sales volume, such as groceries, gas, dining out, or advertising.
Variable Expenses
A business owned and operated by one individual who retains full control and profits, but faces unlimited liability.
Sole Proprietorship
The owner's financial right to or claim on the assets of the business after all liabilities are paid.
Owner's Equity
Rearrange the Fundamental Accounting Equation to solve for Liabilities.
Liabilities = Assets - Owner's Equity
Purchasing $1,200 in store equipment on account increases Equipment and increases this liability account.
Accounts Payable
The essential formula used to calculate an individual's Personal Net Worth.
Net Worth = Personal Assets - Personal Liabilities
Expenses that remain constant from month to month, such as rent or flat subscriptions.
Fixed Expenses
A formal legal entity separate from its owners (stockholders) that offers limited liability protection.
Corporation
Money owed to a business by its customers for goods or services provided on credit.
Accounts Receivable (an Asset)
Company B has $15,000 in Liabilities and $35,000 in Owner's Equity. Calculate Total Assets.
$50,000
($15,000 + $35,000 =$50,000)
Collecting $500 cash from a customer who was previously billed on account results in a debit to Cash and a credit to this asset account.
Accounts Receivable
If Alex has a $1,200 checking account, a $4,500 car, and a $600 laptop, calculate Alex's Total Personal Assets.
$6,300
($1,200 + $4,500 + $600 =$6,300)
The financial state achieved when total cash outflows exceed total cash inflows over a given period.
Cash Deficit (Negative Net Cash Flow)
Legal responsibility where personal assets like personal savings, a home, or a vehicle can be seized to pay off business debts.
Unlimited Liability
Short-term money owed by a business to suppliers or creditors for goods or services purchased "on account".
Accounts Payable (a Liability)
A business has $100,000 in total Assets and Owner's Equity equal to $65,000. Calculate total Liabilities.
$35,000
($100,000 - $65,000 =$35,000)
A business starts with $10,000 cash, earns $650 in retail cash sales, and pays a $150 bill. Calculate the ending cash balance.
$10,500
($10,000 + $650 =$10,650)
Alex owes $1,800 on a car loan and $50 to a friend for a concert ticket. Calculate Alex's final Personal Net Worth using their total assets of $6,300.
$4,450
($6,300 Assets - $1,850 Liabilities = $4,450)
Taylor earned $2,100 in income and had $2,360 in total expenses. State Taylor's Net Cash Flow dollar amount and whether Taylor operates at a surplus or deficit.
-$260 Deficit
($2,100 - $2,360 =$-260.00)
Financial protection where business owners or investors can only lose up to the exact dollar amount they invested in the company.
Limited Liability
A financial activity that directly alters the financial condition or accounting equation of a business entity.
Business Transaction
If a company's total Liabilities increase by $5,000 and Owner's Equity decreases by $2,000, calculate the net change in total Assets.
$3,000
($5,000 - $2,000 =$3,000)
A business starts with $5,000 cash. It buys $800 of supplies on account, collects $1,200 cash from credit customers, and pays $300 cash on a vendor bill. Calculate the final cash balance.
$5,900
($5,000 + $1,200 - $300 =$5,900)