Chapter 2 Summary
2.1
An important use of accounting data is to show the financial position of a business or person.  Three steps to determine your financial position is as follows:
Step 1:  List and total the things that you own that have dollar values (Assets).
Step 2: List and total your debts. (Liabilities).
Step 3: Calculate the difference between the total assets and total liabilities (Owner’s Equity).

2.2

We know what a financial position is but how do you present it?

You present a financial position by means called a balance sheet.

Definition: 
Balance Sheet- A statement showing the financial position of a person, business, or other organization.


An example of a balance sheet:
                                                              Chris Turner
                                                              Balance Sheet
                                                               July 15, 20--
Assets                                         ||	Liabilities                                ||
Cash                                            ||$ 5500	Owned to Philip                      ||$       8000
Bank Balance                             ||    21550	Owed to Dad                           ||       20000
Bicycle                                       ||    18 500  
                                                   ||      	Overdue fines                          ||         1250
                                                ||    _______
Stereo                                         ||    25000	Total Liabilites                      ||$    29250
Ski Equipment                           ||    30 000 	                                                ||
                                                   ||	Owners Equity                      ||
                                                   ||	Chris Turner, Capital             ||       71300
Total Assets                              ||   100550
                                                  ||     ════	Total Liabilities and Equity||$   100550
                                               ||     ════
                                                  ||	                                               ||

Important Features on the Balance sheet:
-Set up as a fundamental accounting equation (A = L + OE).
-Three line heading used:
WHO?—The name of the individual, business, or other organization
WHAT? — The name of the financial statement
WHEN? — The date on which the financial position is determined
  -Assets are usually listed in the order of Liquidity
Definition: 
Liquidity:  It means the order in which the assets are converted into cash.

-Liabilities are listed in order which they are normally paid
-The two final totals, one on each side of the balance sheet, are recorded on the same line and underlined with a double line.

Accounts receivable and Accounts payable

Accounts Receivable- When customers of a business often buy goods or services from a business with a understanding that they will pay them later.  These debts are known as Accounts Receivable.

Accounts Payable- A business that purchases goods and services from a supplier with the understanding that they will pay them later, it is known as Accounts Payable.