Bus 1050 1st Edition Lecture 18 Outline of Last Lecture I. Littleton, The Evolution of Accounting II.Pacioli, Particulars of Reckonings and Their Recordings from Ancient Double-Entry Bookkeeping: Lucas Pacioli’s TreatiseA. Memorandum B. Journal C. Ledger Outline of Current Lecture II. The Contemporary Double- Entry System (slide in Canvas) A. Assets B. Equity C. Liability III.Introduction to FinanceCurrent LectureEquity is residual value. In other words, it is not something you may hold. It’s not something that may be picked up and carried around because it’s merely a representation of a value. Double entry bookkeeping has no negative numbers in it. For double entry bookkeeping to work, debits must equal credits. Debits must always be on the left hand side and credits must always be on the right. In other words, assets are on the left and equity coupled with liabilities are on the right. In the slideshow presentation, the person who puts down 50 k is the owner or the equity investor. It’s important to keep in mind that one’s contribution does not need to be in cash. For example, one could put down equipment. In order to increase the asset values, one must debt cash. In this example, we have the following: Assets of cash (50k) – liability ($0) = owners contribution (50k) A lean on something is a burden on it. If someone puts a lean on something then one can’t do something to it until permission has been given to do so.These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.If 50k are borrowed, the cash goes up by 50k. In this case, one would debit the cash in order to increase the account balance. Due to this borrowing of money, the liabilities are now 50k and equity is 50k.Assets (100k) = Money borrowed from bank (50k payable to the bank) + contribution of owner (50k). If one purchases land for 70k, then one has gained land (as an asset) and has given up 70k. To get the balance in the account to increase, one must debit cash. When we want to decrease the value of the account, we would credit cash.The Historical cost of something is how much one pays for it.Cash 30k Land 70K = 50k + 50k Now, with someone buying half of the land for 60k the equation would look like the following: Cash 60k Land 70k Accounts receivable (owed to you) 30k = 50k + 60kAssets – liability = equity The net worth of something is not determined by the amount one borrows. Equity represents net worth, which is the value to the owner. If one makes a profit off of the land, then the equity goes up. But if one losses money off of the land, then the equity goes down. The only things that change the net worth of a company are contribution or withdrawals by owners or profits and losses. In other words, in order to increase the net worth of a company there must be a contribution made by the owner or a profit must have been made. Similarly, in order to decrease the net worth of a company, there must be a withdrawal from an owner or a loss musttake place.50k (from owner) 50k (borrowed from bank) 70k (purchase of land) 30k (now from selling land) and 30k (future as account receivable) Half of the land was purchased for a total of 60k.Introduction to Finance - Financial forecasting is the process of looking at companies financial situations in regardsto inflows and outflows, looking at whether or not there is adequate money to fund projects internally and if there’s not, then figuring out where one would get it. - Capital Structure is the relationship between how much debt you have and how much equity you have, relative to one another and relative to assets. This is represented by theequation A = L+E. We want to invest in productive assets, which will raise debt capital by selling bonds and equity capital. Lending is less risky than being an owner.- Individual equity investors or the public (capital)- Financial analysis (ratio analysis, measures of liquidity, leverage which is how much debt you have relative to… etc.) - Cost of