Accounting Equation - Lecture notes ch1 PDF

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Accounting Equation: Asset = Liabilities + Stockholders’ Equity Assets Cash Accounts Receivable Inventory Office Supplies Prepaid Expenses Land Building Equipment

= Liabilities + Stockholders’ Equity Accounts Payable Common Stock Salary Payable Retained Earnings Rent Payable Unearned Revenue

Types of business transactions: (translating from a business transaction to journal entries and posting by incorporating accounting equation) 1. Issue stocks (Common Stock) 2. Purchase of asset with cash 3. Purchase of asset on account 4. Earned revenue and receive cash (Revenue is recorded when it is EARNED) 5. Earned revenue on account (Revenue is recorded when it is EARNED) 6. Incurred expenses and paid cash (Expense is recorded when it INCURRED) 7. Incurred expenses on account (Expense is recorded when it INCURRED) 8. Collection of receivables 9. Payments of liabilities 10.Payments of dividends (the simplest way) Financial Statements Headings of Financial Statements – describes the name of the Company that issue the financial statement, the name of the financial statement, the period or date of the financial statement Types of Financial statements: 1. Income Statement: (simplest) Revenues – Expenses = Net Income 2. Retained Earnings Beginning Retained Earnings + Revenues - Expenses - Dividend Payments Ending Retained Earnings 3. Balance Sheet: Total Assets = Total Liabilities + Total Stockholders’ Equity 4. Statement of Cash Flow: Beginning Cash balance + Net Cash inflow (provided) from Operating Activity - Net Cash outflow (used) by Operating Activity + Net Cash inflow (provided from Investing Activity - Net Cash outflow (used) by Investing Activity + Net Cash inflow (provided) from Financing Activity - Net Cash outflow (used) by Financing Activity Ending Cash balance...