Accounting equation - answer-Assets = Liabilities + Shareholders' equity
(alternative way is Total Assets -Total Liabilities = Total Equity)
What are assets - answer-Assets are things of value owned or controlled by a business. When a business has an asset, someone has the rights, or claims, ...
(alternative way is Total Assets -Total Liabilities = Total Equity)
What are assets - answer-Assets are things of value owned or controlled by a business. When a business has an
asset, someone has the rights, or claims, to that asset. There is a claim on every asset in a business. Cash and
equipment are common assets.
There are two groups who might have claims to a company's assets - creditors and owners.
OWN (cash, property, inventory)
Liabilities - answer-Liabilities are the claims of creditors. Liabilities are the amounts the business owes to
others outside the business. For example, a loan is a type of liability.
An increase in liability means a decrease cash (under assets)
OWE (Loans, note payables)
*Assets- Shareholder Equity= Liabilities*
Shareholders equity - answer-are the claims of the owner(s). Shareholders' equity is also called net assets
Shareholders' equity is made up of two parts:
1. Contributed capital is the contributions by owners.
2. Retained earnings is the equity that results from doing business and keeping the earnings in the business.
Revenues increase retained earnings, while expenses decrease retained earnings.
R/E Retained earnings - answer-Retained earnings is the equity that results from doing business and keeping the
earnings in the business. Revenues increase retained earnings, while expenses decrease retained earnings.
Getting and receiving money with income, rent, revenue-expense= net income,
2 types of owners claims (shareholders) - answer-Contributed: common stock (c/s)
Earned: retained earnings (R/E)
Equity - answer-the value of shares issued by a company
Four basic financial statements - answer-1- Income statements
2- statement of shareholders (equity)
,3- balance sheet
4-statement of cash flows
Income statement
Summarizes revenues and expenses for a period of time. When revenues exceed expenses, the company earned
net income for the period and when expenses exceed revenue the company incurred a net loss. - answer-
revenue- expense= net income
Ex.
Revenue>expenses=net income results
Revenue<expenses=net loss results
Revenue (the earnings of the company)
-Expenses (costs incurred to generate revenue )
=Net Income (the amount left after all expenses are deducted from all revenues)
Statement of Shareholders
Contributed Capital (CC)+ Earned Capital (Retained Earnings)= Total Shareholders' Equity (Equity) - answer-
Details the change in owners' equity over an accounting period Note 1: Beginning Contributed capital+ New
Common stock issued= Ending Contributed capital
Note 2:Beginning Retained Earnings+ Net Income (Income Statement)-Dividends = Ending Retained Earnings
Note 3: Total Shareholders' Equity is the link between the Statement of Shareholders' Equity and the Balance
Sheet9
Contributed Capital- only use when you use stock (issuing or buying back) - answer-Retained Earnings- Income
and expenses
Balanced the balance sheet ex.
Patrick contributed $ 18500 of personal savings in exchange for stock to start the business. - answer-Assets:
$18500 cash
Contributed Capital: $18500 common stock
Calculate the ending retained earnings balance - answer-*Beginning balance+ Revenues- Cost of inventory
sold= Ending balance*
Recall that when we sell inventory we record two transactions. One to record the revenue earned, and one to
record the cost of the inventory sold and no longer in possession of the business.
Balanced the balance sheet ex.
, The company purchased $ 8500 of inventory (plants and shrubs) from a gardening wholesaler in Kansas. -
answer-Assets:
$8500 inventory
-$8500 cash
Balanced the balance sheet ex.
The company purchased three riding lawn mowers at a cost of $ 2500 each. (multiply by 3 mowers) - answer-
Assets:
$7500 equipment
-$7500 cash
Balanced the balance sheet ex.
The company paid rent expense of $600 the first month. - answer-Assets: -$600 cash
R/E: -$600 rent exp.
Balanced the balance sheet ex.
The company earned service revenue of $ 10,000 and sold the entire $ 8500 of inventory it had purchased to
customers for $ 12600 cash. - answer-Service Revenue Portion
Assets: $10000 cash
R/E: $10000 revenue
Sale of Inventory
Assets: $12600 cash
R/E: $12600 revenue
COGS
Assets: -$8000 inventory
R/E: -$8000 COGS
Balanced the balance sheet ex.
Beautiful Landscaping paid $ 1800 of a $ 6500 note payable to creditors. - answer-Assets: -$1800 cash
Liabilities: -$1800 note payable
Dividend - answer-The portion of corporate profits paid out to stockholders
Balanced the balance sheet ex.
The business paid $2100 in dividends. - answer-Assets: -$2100 cash
R/E: -$2100 dividends
Note Receivable - answer-a written promise of a customer to pay the business a sum of money at a future date
Balanced the balance sheet ex.
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