Review

1. Chapter 1, 2, 3 Review

2. Assets • Economic resources that are expected to generate future cash inflows or help reduce future cash outflows. • Things – touch them, feel them, see them

3. Examples of Assets • Cash • Accounts Receivable • Notes Receivable • Inventory • Office Supplies • Investments

4. Assets • Balance Sheet • Transactions • Debit side records increases • Credit side records decreases • Normal balance is debt

5. Liabilities • Debts • Economic obligations of the organization to outsiders, or claims against its assets by outsiders.

6. Examples of Liabilities • Accounts Payable • Notes Payable • Bank Loan Payable • Taxes Payable

7. Liabilities • Balance Sheet • Transactions • Credit side records increases • Debit side records decreases • Normal balance is credit

8. Equity • Owner’s claim to the assets after the liabilities have been satisfied. • Residual interest in the organization's assets after deducting liabilities. • Assets – Liabilities • How much of the assets the owner really owns.

9. Equity • Paid in Capital • Retained Earnings

10. Paid in Capital • Total capital investment by the corporation owners, both at the start of the corporation and thereafter. • Corporation sells shares.

11. Fundamental Accounting Equation • Also called Balance Sheet Equation • Assets = Liabilities + Shareholder’s Equity

12. Revenues • Sales of goods or services • Increase in shareholder’s equity arising from increase in assets received in trade for the delivery of goods or services to customers.

13. Examples of Revenues • Sales • Consulting Revenue • Computer Repair Revenue

14. Revenues • Income Statement • Transactions • Recorded on Debit side • Normal balance is Debit

15. Expenses • Outflows of assets that occur during a business’ operation. • Costs associated with generating revenue. • Using up of assets • Normal balance - Debit

16. Examples of Expenses • Salaries • Rent • Interest • Depreciation Expense • Cost of Goods Sold

17. Income Statement • Revenue : • Sales $100,000 • Expenses • Salaries $20,000 • Rent 10,000 • Depreciation 30,000 Net Income $50,000

18. Net Income • Revenues exceed expenses • Revenues greater than expenses • Revenue higher than expenses • More coming in than going out

19. Net Loss • Expenses exceed revenues • Expenses greater than revenues • Expenses higher than revenues • More going out than coming in

20. How does information get to the Financial Statements? • Transactions • Any event that both affects the financial position of an entity and can be reliably recorded in money terms. • Must affect 2 accounts or more.

21. Transactions • Analyze • What accounts are affected? • How much? • Asset, Liability, Revenue, Expense? • Increase or Decrease? • Debit or Credit?

22. Transactions • Record transaction in general journal. • EX: purchased $5,000 inventory on account. • DEBIT CREDIT • Inventory $5,000 • Accounts Payable $5,000 Purchased inventory

23. Posting • Transferring information from the general journal to the ledger. • Ledger is the place or location where we record the increased and decreases for each account.

24. Trial Balance • Listing of all accounts – taken from the ledger- and their balances. • DR=CR.

25. Financial Statements • Use information from Trial Balance to prepare: • Income Statement • Statement of Retained Income • Balance Sheet