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Chapter 1, 2, 3. Review. Assets. Economic resources that are expected to generate future cash inflows or help reduce future cash outflows. Things – touch them, feel them, see them. Examples of Assets. Cash Accounts Receivable Notes Receivable Inventory Office Supplies Investments.

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assets
Assets
  • Economic resources that are expected to generate future cash inflows or help reduce future cash outflows.
  • Things – touch them, feel them, see them
examples of assets
Examples of Assets
  • Cash
  • Accounts Receivable
  • Notes Receivable
  • Inventory
  • Office Supplies
  • Investments
assets1
Assets
  • Balance Sheet
  • Transactions
    • Debit side records increases
    • Credit side records decreases
    • Normal balance is debt
liabilities
Liabilities
  • Debts
  • Economic obligations of the organization to outsiders, or claims against its assets by outsiders.
examples of liabilities
Examples of Liabilities
  • Accounts Payable
  • Notes Payable
  • Bank Loan Payable
  • Taxes Payable
liabilities1
Liabilities
  • Balance Sheet
  • Transactions
    • Credit side records increases
    • Debit side records decreases
  • Normal balance is credit
equity
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.
equity1
Equity
  • Paid in Capital
  • Retained Earnings
paid in capital
Paid in Capital
  • Total capital investment by the corporation owners, both at the start of the corporation and thereafter.
  • Corporation sells shares.
fundamental accounting equation
Fundamental Accounting Equation
  • Also called Balance Sheet Equation
  • Assets = Liabilities + Shareholder’s Equity
revenues
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.
examples of revenues
Examples of Revenues
  • Sales
  • Consulting Revenue
  • Computer Repair Revenue
revenues1
Revenues
  • Income Statement
  • Transactions
    • Recorded on Debit side
  • Normal balance is Debit
expenses
Expenses
  • Outflows of assets that occur during a business’ operation.
  • Costs associated with generating revenue.
  • Using up of assets
  • Normal balance - Debit
examples of expenses
Examples of Expenses
  • Salaries
  • Rent
  • Interest
  • Depreciation Expense
  • Cost of Goods Sold
income statement
Income Statement
  • Revenue :
    • Sales $100,000
  • Expenses
    • Salaries $20,000
    • Rent 10,000
    • Depreciation 30,000

Net Income $50,000

net income
Net Income
  • Revenues exceed expenses
  • Revenues greater than expenses
  • Revenue higher than expenses
  • More coming in than going out
net loss
Net Loss
  • Expenses exceed revenues
  • Expenses greater than revenues
  • Expenses higher than revenues
  • More going out than coming in
how does information get to the financial statements
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.
transactions
Transactions
  • Analyze
    • What accounts are affected?
    • How much?
    • Asset, Liability, Revenue, Expense?
    • Increase or Decrease?
    • Debit or Credit?
transactions1
Transactions
  • Record transaction in general journal.
  • EX: purchased $5,000 inventory on account.
                  • DEBIT CREDIT
  • Inventory $5,000
    • Accounts Payable $5,000

Purchased inventory

posting
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.
trial balance
Trial Balance
  • Listing of all accounts – taken from the ledger- and their balances.
  • DR=CR.
financial statements
Financial Statements
  • Use information from Trial Balance to prepare:
    • Income Statement
    • Statement of Retained Income
    • Balance Sheet