Financial Accounting Equations

Debit and Credit means in a Liability Account

Debit= decreases the liability (owe less) Credit= increases the liability (owe more)

Debit and Credit mean in a Asset Account

Debit= received (increases an asset) Credit= Paid/gave (decreases an asset)

Accounts Receivable

(Asset account) A current asset resulting from selling goods or services on credit (on account). Invoice terms such as: (a) net 30 days or (b) 2/10, n/30 signify that a sale was made on account and was not a cash sale.

Accounts Payable

(Short Term) This current liability account will show the amount a company owes for items or services purchased on credit and for which there was not a promissory note. This account is often referred to as trade payables (as opposed to notes payable, interest payable, etc.)

Contra Accounts

(The exceptions) the accounts Sales Returns, Sales Allowances, and Sales Discounts—these accounts have debit balances because they are reductions to sales. Accounts with balances that are the opposite of the normal balance are called contra accounts

Asset Account

(prepaid rent) A current asset account that reports the amount of future expense that were paid in advance. The amount reported on the balance sheet is the amount that has not yet been used or expired as of the balance sheet date.

depreciation value

Depreciation = (Price - Salvage Value) / Life

Balance Sheet

A financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders.

Income Summary Account

A temporary account to which the income statement accounts are closed. This account is then closed to the owner's capital account or a corporation's retained earnings account. This and other summary accounts can be thought of as a clearing account.

Basic Accounting Equation

Assets = Liabilities + Stockholders' Equity $ & Acc/Rec.= L +C/S + Rev. Ex. Div.

Retained Earnings

Beginning Ballance + Net Income - Dividends If its a exp. or Div. then its negatively affecting R/E and Rev. increases R/E. the amount of earnings (profits) reinvested in the business. (not distributed to stock holders in the form of div.)

*** Return on Equity

Net Income / Stockholders' Equity

cash receipts from customers

Operating Inflows

Stockholders' Equity

Retained Earnings + Common Stock beginning C/S, Ending C/S, beginning R/E + Net Income - Div. + ending R/E pg.77 amount of financing provided by owners of the business and earnings. (contributed capital, retained earnings)

Net Income

Revenue - Expenses

Permanent Accounts (real)

They are not closed at the end of the accounting year; their balances are automatically carried forward to the next year.

issuances

What would be included in the statement of stockholder's equity (common stock)

Temporary Accounts (nominal accounts)

include all of the rev. accounts, expense accounts, the owner drawing account, and the income summary account. They are USUALLY zeroed out at the end of the accounting year. (by closing, transferring, or clearing their balances to the income summary account)

General Journal Entry

lists the date, the account title(s) to be debited and the corresponding amount(s) followed by the account title(s) to be credited and the corresponding amount(s). The accounts to be credited are indented.