Accounting Basics- exam 1

The Adjustment Process in Accrual Accounting

•Accounts need to be manually reviewed and adjusted at the end of each accounting period. •Adjusting entries are recorded at the end of each accounting period, immediately after we prepare an Unadjusted Trial Balance. •Record / post adjusting entries PRIOR to preparing financial statements.

Double-Entry Bookkeeping

•Each party in a business transaction will receive something and give something in return. •T-account is a visual depiction of a particular account •Debit simply means the left side, and credit simply means the right side. (on top is the account name)

Matching Principle- accrual accounting

•Expenses are matched to revenues in the same period during which the expenses were incurred to generate the revenues. •Match expense with recognition of revenue. •The goal of matching principle is to provide financial statement users the ability to compute the true profitability (Revenue -Expense) of the business.

Expense Recognition Principle- accrual accounting (when to record an expense)

•Expenses are recognized when they are incurred. •Recognize (record) expenses on the income statement when we have "used"an item that is subject to expense •The word "used" in this case is a synonym for "incurred." •Does not always follow the outflow of cash.

Cash Basis of Account is NOT GAAP!! GAAP requires ACCRUAL Accounting, which is what we study

•Incoming Cash = Revenue •Outgoing Cash = Expense •Similar to how IRS classifies income for taxation

Business transactions Operating: Everyday routine transactions (general operations of firm)

•Inflow: Cash from sales, receive cash interest •Outflow: Pay suppliers for inventory, for employees' salaries, pay expenses such as rent or interest expense

Business transactions Financing: Liabilities & Equity

•Inflow: From issuing long-term debt (note payable) or issuing common stock •Outflow: To repay long-term debt principal, to pay dividends to owner

Business transactions Investing: Sale and purchase of Long-term assets

•Inflow: From sale of property and equipment (machine, computer) •Outflow: To purchase plant and equipment, investments in other firms

Revenue Recognition Principle- accrual accounting (when to record revenue) - you earn revenue by giving the customer a product or service

•Revenue is recognized when it is earned. When we have done something to deserve it. •Provide services or deliver products to customers •Recognize means (record) revenue on the income statement •Does not always follow inflow of cash (must say we provided a good or service)

Closing means... (closing accounts)

•The financial statements are prepared from the adjusted trial balance (after confirming correctness). •AFTER financials are prepared the temporary accounts (revenue, expense, and dividends) are closed. •The closing process "zeroes out" the "temporary" accounts to Retained Earnings. Temporary Accounts: •All Revenue accounts •All Expense accounts. •The Dividend account.

GAAP definition

"One year or one operating cycle, whichever is longer." Class definition: ≤ One year = Short-Term (current)

Trial Balance

"double check" report, debit must = credit

calculate the ending retained earnings balance

*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.

Income Statement Determining operating income

*Gross profit on sales- administrative expenses= operating income*

Income Statement Determining net income

*Operating income- interest expense- income tax expense= net income*

Income Statement Gross profit formula to solve for cost of goods​ sold

*Sales- Gross profit= Cost of goods sold*

Debits and Credits are used to track the changes of account values. They can also be thought of as mirror opposites: Each debit to an account must be accompanied by a credit to another account

- The debit column is on the left of an accounting entry, while credits are on the right - Debits increase asset or expense accounts and decrease liability or equity. Credits do the opposite *- Generally, these types of accounts are increased with a DEBIT: Dividends, Expenses, Assets, Losses (DEAL) *- Generally, these types of accounts are increased with a CREDIT: Gains, Income, Revenues, Liabilities, Stockholders' Equity (GIRLS)

Four basic financial statements

1- Income statements 2- statement of shareholders (equity) 3- balance sheet 4-statement of cash flows

Two General Categories of Accounts that Require Adjustment in Accrual Accounting

1. Accruals. Think "record revenue or expense on income statement now, receive or pay cash later." ->(record now, cash later) 2. Deferrals. Think "receive or pay cash now, record revenue or expense on income statement later." ->(theres a cash flow but we are postponing recording revenue or expense)

Types of Adjustments

1. Accrued Revenue. Think "record revenue now, get cash later." 2. Deferred Revenue. Think "get cash now, record revenue later."•Unearned Revenue (Liability) 3. Accrued Expenses. Think "record expense now, give cash later." 4. Deferred Expenses. Think "give cash now, record expense later."•Prepaid Expenses (Asset) 5. Depreciation. Think of this as a long-term Deferred Expense adjustment.

Determining Transaction Categories 1. Tommy started the pub by contributing​ $17,000 in exchange for common​ stock, and the business borrowed​ $12,750 from the bank. 2. The pub purchased​ $4,000 worth of beer and other items​ (its inventory) with cash. 3. The pub hired a bartender to assist Tommy and help run the new company. For this​ service, the pub paid​ $100 each day for 30 days. 4.The pub was popular with the local college and sold half of its inventory for total cash revenues of​ $8,500. 5. The pub paid rent expense of​ $725 the first month. 6. The pub repaid​ $1,500 of the bank loan along with​ $50 of interest for the first month.

1. Financing 2. Operating 3. Operating 4. Operating 5. Operating 6. Financing and Operating

Determine if there is an​ increase, decrease, or no change on net income 1. Fun Movie earned​ $10,000 in monthly sales. 2. The firm recorded a decrease in inventory of​ $6,000 due to the monthly sales. 3. The company paid current​ month's rent of​ $1,500. 4. The company paid employees​ $2,500 for work done in the current month. 5. The company purchased land for​ $7,500. 6. Fun Movie invested​ $4,000 in another​ company's stock. 7. The firm paid​ $1,000 in cash dividends.

1. Increase 2. Decrease 3. Decrease 4. Decrease 5. No change 6. No change 7. No change

Timing differences in accounting are differences​ between: Accountants consider the continuous life of a business as being composed of discrete periods of​ time-months, quarters, or years. The way we divide the revenues and expenses among those time periods is a crucial part of accounting

1. the time when a company earns revenue by providing a product or service to customers and the time when the cash is collected from the customers. 2. the time when the company incurs an expense and the time when the company pays for the expense. ( If revenue is earned​ (not necessarily​ collected) in a certain time​ period, you must be sure that it is included on the income statement for that period)

Journal Entry Process Chart 1. Transaction date 2. Titles of the affected accounts 3. Dollar amounts for Debits and credits 4. Transaction explanation

1.Determine which accounts are affected by the transaction. 2.Classify each account as being an asset, liability, equity, revenue, or expense account. 3.Determine whether account increases/ decreases. 4.Based on the "normal" balance determine if debit (dr.) or credit (cr.) account. 5.Record transaction in journal entry form. 6.Post the transaction to ledger through use of T-Account.

In the accounting cycle, we make a total of three trial balances

1.Unadjusted TB -after "regular" journal entries are posted 2.Adjusted TB -after "adjusting" journal entries are posted (Prepare Financials from the Adjusted Trial Balance.) 3.Post Closing TB -after "closing" journal entries are posted (Add up all the debits on the left and add all credits on the right to see if they match)

Debit and Credit Rules (left side and right side)

ASSETS =LIABILITIES + SHAREHOLDERS' EQUITY 1.The balance in the accounts on the left side (ASSETS) of the equation (assets) will increase with debits and decrease with credits. 2. The balance in the accounts on the right side of the equation (LIABILITIES and SHAREHOLDERS' EQUITY) will increase with credits and decrease with debits. Total Debits = Total Credits

Accounts Receivable

Accounts receivable is affected as this is the amount owed to the company by its customers. Accounts receivable are​ assets, things of value to a business.

Accrual accounting- we wait until we earn it to record it

Accrual accounting makes use of accrual accounts (accrual / deferral).Examples: •Accounts Receivable (Asset) or Accounts Payable (Liability) •Other Accrued accounts such as Accrued Revenue Receivable (Asset) or Accrued Wages Payable (Liability) •Deferred Revenue also called Unearned Revenue (Liability) •Deferred Expense also called Prepaid accounts such as Prepaid Rent, Prepaid Insurance (Asset) (prepaid expense)

Calculating total assets (end balances)

Add up each column separately (add up entire asset column)

Solving for gaps in the balance sheet

Add up remaining #s and subtract it by the total Total is the same on both sides

Determining total assets on a balance sheet

Add up the entire asset column

Accounts Payable

Amounts to be paid in the future for goods or services already acquired

Permanent Accounts

Are accounts that are never closed. They are the accounts on the balance sheet, (assets, liabilities, and shareholders' equity accounts, excluding dividend account*)

Balanced the balance sheet ex. The pub repaid $ 3000 of the bank loan along with $ 30 of interest for the first month.

Asset: -$3030 cash Liabilities: -$3000 loan payable R/E: -$30 interest exp.

Balanced the balance sheet ex. The pub hired a bartender to assist William and help run the new company. For this​ service, the pub paid $ 120 each day for 30 days. (120x30)

Asset: -$3600 cash R/E: -$3600 salary exp.

What are assets

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)

Example Problem: Journalizing & Posting The company earned a total $22,000 of service revenue, of which $16,000 was collected in cash

Assets: $16000 cash $6000 A/R Stockholders equity: $22000 service revenue Dr. Cash 16,000 Dr. A/R 6,000 Cr. Service Revenue 22,000

Balanced the balance sheet ex. The company purchased three riding lawn mowers at a cost of $ 2500 each. (multiply by 3 mowers)

Assets: $7500 equipment -$7500 cash

Balanced the balance sheet ex. The company purchased $ 8500 of inventory​ (plants and​ shrubs) from a gardening wholesaler in Kansas.

Assets: $8500 inventory -$8500 cash

Accrued Revenue example Future period: collect cash (No effect on income statement when collect cash because "earned" revenue in prior period):

Assets: -$1800 A/R $1800 cash (decrease A/R because they no longer owe you money) No impact Income Statement when collect cash

Balanced the balance sheet ex. Beautiful Landscaping loaned $ 3000 cash to another company.

Assets: -$3000 cash $3000 note receivable

Example Problem: Journalizing & Posting The owners started the business as a corporation by contributing $30,000 cash in exchange for common stock -> The company purchased office equipment for $8,000 cash and also purchased land for $15,000 cash

Assets: $8000 office equipment $15000 land -$23000 cash Journal entry Dr. Land 15,000 Dr. Office Equipment 8,000 Cr. Cash 23,000

Deferred Revenue example Collect $1,000 cash in advance of providing product or service (example, consulting services).. (collected the money but have not provided a service) Current period, "defer" revenue because we have NOT YET earned it (Liability is recorded now because we "owe" product or service to our customer, who has paid us in advance):

Assets: $1000 cash Liabilities: $1000 unearned revenue Unearned Revenue is NOT Revenue; Unearned Revenue is a Liability!No income statement effect.

Accrued Revenue example Provided consulting services of $1,800 but we have not yet billed our client. (provided work= record revenue) Current period: "accrue" for revenue "Revenue Now" (Effect on Income Statement Now: EarnedRevenue)

Assets: $1800 accounts receivable A/R Stockholders equity: $1800 R/E (revenue increases so net income increases, which means R/E is increasing)

Balanced the balance sheet ex. Patrick contributed $ 18500 of personal savings in exchange for stock to start the business.

Assets: $18500 cash Contributed Capital: $18500 common stock

Example Problem: Journalizing & Posting The owners started the business as a corporation by contributing $30,000 cash in exchange for common stock

Assets: $30000 cash Stockholders Equity: $30000 common stock Journal Entry Debit: Cash 30000 Credit: Common stock 30000 Issue common stock for cash

Balanced the balance sheet ex. William started the pub by contributing $ 21000 in exchange for common​ stock, and the business borrowed $ 12000 from the bank.

Assets: $33,000 cash (12000+21000) Liabilities: $12000 loan payable CC: $21000 common stock

Example Problem Pumpkins Company started the first year of operations with $ 7000 in cash and common stock. During​ 2010, the Pumpkins Company earned $ 5400 of revenue on account. The company collected $ 3700 cash from accounts receivable and paid $ 2650 cash for operating expenses. -- Company earned $ 5400 of revenue on account.​ Remember, the revenues earned and costs incurred in doing business affect the retained earnings. Will earning revenue increase the​ owners' claims or decrease the​ claims? The sales were made on account. Recall on account means on credit. When sales are made on​ credit, accounts receivable is affected as this is the amount owed to the company by its customers.

Assets: $5400 Accounts receivable Shareholders Equity: $5400 Revenue (Accounts receivable are assets)

Balanced the balance sheet ex. Beautiful Landscaping paid $ 1800 of a $ 6500 note payable to creditors.

Assets: -$1800 cash Liabilities: -$1800 note payable

Balanced the balance sheet ex. The business paid $2100 in dividends.

Assets: -$2100 cash R/E: -$2100 dividends

Example The company collected $4100 cash from accounts receivable and paid $2750 cash for operating expenses.

Assets: -$2750 cash Shareholders Equity: -$2750 operating expenses

Accrued Expenses example Example: Employees earn $3,500 per week, work week M-F •Last day paidFriday, December 28; work Monday, December 31 (won't be paid until Friday, Jan 4) (cash-, salaries expense +) ...... Monday, December 31: Employees earned.... $3,500 / 5 = $700 / day; $700 x 1 = $700 (salaries payable+, salaries expense+)

Assets: -$3500 cash Stockholders' Equity: -$3500 R/E ..... Liabilities: $700 salaries payable Stockholders Equity: -$700 R/E

Balanced the balance sheet ex. The company paid rent expense of $600 the first month.

Assets: -$600 cash R/E: -$600 rent exp.

A balance sheet has three​ parts:

Assets​ - 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. Liabilities​ - 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. ​Shareholders' equity​ - the claims of the​ owner(s). 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.

accounting equation

Assets​ = Liabilities​ + Shareholders' equity (alternative way is Total Assets -Total Liabilities = Total Equity)

Beginning Account Balance (Prior Period Ending Balance)+ Increases-Decreases= Ending Account Balance

Balance sheet accounts retain their balances from period to period (as they are "permanent accounts"), so the balance in a particular account will remain until we decrease it.

Roll-Forward Approach (2 Examples)- accrual accounting

Beginning R/E (Prior Period Ending Balance)+ Net Income -Dividends= Ending R/E (Next Period Beginning Balance) ~Prepaid Expense~ Beginning Prepaid Insurance (Prior Period Ending Balance)+ Additional Purchases (Cash Paid) -Insurance "Used" (Insurance Expense Recorded) = Ending Prepaid Insurance (Next Period Beginning Balance)

Ending Balance

Beginning balance + additions - subtractions= ending balance

Timing example Houston Corporation began the year with $ 11500 prepaid insurance. During the​ year, Houston prepaid additional insurance premiums amounting to $ 9000. The​ company's insurance expense for the year was $8000. What was the balance in prepaid insurance at year​ end?

Beginning prepaid insurance balance+ insurance payment in advance- insurance expense= Ending prepaid insurance balance

Example In June of​ 2009, Bianca​'s ​Corporation, a newly developed internet game​ company, received $ 1050000 for​ 2,000 three-year subscriptions to a new online game priced at $ 175 per year. The subscriptions do not start until August of 2009. Fill in the following chart for each of the given years to show the amount of revenue to be recognized on the income statement and the related liability reported on the​ year-end balance sheet. Bianca​'s Corp fiscal year end is December 31.

Calculate 2009 revenue earned: Subscription fees received / Total months pain x Months subs. provided in CY= Revenue Unearned revenue Balance: Subscription fees received- 2009 revenue earned= unearned revenue balance

Total shareholders Equity - accrual accounting

Contributed Capital (CC) + Earned Capital (Retained Earnings)= Total Shareholders' Equity

Debit and Credit Rules: Stockholders Equity how debit and credit effects

Contributed Capital C/S: Debit decreases, Credit Increases ------------------ Retained Earnings Revenue: Debit dec., Credit inc. Expenses: Debit inc,. Credit dec. Dividends: Debit inc,. Credit dec. ------- C/S+ Revenue- Expenses- Dividends

Calculating total Shareholders equity Lindsey's Company started the first year of operations with $ 4500 in cash and common stock. During​ 2010, the Lindsey's Company earned $ 4600 of revenue on account. The company collected $ 4100 cash from accounts receivable and paid $ 2750 cash for operating expenses.

Contributed Capital+ Retained Earnings= Total Shareholders Equity (CC)$4600- (R/E)$1850= $2750 Retained earnings (total assets #)= Ending Balance (asset column added up)- Beginning Balance (CC column total) **CC column+ R/E column= shareholders equity**

Contributed Capital

Contributed capital is reported on the equity section of the balance sheet and usually split into two different accounts: common stock and paid-in capital in excess of par The common stock account represents the total par value of all outstanding shares. X->The paid-in capital in excess of par account shows the amount of money over and above the par value that shareholders were willing to pay for their shares.

2 types of owners claims (shareholders)

Contributed: common stock (c/s) Earned: retained earnings (R/E)

Accrual adjustments are made when revenues are recognized before cash is received or when expenses are incurred before they are paid for

Deferral adjustment must be made when cash is received for goods or services prior to the recognition of the revenue or when cash is paid for goods or services prior to recognition of the expense. One of the most common deferrals is called unearned revenue (liability)

Statement of Shareholders Contributed Capital (CC)+ Earned Capital (Retained Earnings)= Total Shareholders' Equity (Equity)

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

End R/E *Beg R/E+ Net Income- Dividends= End R/E*

End CC Beg CC+ New CC= End CC

GAAP*

Generally Accepted Accounting Principles

accumulated depreciation is a long-term contra asset account (an asset account with a credit balance) (machinery loosing value over time)

Interest payable is a current liability account that is used to report the amount of interest that has been incurred but has not yet been paid as of the date of the balance sheet

Liabilities

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*

Deferred Revenue example At end of month, need to adjust unearned revenue account for amount of services "provided" (earned) during the period. Earned: $250. •At the end of the month, convert unearned revenue to actual revenue as we provided services and/or deliver products to our customer (Income statement effect is recorded because we now "earned" the revenue):

Liabilities: -$250 unearned revenue (no longer owe the customer that amount of work) Stockholders equity: $250 (revenue) R/E

Short Term Assets: Cash, Short-term investments, Accounts receivable, Inventory, Supplies, Prepaid expense (Prepaid expense is an asset account)

Long-term Assets: Land, Buildings, Property, Plant & Equipment

Short Term Liabilities: Accounts payable, salaries (wage) payable, unearned revenue, interest payable (unearned revenue is a liability account)

Long-term Liabilities: Long-term debt, long-term note payable

Effect on Shareholders' Equity

Numbers that belong in the asset and liability column and NOT the CC or R/E column do not effect Shareholders Equity

Contributed Capital- only use when you use stock (issuing or buying back)

Retained Earnings- Income and expenses

R/E Retained earnings

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,

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.

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

The Closing Process

Step 1: Close out any revenue accounts (Revenue has a "Normal" Credit balance so to zero we need to Debit the Revenue account)...Debit (Dr.) Revenue account XX Credit (Cr.) Retained Earnings XX 2: Close out any expense accounts (Expense has a "Normal" Debit balance so to zero we need to Credit the Expense account)....Debit (Dr.) Retained Earnings XX Credit (Cr.) Expense account XX 3: Close out the Dividends account (Dividends "Normal" Debit balance)...Debit (Dr.) Retained Earnings XX Credit (Cr.) Dividends account XX 4: Create a Post-Closing Trial Balance (Use to start next reporting period.)

Determining Net Income

Subtract expenses from revenues

Balanced the balance sheet ex. The pub was popular with the local college and sold half of its inventory for total cash revenues of $ 7500. Previous question- The pub purchased $ 3000 worth of beer and other items​ (its inventory) with cash.

The Revenue Portion Asset: $7500 cash R/E: $7500 revenue COGS (divide 3000 by half) Asset: -$1500 inventory R/E: -$1500 COGS

Dividend

The portion of corporate profits paid out to stockholders

dividend

The portion of corporate profits paid out to stockholders

Statement of Cash Flows (Step 4)- shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing and financing activities

Total Cash from Operating Activities (Income Statement) + Total Cash from Investing Activities (Balance Sheet: Long-Term Assets) + Total Cash from Financing Activities (Balance Sheet Long-Term & Liabilities and Equity) =Net Change in Cash +beginning cash =Ending Cash

What happened to total assets​ (increase or decrease and by how​ much)?

Total assets (ending balance)- Total assets (beginning balance)= Increase or decrease Total assets ending balance= entire asset column added up Total assets beginning balance= total of common capital column

Calculating Cash Balance Total source Company started the first year of operations with $ 7000 in cash and common stock. During​ 2010, the Total source Company earned $ 5200 of revenue on account. The company COLLECTED $3900 cash from accounts receivable and paid $ 2200 cash for operating expenses.

Total assets beginning balance+ collection from accounts receivable- Payment of operating expenses= Cash balance --------- $7000+ $3900- $2200= $8700

Family ​Games, Inc., started business on April​ 1, 2011, with $ 11000 cash contribution from its owners in exchange for common stock. The company used $3000 of the cash for equipment for the new shop and $1700 on games for its inventory. During the​ month, the company earned $ 6400 of revenue in cash from the sale of the entire inventory. On April​ 30, 2011 the owners then spent $ 3100 cash on more games for the inventory. What is the retained earnings balance on April​ 30, 2011? How much cash does the company have on hand on April​ 30, 2011?

What is the retained earnings balance on April​ 30, 2011? ​ $6400-$1700= $4700 How much cash does the company have on hand on April​ 30, 2011? ($11000-$3000)-$1700)+6400-$3100= $9600

Note Receivable

a written promise of a customer to pay the business a sum of money at a future date

note payable

a written promise to pay a creditor a certain amount in the future

notes payable represents a loan from a bank =

accounts payable is the amount owed by a business to its supplier

Net income

also called profit, is equal to a company's total revenue minus all of its costs, such as the cost of goods sold, taxes, depreciation and interest. *Revenue-Expenses= Net income* Balance sheet (determining net income): add up R/E column

Shareholders equity

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.

debit (dr.)

credit (cr.) common stock= C/S

Period (time period)- accrual accounting

if we are preparing financials for the month= the time period is a month expenses and matched to revenue

Shareholders' Equity (NOT classified as Short-Term or Long-Term)

instead its:•Contributed Capital (C/S) & •Earned Capital (R/E).

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.

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)

Equity

the value of shares issued by a company