The Basic Accounting Equation

Expenses result in a ___ in stockholders' equity.

Decrease.

___ are the distribution of cash or other assets to stockholders.

Dividends.

Liabilities are claims against assets, which includes ___ and ___.

Existing debts and obligations.

Dividends are not an ___.

Expense.

___ are the cost of assets consumed or services used in the process of earning revenue.

Expenses.

Why would a business owe money to a creditor?

If they borrow money or purchase merchandise on credit.

Revenues usually result in an ___ in an asset.

Increase.

What are the common expenses? Name a few.

salaries expense, rent expense, utilities expense, tax expense, etc.

The stockholder's equity section of a corporation's balance sheet generally consist of?

1. common stock 2. retained earnings

Which must be paid first? Creditor claims or ownership claims?

Creditor claims must be paid before ownership claims.

Who are all of the persons or entities to whom money is owed?

Creditors.

List the different types of assets.

Cash, Supplies, Equipment, etc.

Who are assets claimed by?

Creditors or owners.

What are creditor claims on total assets?

Liabilities.

List the various sorts of payables.

Accounts payable, notes payable, salaries and wages payable, and sales and real estate taxes payable, etc.

The basic accounting equation

Assets = Liabilities + Stockholder's Equity

What are the resources a business owns?

Assets.

Why do liabilities (creditor claims) appear before stockholder's equity in the basic accounting equation?

B/c they are paid first if a business is liquidated.

The term used to describe the total amount paid in by stockholders for the shares they purchase.

Common stock.

Business use assets to carry out what type of activities?

Production and sales.

Dividends ___ retained earnings.

Reduce.

Stockholder's equity is often referred to as?

Residual equity.

What three items determine the retained earnings section of the balance sheet?

Revenues, expenses, and dividends.

___ result from business activities entered into for the purpose of earning income.

Revenues.

What are the common sources of revenue? Name a few.

Sales, fees, services, commissions, interest, dividends, royalty, and rent.

What are the claims of owners (ownership claims) on a corporation's total assets?

Stockholder's equity.

What common characteristic do all assets possess?

The capacity to provide future services or benefits.

What is residual equity?

The equity "left over" after creditors' claims are satisfied.

What is the basic accounting equation (not the actual equation) ?

The relationship of assets, liabilities, and stockholder's equity expressed as an equation.

The basic equation provides the ___ ___ for recording and summarizing economic events.

Underlying framework.

What are the two basic elements of a business?

What it owns and what is owes.