acct chapt 1-3

sole proprietorship

unincorporated business owned by a single individual

partnership

unincorporated business owned by 2 or more individuals

corporation

business incorporated under the laws of a particular state, ownership represented by shares of stock

stockholders’ equity

residual interest in the assets of the entity after subtracting liabilities, a combination of the financing provided by stockholders + operations

common stock, additional paid in capital

represents amount investors paid for stock

treasury stock

amount company paid to investors to repurchase common stock, reduces stockholders’ equity

dividends decrease…

retained earnings account

accounting equation MUST REMAIN IN BALANCE

assets = liabilities + stockholders’ equity

assets increase with

debits

liabilities increase

with credits

stockholders’ equity increase

with credits

cash basis accounting

used by small partnerships/sole proprietors, records cash payments as outflow and cash receipt as inflow

accrual basis accounting

revenues recognised goods and services are provided to customers, expenses recognised in the same period as the revenues to which they relate (regardless of when cash is received or paid in general)

revenue recognition principle

when the company transfers promised goods/services in the amount it expects to be entitled to receive

expense recognition principle

costs incurred to generate revenues must be recognized in the same accounting period regardless of when cash is paid

anything with payable is

liability

net profit margin

net income / net sales (or operating revenues)

dividends, expenses, assets

increase with debits, decrease with credits

liabilities, equity, revenue

increase with credits, decrease with debits