ACT 221 Chapter 1

Assets

resources the company owns or controls

Liabilities

creditors claims on assets

Equity

owners claim on assets and is equal to assets minus liabilities

this is basically the value of the company

Accounting Equation

Assets = liabilities + equity

Expanded Accounting Equation

Assets = liabilities (+ contributed capital + retained earnings ) —> EQUITY

= liabilities + common stock [- dividends + revenues - expenses] —> Retained Earnings

4 parts of equity

Common stock

dividends

revenues

expenses

common stock

reflects inflows of cash and other net assets from shareholders in exchange for stock

dividends (-)

outflow of cash and other assets to shareholders that reduce equity/money

revenues (+)

increase equity from sales of products to customers, the money that a company RECEIVES

expenses (-)

the money that the company has to spend

FINANCIAL STATEMENTS (charts) THAT ACCOUNTING USES

1. income statements

2. statements of retained earnings

3. balance sheets

INCOME STATEMENT EQUATION

REVENUES - EXPENSES = NET INCOME

STATEMENT OF RETAINED EARNINGS EQUATION

BEGINNING RETAINED EARNINGS + NET INCOME - DIVIDENDS = END RETAINED EARNINGS

BALANCE SHEET

assets = liabilities + equity

the income statement

describes the company’s REVENUES and EXPENSES only!! it calculates the to compute the net income (loss) over a time period.

it will only include accounts that are either part of the expenses or the revenue.

Statement of Retained Earnings …

explains the changes in retained earnings from net income (loss) and any dividends over time period

Balance Sheets…

describe company’s financial position (types and amounts of assets, liabilities, and equity

Statement of Cash Flows

± Operating Cash Flow

± Investing Cash Flow

± Financing Cash Flow

= Change in cash

This identifies cash flows (receipts) and cash outflows (payments) over a period of time

Income Statements are only what accounts?

Revenue and Expenses

Balance Sheets are only what accounts?

Assets and Liabilities

ASSETS !! what are considered Assets?

Cash, Supplies, Equipment, Land, Furniture, Machinery

What are liabilities examples?

Notes Payable,