Fundamentals of Financial Accounting: Equations, Accounts, and Statements

What is the basic Accounting Equation?

Assets = Liabilities + Stockholders' Equity

Which account categories are increased by a DEBIT?

Assets, Expenses, Dividends

Which account categories are increased by a CREDIT?

Liabilities, Stockholder's Equity, Revenues

What is the correct order of preparation for the three primary financial statements?

Income Statement, Statement of S/E, Balance Sheet

Account Classification and Financial Statement: Cash

Asset, Balance Sheet

Account Classification: Accounts Payable

Liability, Balance Sheet

Account Classification: Prepaid Insurance

Asset, Balance Sheet

Account Classification: Deferred Revenue

Revenue, Income Statement

Account Classification: Salary Expense

Expense, Income Statement

Account Classification: Common Stock

S/E, Balance Sheet & Statement of S/E

Account Classification: Dividends

Stockholder's Equity, Statement of S/E

What are Operating Activities (O)?

Primary day-to-day revenue and expense activities.

What are Investing Activities (I)?

Transactions involving long-term assets.

What are Financing Activities (F)?

Transactions with stock owners or long-term lenders to raise/distribute capital.

What is the #1 Golden Rule for Adjusting Journal Entries?

NEVER include CASH!

How do you record an adjustment for Expired Prepaid Insurance?

Debit: Insurance Expense, Credit: Prepaid Insurance

How do you calculate and record Supplies Used at year-end?

Debit: Supplies Expense (Amount Used), Credit: Supplies (Amount Used)

How do you record an adjustment when Deferred Revenue is Earned?

Debit: Deferred Revenue (decreases Liability), Credit: Service Revenue (increases Revenue)

Formula: Net Income

Net Income = Total Revenues - Total Expenses

Formula: Ending Retained Earnings

Ending Retained Earnings = Beginning Retained Earnings + Net Income} - Dividends