ACC 255 CHP 1 Review and HW

Assets

The resources of a company such as cash, supplies, equipment, and buildings. To identify an asset, ask yourself what resources would the company own that they would use up.

Liabilities

The amounts owed to creditors such as owing a bank suppliers, employees, utility companies, and the government(taxes). Liabilities can usually be identified by the word “payable” such as “accounts payable” or “salaries payable”.

Stockholders’ Equity

Represents the owners’ claims to resources. These claims arise from two primary sources. Contributions by the owners themselves and net resources generated by company operations

Revenues

The amounts recognized when the company sells products or provides services to customers.

Expenses

The costs of providing products and services and other business activities during the current period.

The Financial Statements

The Income Statement

The Statement of Stockholders’ Equity

The Balance Sheet

Statement of Cash Flows

Net Income Equation

Revenues (R) - Expenses (E) = Net Income (NI)

The Accounting Equation

Assets (Resources) = Liabilities (Creditors Claims) + Stockholders’ Equity (Owners’ Claims)

Net Income VS Accounting Equation

Net Income refers to the profit of a company after all expenses have been deducted from revenues, whereas the Accounting Equation reflects the relationship between a company's assets, liabilities, and equity, ensuring that the balance sheet remains in equilibrium.

Stockholders’ Equity Equation

Stockholders’ Equity = Common Stock + Retained Earnings or

Stockholders’ Equity = Total Assets - Total Liabilities

Common Stock Equation

Beginning Common Stock + New Issuances = Ending Common Stock

Retained Earnings Equation

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

Change in Cash Equation

Change in Cash = Operating Cash Flows + Investing Cash Flows + Financing Cash Flows

The Income Statement

A financial statement that reports the company’s revenues and expenses over an interval of time. It shows whether the company was able to generate enough revenue during the period to cover the expenses of running the business. → The income statement compares revenues and expenses for the current period to assess the company’s ability to generate a profit from running its operations.

You can identify (most of the time) what goes in the income statement because the accounts/amounts will say “revenue” or “expenses”

In the top part, we are putting anything that is revenue. So sales, service revenue, and/or interest revenue

In the bottom part, we are putting expenses. So anything that has the term expense, such as salaries expense, rent expense, delivery expense.

The income statement must be done first because we need to plug in the net income/ net loss into the statement of stockholders equity.

The Statement of Stockholders’ Equity

A financial statement that summarizes the changes in stockholders’ equity over an interval of time. Stockholders’ equity arises from two primary sources→ common stock and retained earnings. The statement of stockholders equity reports information related to changes in common stock and retained earnings each period. The change in retained earnings equal net income less dividends for the period

Cash is a DISTRIBUTION of net income of stockholders’ equity

Common stock is contributed capitol and retained earnings are earned capitol→ this is what is happening in the common stock column → sometimes common stock will be issued throughout the year and sometimes it will not

Retained earnings is net income - dividends paid out for the life of the company

If there is no beginning balance in retained earnings that means it if the first year of a company’s operations

Statement of Retained Earnings

The middle column of the statement of stockholders’ equity. In practice, companies don’t report retained earnings in a separate statement from common stock, so thats why we demonstrate the statement of stockholders equity. It is useful to see that this column highlights how net income from the income statement links to total stockholders’ equity by adding to the balance of retained earnings

The Balance Sheet

A financial statement that presents the financial position of the company on a particular date. The financial position of a company is summarized by the accounting equation

The left side of the sheet is all of the assets such as cash, supplies, equipment, and buildings → The way to identify an asset is to go through the list and think about what resources a company would own that it would use up

The right top side of the sheet is liabilities such as accounts payable and salaries payable → liabilities can usually be identified by the word “payable” which is an amount due to others

Accounts payable, is an amount that the company owes to vendors that are outside the company

Salaries payable, are amounts that are due to employees that have worked but have not been paid what they are owed

The right bottom side section is stockholders equity and retained earnings → The total assets MUST EQUAL total liabilities and stockholders equity

You are taking the total common stock and total retained earnings from the statement of stockholders equity

Sales of products or services classification

Revenues

Owners claims to resources classification

Stockholders equity

Distribution to stockholders classification

Dividends

Costs of selling products or services classification

Expenses

Resources of a company classification

Assets

Creditors claims to resources classification

Liabilities

Cost of rent account title

Rent expense

Interest earned on savings account title

Interest revenue

Cash payments to stockholders account title

Dividends

Amounts owed to suppliers account title

Accounts payable

Shares of ownership sold to investors account title

Common stock

Sales of services to customers account title

Service revenue

The change in retained earnings due to net income and dividends

Statement of stockholders equity

Amount of cash received from borrowing money from a local bank

Statement of cash flows

Revenue from sales to customers during the year

Income statement

Total amounts owed to workers at the end of the year

Balance sheet