ACCT 2301

Assets Equation

Assets = Liabilities + Shareholders’ Equity

Net Income Equation

Net Income = Revenue - Expense + Gain - Loss

Ending Balance Retained Earnings Equation

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

What are examples of assets?

• Cash

• Accounts Receivable

• Inventory

• Prepaid Expenses

• PP&E (Property, Plant, and Equipment)

• Intangible Assets

• Investments

What are examples of liabilities?

• Accounts Payable

• Wage Payable

• Tax Payable

• Unearned Revenue

• Notes Payable

What are examples of stockholders’ equity?

• Common Stock

• Retained Earnings

Are assets under debit or credit?

Debit

Are liabilities under debit or credit?

Credit

Is shareholders’ equity under debit or credit?

Credit

Is revenue under debit or credit?

Credit

Is expense under debit or credit?

Debit

Assets (Debit/Credit Framework)

Assets have debit for increase. Credit for decrease.

Liabilities (Debit/Credit Framework)

Liabilities have debit for decrease. Credit for increase.

Equities (Debit/Credit Framework)

Equities have debit for decrease. Credit for increase.

What type of balance do assets have?

Debit Balance

How does the balance of stockholders’ equity accounts increase?

With credits.

Which of the following accounts has a debit balance?
A. Unearned Revenue
B. Retained Earnings
C. Prepaid Expense
D. Accounts Payable

C. Prepaid Expense - It is an asset. Represents payments made in advance.

How do you calculate operating income?

(Cash Sales + Credit Sales) - Total Operating Expenses

An investor gave $1000 cash to Firm A to exchange for stock ownership.

Debit: Cash (+Asset) $1,000

Credit: Common Stock (+SEquity) $1,000