Financial Accounting Ch 1 and 2 review and formulas combined

Net Income

The financial result on the Income Statement calculated as $Net Income = Total Revenues - Total Expenses$.

Net Loss

The financial result on the Income Statement when expenses are larger than revenues, calculated as $Net Loss = Total Expenses - Total Revenues$.

Ending Common Stock

A component of the Statement of Stockholders' Equity calculated as $Ending Common Stock = Beginning Common Stock + Common Stock Issued$.

Ending Retained Earnings

A component of the Statement of Stockholders' Equity calculated as $Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends$.

Total Stockholders' Equity

The sum calculated on the Statement of Stockholders' Equity as $Total Stockholders' Equity = Ending Common Stock + Ending Retained Earnings$ (or $Common Stock + Retained Earnings$).

The BIG Formula

The fundamental balance sheet equation stating that $Assets = Liabilities + Stockholders' Equity$.

Formula for Liabilities

The rearranged balance sheet equation used to calculate missing liabilities: $Liabilities = Assets - Stockholders' Equity$.

Formula for Stockholders' Equity

The rearranged balance sheet equation used to calculate missing stockholders' equity: $Stockholders' Equity = Assets - Liabilities$.

Total Liabilities & Stockholders' Equity

The combined sum of liabilities and equity, calculated as $Total Liabilities + Total Stockholders' Equity$, which must always equal Total Assets.

Normal Order of Financial Statements

The sequential order used to prepare financial statements: Income Statement, Statement of Stockholders' Equity, and Balance Sheet.

Assets

Resources the company has, such as Cash, Accounts Receivable, Supplies, Equipment, Land, and Prepaid Rent.

Liabilities

Amounts the company owes, such as Accounts Payable, Notes Payable, Salaries Payable, and Deferred Revenue.

Stockholders' Equity

The owners' claim on the company, which includes Common Stock and Retained Earnings.

Revenue

Amounts earned by the company from business operations, such as Service Revenue, Sales Revenue, and Interest Revenue.

Expense

Costs incurred while operating the business, such as Salaries Expense, Rent Expense, Utilities Expense, Advertising Expense, and Insurance Expense.

Dividend

Distribution of profits to shareholders. Dividends are not an expense and do not appear on the Income Statement.

Accounts Receivable (A/R)

An asset account representing money customers owe to the company for goods or services provided on account.

Accounts Payable (A/P)

A liability account representing money the company owes to others for goods or services received on account.

Debit

An accounting entry made on the LEFT side of an account. It does not automatically mean money out.

Credit

An accounting entry made on the RIGHT side of an account. It does not automatically mean money in.

DEALOR

A mnemonic device where DEA (Dividends, Expenses, Assets) increase with DEBITS, and LOR (Liabilities, Owner/Stockholders' Equity, Revenue) increase with CREDITS.

On Account

A term meaning work is done or goods are received now, but payment will occur later (involves Accounts Payable or Accounts Receivable).

Accounting Equation

The fundamental accounting balance: $\text{Assets} = \text{Liabilities} + \text{Stockholders' Equity}$.

Net Income Formula

The equation used on the Income Statement: $\text{Net Income} = \text{Total Revenues} - \text{Total Expenses}$.

Ending Retained Earnings Formula

$\text{Ending Retained Earnings} = \text{Beginning Retained Earnings} + \text{Net Income} - \text{Dividends}$.

Total Stockholders' Equity Formula

$\text{Total Stockholders' Equity} = \text{Common Stock} + \text{Retained Earnings}$.

Common Stock

An equity account representing investment made in the business by owners or shareholders.

Retained Earnings

Profits accumulated and kept inside the business rather than distributed to owners.

Notes Payable

A liability account representing formal loans or borrowing owed by the company.

Prepaid Expense

Payment made now for a future benefit. It is initially recorded as an asset.

Net Loss

The financial state when total expenses are greater than total revenues.

Journal Entry (JE)

The initial debit and credit recording of a transaction.

General Ledger (GL)

Detailed record of transactions organized by account.

Trial Balance (TB)

A list of account balances at a specific date used to check that total debits equal total credits. Balancing does not guarantee entries are error-free.

Financial Statement Flow Order

The sequential preparation order: Income Statement (produces Net Income) to Statement of Stockholders' Equity (produces Ending Retained Earnings) to Balance Sheet.

T-Account

A visual layout of an account with the account name at the top, Debits on the left side, and Credits on the right side.

Accounting Cycle Sequence

The flow of accounting process steps: Business Activity (BA) to Journal Entry (JE) to General Ledger (GL) to Trial Balance (TB) to Financial Statements (FS).