What are the first steps?

1. What 2 accounts are affected?

2. Classify the accounts

3. Decide if an account is increasing or decreasing

4. What do rules of debit and credit say?

What is an asset source transaction?

Increase in total assets, increase in total claims

What is an asset exchange transaction?

Increase in one asset, decrease in another asset

What is an asset use transaction?

Decrease in total assets, decrease in total claims

What is on the income statement and what does it show?

All revenue and expenses for a given period

Revenue – expenses = net income/loss

What is the statement of change in stockholders’ equity?

Beginning balance of retained earning + net income – dividends = ending balance of retained earnings

What is on the balance sheet?

Assets + cash + land = liabilities + notes payable + common stock + retained earnings

What are the types of activities in statement of cash flows?

OA – Operating Activities – day to day revenue/expenses

IA – Investing Activities – buying and selling long term assets

FA – Financing activities – bank, investors or stockholders, dividends

CE – Claims exchange – One claim increases another decrease

What accounts close?

Revenue, expenses and dividends transfer to retained earnings

Retained earnings, Liabilities, Assets are permanent

What is the accounting cycle?

1. Record transactions

2. Adjust accounts

3. Prepare statements

4. Close temporary accounts

What is an accrual transaction?

Revenue or expense that is recognized BEFORE cash is exchanged

What is a deferral transaction?

Revenue or expense that is recognized AFTER cash is exchanged

What is accounts receivable?

Consumer owes money to a company – company receives

What is accounts payable?

Company owes money – company pays

What side of T-Charts are debits on?

Debits on left side, credits on right side

What side do assets increase on?

Debit (left side)

What side do liabilities increase on?

Credit (right side)

What side do stockholders increase on?

Credit (right side)

What side does common stock increase on?

Credit (right side)

What side do dividend increase on?

Debit (left side)

What side do revenue increase on?

Credit (right side)

What side do expenses increase on?

Debit (left side)

What transaction goes first in general journals?

Debits are first, credits are below indented

What is the equation for return on assets?

Net income/total assets

What is the equation for debt to assets and what does it measure?

Total debt/total assets

Measures total risk

What is the equation for return on equity?

Net income/stockholders’ equity

What is financial leverage?

Using borrowed money to increase the return on stockholders’ equity

What is the accounting equation?

Assets – Liabilities = Total Stockholders’ Equity

How is net worth measured?

Assets – Liabilities = Total Stockholders’ Equity

What is GAAP?

Generally Accepted Accounting Principles

Rules and practices that accountants agree to follow in financial reports prepared for public distribution

What is included in stockholders equity?

Common stock, retained earnings, dividend, revenue and expenses