C2_Flash_Cards_
Page 1: Chapter 2 Balance Sheet
Introduction to the balance sheet and its components.
Page 2: Basic Accounting Equation
The fundamental accounting equation is expressed as Assets = Liabilities + Stockholders' Equity (A = L + SE).
Page 3: Accounting Transactions
Basic premise that a promise is not a transaction.
No accounting entry is required until a transaction occurs.
Importance of recognizing actual transactions over promises.
Page 4: Assets
Assets are resources that provide future economic benefits.
Common examples of assets include:
Cash
Accounts Receivable (A/R)
Supplies
Equipment
More examples can be specified.
Page 5: Liabilities
Liabilities are obligations of a business.
Three main types of liabilities include:
Accounts Payable
Wages Payable
Notes Payable
Additional liabilities can be identified.
Page 6: Stockholders’ Equity
Comprises two main components:
Common Stock: Amount invested by shareholders.
Retained Earnings: Amount reinvested in the company.
Other equity items can also be mentioned.
Page 7: Cost Principle
According to the cost principle, assets and liabilities are recorded at their original cost.
Page 8: Transactions
Each transaction has a direct and measurable effect on a business.
Page 9: Duality of Effects
Every transaction impacts at least two accounts.
Reaffirm the accounting equation: Assets = Liabilities + Stockholders' Equity (A = L + SE).
Page 10: Accounts in Correct Order
Proper order of accounts as typically found:
Cash
Supplies
Equipment
Accounts Payable
Notes Payable
Common Stock
Retained Earnings
Page 11: Contracts vs. Transactions
Signing a $100 contract is not a transaction because it represents a promise only, thus requires no journal entry.
Page 12: Journal Entry Analysis
Example analysis of equipment purchase worth $500K.
Total paid in cash: $200K
Remaining balance as a promissory note: $300K.
Analysis using A = L + SE shows:
Cash decreases by $200K,
Notes Payable increases by $300K,
Equipment increases by $500K.
Page 13: Debit Only Means
A debit entry signifies a left-side increase in assets.
Page 14: Credit Only Means
A credit entry signifies a right-side increase in liabilities or equity.
Page 15: Debit/Credit Framework
In this framework:
Assets = (+)
Liabilities = (-)
Stockholders' Equity = (-)
Page 16: Debt Priority
Clarification on the importance and priority of debt over equity in financial transactions.
Page 17: Normal Balance Indicators
Overview of the normal balance for different account types:
Debit indicates an increase for Assets.
Credit indicates a decrease for Liabilities and Stockholders' Equity.
Page 18: Common Stock Issuance
Example of issuing common stock:
Transaction summary shows an increase in Stockholders' Equity of $10,000.
Journal entries reflect cash and common stock accordingly:
Debit Cash $10,000
Credit Common Stock $10,000.
Page 19: Journal Entries in Chapter 2
Reminder to journalize all entries covered in Chapter 2, specifically pages 60-64.
Page 20: Balance Sheet Structure
The balance sheet categorizes assets and liabilities:
Current Assets listed first.
Non-current assets follow.
Liabilities categorized into current and noncurrent.
Page 21: Trial Balance Example
Example of a trial balance as of a specific date (8/31/18) with key account listings:
Cash, Supplies, Notes Payable, Common Stock, etc.
Page 22: Liquidity and Maturity
Discussion on liquidity and maturity concerning balance sheet accounts.
Page 23: PPE
Short explanation of Property, Plant, and Equipment (PPE) and its relevance to the balance sheet.
Page 24: Current Assets
Emphasis on cash as a primary current asset.
Page 25: Purpose of Balance Sheet
The balance sheet provides a snapshot of the financial position at a single point in time.
Page 26: Statements Overview
Overview of three main financial statements: Statement of Retained Earnings, Statement of Cash Flows, and their relation to time periods.
Page 27: Simplified Accounting Equation
Reiteration of the basic accounting equation presented as:
Assets = Liabilities + Stockholders' Equity.
Page 28: Study Techniques
Suggestions to make more flashcards for Chapter 2.
Importance of reworking and practicing concepts for better understanding.