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Owner Withdraws Money for Personal Use | Owner’s equity will decrease when the owner withdraws business assets for personal use. To illustrate, let’s assume the owner draws (or withdraws) $3,000 of the business asset Cash for personal use. The result is that assets decrease by $3,000 and the owner’s equity decreases by $3,000. Again, the accounting equation r... | This is a cheet sheet Question |
Revenues Increase Owner’s Equity and Usually Assets | Owner’s equity also increases when a company earns revenues. Under the accrual method of accounting, revenues will increase owner’s equity and will usually increase an asset when the revenues are earned (as opposed to waiting until the client’s cash is received). For example, if the company earns fees of $4,000 and all... | This is a cheet sheet Question |
Affects Another Account | Owner’s equity will decrease when a company incurs expenses. Under the accrual method of accounting, an expense is recorded when the expense occurs (as opposed to the time of payment). Assume that a company incurs electricity expense of $400 in December that will be paid in January. In December the company must report ... | This is a cheet sheet Question |
Additional Information on the Accounting Equation | As you may have noticed, the accounting equation is similar to the balance sheet (or statement of financial position) which is one of the main financial statements. The accounting equation also provides insight into the link between the balance sheet and the income statement. For instance, the balances in the income st... | This is a cheet sheet Question |
Summary of Effects on Owner’s Equity | The following table shows the changes in owner’s equity as a result of our eight examples: Owner’s equity at the beginning of the period Owner’s equity at the end of the period Note: While the owner’s investments and the owner’s draws cause owner’s equity to change, they are NOT part of the company’s net income. Hence,... | This is a cheet sheet Question |
Accounting Basics | Accounting basics is often described by the following actions: • Recording the vast number of transactions that a business (or other organization) experiences. • Sorting and storing the transactions in accounts within the company’s general ledger. • Adjusting the account balances prior to issuing financial statement... | This is a cheet sheet Question |
Double-entry System | Generally, accounting is accomplished by the use of the double-entry system (or double-entry bookkeeping). This means that every transaction and/or accounting entry will affect a minimum of two accounts. For example, paying the rent usually means an entry to the account Cash and to the account Rent Expense. In addition... | This is a cheet sheet Question |
Types of General Ledger Accounts | The accounts in the general ledger of a corporation consist of two major categories: • Balance sheet accounts (assets, liabilities, stockholders’ equity) • Income statement accounts (revenues, expenses, gains, losses) For personal use by the original purchaser only. Copyright © AccountingCoach®.com. A few examples of t... | This is a cheet sheet Question |
External Financial Statements | When a corporation releases its financial statements to people outside of the corporation, they are to include the following: • Income statement • Statement of comprehensive income • Balance sheet • Statement of stockholders’ equity • Statement of cash flows • Notes to the financial statements | This is a cheet sheet Question |
Income Statement | The income statement is also known as statement of earnings, statement of operations, profit and loss statement (P&L). The amounts on the income statement are the revenues, expenses, gains, losses, and the resulting net income that occurred in the accounting period. This is best done by following the accrual method of ... | This is a cheet sheet Question |
Statement of Comprehensive Income | The statement of comprehensive income reports 1) the amount of net income from the income statement, plus 2) some additional items referred to as other comprehensive income. Examples of other comprehensive income include gains and losses from foreign currency adjustments, hedging, and postretirement liabilities. | This is a cheet sheet Question |
Balance Sheet | The balance sheet is also known as the statement of financial position. The balance sheet reports the balances in the asset, liability, and stockholders’ equity accounts as of the final moment of the accounting period. Similar to the accounting equation, the balance sheet must always be in balance. For instance under t... | This is a cheet sheet Question |
Statement of Stockholders’ Equity | The statement of stockholders’ equity lists the changes that occurred during the accounting period in the corporation’s stockholders’ equity accounts. These general ledger accounts include common stock, preferred stock, retained earnings, accumulated other comprehensive income, and treasury stock. For personal use by t... | This is a cheet sheet Question |
Statement of Cash Flows | The statement of cash flows (SCF) is also referred to as the cash flow statement. The SCF is necessary because the income statement reflects the accrual method of accounting (not the cash method). The statement of cash flows lists a corporation’s significant cash inflows and cash outflows that had occurred during the a... | This is a cheet sheet Question |
Notes to the Financial Statements | The amounts appearing on the face of the financial statements cannot adequately communicate all of the complexities involved in the business activities. Therefore, additional information must be disclosed in the notes to the financial statements. For personal use by the original purchaser only. Copyright © AccountingCo... | This is a cheet sheet Question |
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