1. Chapter 5 Notes The Unit 2 test (covering chap 4 and chap 5) will occur on Wed October 15

2.  Let’s say that futureshop paid $2000 cash flyer cost to Nathan’s printing on November 1 st. (2013) This flyer will be used for the big sale for the period January 2, 2014. When should Park record the expense? (Assuming that this company makes income statement once a month)  He should record the expense in January 2014 because of matching principle. Matching Principle

3.  Let’s say that futureshop paid $1000 cash flyer cost to Mathew’s printing on November 1 st. (2013) This flyer will be used for the big sale for December 26 2013. When should Park record the expense? (Assuming that this company makes income statement once a year)  He should record it in December of 2013  If this company makes income statement only once a year, then the expense has to be recorded in 2013. It does not matter whether he records it in November or December. Matching Principle

4. Understanding Equity Equity Equation EC = BC + NI – Drawings *NI = Net Income, so this number is from Income statement.  EC = Ending Captital  BC = Beginning Capital number is from the ending balance of September 30 Balance Sheet.  Drawings number is from ending balance of Drawings account from the Ledger.

5. Understanding Equity Equity Equation Drawings number is from ending balance of Drawings account from the Ledger.  A Drawing account (temporary account) is closed to the owners' equity account each month (or year).  There are four types of accounts in the equity section of the ledger

6. Understanding Equity  The Capital account represents the beginning equity figure  Changes in equity are represented in the Revenues, expenses and drawings accounts  The difference between total revenues and expenses is a net income or net loss. Net income (net loss) number is transferred from the income statement.  Drawings Account has nothing to do with the calculation of net income or net loss, but it affects ending balance of Ownter’s Equity.  The net income or loss figure, together with the drawings figure, shows the increase or decrease to equity during the fiscal period.

7. Equity Equation On the Balance Sheet: Month ended October 31 Owner’s Equity: Tracy, Capital Balance October 1, 2010$21,000 Net Income$8,000 Drawings 4000 Increase to Capital 4,000 Balance October 31 25,000 Total Liabilities and Owner’s Equity$ 32,000

8. Understanding Equity  Notice that the owner’s equity (what belongs to the owner) was $21000 on October 1 st.  The equity increased by 8000 by the net income.  The equity decrease by 4000 due to owner’s withdrawl.  Overall the equity increased by 4000, so it is now 25000.  If the drawings amount was greater than net income for the month, then what happens to the equity account?  Equity’s ending balance will decrease.

9. Classwork / Homework  I will go over #3 (P158) today 5 minutes before the bell.  Review #2 to #7 (P156)  Exercises #1, 2 and 3 (P157)  Review Exercise #6 and #7 (P166)

10. Classwork / Homework for tomorrow (Thu and Friday)  Ex 5 (P152)  Ex #1 (P164)  Ex #2 (P165)  Ex #3 (p165) Classwork / Homework