1. Chapter 1, 2, 3
Review

2. Assets
Economic resources that are expected to generate future cash inflows or help reduce future cash outflows.
Things – touch them, feel them, see them

3. Examples of Assets Cash Accounts Receivable Notes Receivable Inventory
Office Supplies
Investments
Accounts Receivable – Promise by customer to pay
Inventory – goods held by a company for the purpose of sale to customers.

4. Assets Balance Sheet Transactions Debit side records increases
Credit side records decreases
Normal balance is debt

5. Liabilities
Debts
Economic obligations of the organization to outsiders, or claims against its assets by outsiders.

6. Examples of Liabilities
Accounts Payable
Notes Payable
Bank Loan Payable
Taxes Payable
Accounts Payable – A liability that results from a purchase of goods or services on open account.

7. Liabilities Balance Sheet Transactions Normal balance is credit
Credit side records increases
Debit side records decreases
Normal balance is credit

8. Equity
Owner’s claim to the assets after the liabilities have been satisfied.
Residual interest in the organization's assets after deducting liabilities.
Assets – Liabilities
How much of the assets the owner really owns.

9. Equity
Paid in Capital
Retained Earnings

10. Paid in Capital
Total capital investment by the corporation owners, both at the start of the corporation and thereafter.
Corporation sells shares.

11. Fundamental Accounting Equation
Also called Balance Sheet Equation
Assets = Liabilities + Shareholder’s Equity

12. Revenues Sales of goods or services
Increase in shareholder’s equity arising from increase in assets received in trade for the delivery of goods or services to customers.

13. Examples of Revenues
Sales
Consulting Revenue
Computer Repair Revenue

14. Revenues Income Statement Transactions Normal balance is Debit
Recorded on Debit side
Normal balance is Debit

15. Expenses Outflows of assets that occur during a business’ operation.
Costs associated with generating revenue.
Using up of assets
Normal balance - Debit

16. Examples of Expenses Salaries Rent Interest Depreciation Expense
Cost of Goods Sold

17. Income Statement Revenue : Expenses Net Income $50,000 Sales $100,000
Salaries $20,000
Rent ,000
Depreciation ,000
Net Income $50,000

18. Net Income Revenues exceed expenses Revenues greater than expenses
Revenue higher than expenses
More coming in than going out

19. Net Loss Expenses exceed revenues Expenses greater than revenues
Expenses higher than revenues
More going out than coming in

20. How does information get to the Financial Statements?
Transactions
Any event that both affects the financial position of an entity and can be reliably recorded in money terms.
Must affect 2 accounts or more.

21. Transactions Analyze What accounts are affected? How much?
Asset, Liability, Revenue, Expense?
Increase or Decrease?
Debit or Credit?

22. Transactions Record transaction in general journal.
EX: purchased $5,000 inventory on account.
DEBIT CREDIT
Inventory $5,000
Accounts Payable $5,000
Purchased inventory

23. Posting
Transferring information from the general journal to the ledger.
Ledger is the place or location where we record the increased and decreases for each account.

24. Trial Balance
Listing of all accounts – taken from the ledger- and their balances.
DR=CR.

25. Financial Statements Use information from Trial Balance to prepare:
Income Statement
Statement of Retained Income
Balance Sheet