1. Financial Statements

2. Income statement Statement of owner’s equity Balance sheet Statement of cash flows

3. Income Statement Summary of an entity’s revenues, expenses, and net income or net loss for a specific period Revenues - Expenses Net Income: Revenues > Expenses Net Loss: Expenses > Revenues

4. Net income is carried to the retained earnings statement Income Statement

5. Statement of Owner’s Equity Summary of changes in an entity’s owner’s equity during a specific period Beginning owner’s equity + Owner’s investments + Net income - Net loss - Owner’s withdrawals Ending owner’s equity

6. Retained Earnings Statement from the income statement to the balance sheet

7. Balance Sheet Reports the entity’s assets, liabilities, and owner’s equity as of a specific date Assets = Liabilities + Owner’s Equity

8. This amount is compared to the net cash flows on the statement of cash flows From the retained earnings statement Balance Sheet

9. Statement of Cash Flows Reports cash receipts and cash payments during a specific period

10. This amount should match Cash on the balance sheet. Statement of Cash Flows

11. Debits & Credits

12. 12 Double Entry System Record dual effects of each transaction Each transaction affects at least two accounts Each transaction is recorded with at least One debit One credit Total debits must equal total credits

13. 13 Account Name (Left Side) Debit (Right Side) Credit Simple tool for analyzing and determining the balance in a given account T-Account

14. 14 Debit Credit Assets + - Rules of Debit and Credit LiabilitiesEquity = + Debit Credit - + Debit Credit - +

15. 15 Rules of Debit and Credit Owner’s Equity Debit Credit - + Revenues - + Debit Credit Owner’s Capital Debit Credit - + Owner’s Withdrawals Debit Credit + - Expenses Debit Credit + -

16. 16 LiabilitiesEquityAssets =+ Normal Balances Debit Credit + - Debit Credit - + Debit Credit - + Normal Balance Normal Balance Normal Balance

17. 17 + + Owner’s Equity Normal Balances Debit Credit - + Normal Balance Owner’s Equity Debit Credit + - Normal Balance Owner’s Withdrawals _ _ Debit Credit - + Normal Balance Revenues _ _ Expenses Debit Credit + - Normal Balance

18. 18 General Journal Entry Journal Page 1 DateDescriptionDebitCredit Jul 1Cash45,000 Lange, Capital45,000 Investment from owner Accounts Affected Dollar amount of debits and credits Explanation of transaction Transaction Date

19. On November 1, 2007, Chris Clark organizes a corporation that will be known as NetSolutions.

20. a. Chris Clark deposits $25,000 in a bank account in the name of NetSolutions in return for shares of stock in the corporation. Nov 1 Cash 25,000.00 Stockholder’s Equity 25,000.00

21. b. NetSolutions exchanged $20,000 for land. Land 20,000.00 Cash 20,000.00

22. c. During the month, NetSolutions purchased supplies for $1,350 and agreed to pay the supplier in the near future (on account). Supplies 1,350.00 Accounts Payable 1,350.00

23. d d. NetSolutions provided services to customers, earning fees of $7,500 and received the amount in cash. Cash 7,500.00 Fees Revenue 7,500.00

24. e. NetSolutions paid the following expenses: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275. Wages Expense 2,125.00 Cash 3,650.00 Rent Expense 800.00 Utilities Expense 450.00 Miscellaneous Expense 275.00

25. f. NetSolutions paid $950 to creditors during the month. Accounts Payable 950.00 Cash 950.00

26. g. At the end of the month, the cost of supplies on hand is $550, so $800 of supplies were used. Supplies Expense 800.00 Supplies 800.00

27. h. At the end of the month, NetSolutions pays $2,000 to stockholder (Chris Clark) as dividends. Dividends 2,000.00 Cash 2,000.00

28. 28 Posting Posting – copying amounts from the journal to the ledger Periodically, journal entries are posted to ledger accounts to determine balances in each account

29. 29 Trial Balance List of all accounts with their balances

30. Trial Balance 1-30 NetSolutions Trial Balance For the Month Ended November 30, 2007 Cash 5,900.00 Supplies 550.00 Land 20,000.00 Accounts Payable 400.00 Capital Stock 25,000.00 Dividends 2,000.00 Fees Earned 7,500.00 Wages Expense 2,125.00 Rent Expense 800.00 Supplies Expense 800.00 Utilities Expense 450.00 Miscellaneous Expense 275.00 Totals $ 32,900.00

31. Net income is carried to the retained earnings statement Income Statement

32. Retained Earnings Statement from the income statement to the balance sheet

33. This amount is compared to the net cash flows on the statement of cash flows From the retained earnings statement Balance Sheet

34. This amount should match Cash on the balance sheet. Statement of Cash Flows

35. More Transactions

36. Dec. 1NetSolutions paid rent for December, $800. The company from which NetSolutions is renting its store space requires the payment of rent on the first of each month, rather than at the end of the month.

37. Dec 1 Rent Expense52 800 00 Cash11800 00 Paid rent for December.

38. NetSolutions received an offer from a local retailer to rent (for $120 per month) the land purchased on November 5. The retailer plans to use the land as a parking lot for its employees and customers. NetSolutions agreed to rent the land to the retailer for three months, with the rent payable in advance.

39. 1Cash11360 00 Unearned Rent23360 00 Received advance payment for three months’ rent on land.

40. Dec. 4NetSolutions purchased office equipment on account from Executive Supply Co. for $1,800. 4 Office Equipment181 800 00 Accounts Payable211 800 00 Purchased office equipment on account.

41. Dec. 6NetSolutions paid $180 for a newspaper advertisement. 6 Miscellaneous Expense59180 00 Cash11180 00 Paid for newspaper ad.

42. Dec. 11NetSolutions paid creditors $400. 11 Accounts Payable21400 00 Cash11400 00 Paid creditors on account.

43. Dec. 13NetSolutions paid a receptionist and part-time assistant $950 for two weeks’ wages. 13 Wages Expense51950 00 Cash11950 00 Paid two weeks’ wages.

44. Dec. 16NetSolutions received $3,100 from fees earned for the first half of December. 16 Cash113 100 00 Fees Earned413 100 00 Received fees from customers.

45. Dec. 16Fees earned on account totaled $1,750 for the first half of December. 16 Accounts Receivable121 750 00 Fees Earned411 750 00 Recorded fees earned on account.

46. Dec. 20NetSolutions paid $900 to Executive Supply Co. on the $1,800 debt owed from the December 4 transaction. 20 Accounts Payable21900 00 Cash11900 00 Paid part of amount owed to Executive Supply Co.

47. Dec. 21NetSolutions received $650 from customers in payment of their accounts. 21 Cash11650 00 Accounts Receivable12650 00 Received fees from customers on account.

48. Dec. 23NetSolutions paid $1,450 for supplies. 23 Supplies141 450 00 Cash111 450 00 Purchased supplies.

49. Dec. 27NetSolutions paid the receptionist and part-time assistant $1,200 for two weeks’ wages. 27Wages Expense511 200 00 Cash111 200 00 Paid two weeks’ wages.

50. Dec. 31NetSolutions paid $310 for telephone charges for the month. 31Utilities Expense54310 00 Cash11310 00 Paid telephone charges.

51. Dec. 31NetSolutions paid $225 for electric usage for the month. 31Utilities Expense54225 00 Cash11225 00 Paid for electric usage.

52. Dec. 31NetSolutions received $2,870 from fees earned for the second half of December. 31Cash112 870 00 Fees Earned412 870 00 Received fees from customers.

53. Dec. 31NetSolutions earned $1,120 on account for the second half of December. 31Accounts Receivable121 120 00 Fees Earned411 120 00 Recorded fees earned on account.

54. Dec. 31NetSolutions paid dividends of $2,000 to stockholders. 31Dividends332 000 00 Cash112 000 00 Paid dividends to stockholders.

55. Trial Balance