chapter 2 financial accounting

buildings

the costs of office building, manufacturing plant, and the like

accrued liabilities

liability for an expense you have not yet paid
-interest payable and salary payable are accrued liability accounts for most companies
-income tax payable is another accured liability

common stock

shows owners' investment in the corporation

retained earnings

shows cumulative net income earned by a company, over the company's lifetime, minus its cumulative net losses and dividends

dividends

are optional.
-decided and declared by the board of directors
-after profitable operations, a board may, (or may not) declare and pay a cash dividend

revenues

increase in stockholders' equity from delivering goods or services to customers is revenue
-a company uses as many revenue accounts as needed

name 2 things that (1) increase apple stockholders' equity and (2) decrease apple's stockholders' equity

(1) sale of stock and net income (revenue greater than expenses)
(2) dividends and net loss (expenses greater than revenue)

income statement

data appear as revenues and expenses under "Retained Earnings"
-revenues increase RE
-expenses decrease RE

balance sheet

data are composed of the ending balances of the assets, liabilities and stockholders' equities shown at the bottom of the exhibit

statement of retained earnings

repeats net income (or net loss) from the income statement
-dividends are subtracted
-ending retained earnings is the final result

statement of cash flows

data is aligned under the Cash account. Cash receipts increase cash, and cash payments decrease cash

double-entry accounting

records dual effects on the entity (since every transaction involves giving something and receiving something)

t-account

debit = left side
credit = right side

every business transaction involves

both a debit and a credit
-the debit side of an account shows what u received
-the credit side shows what you gave

decreases in assets are recorded on which side

right

increases in assets are recorded on which side

left

balance

the amount remaining in an account

stockholders' equity also includes

revenues and expenses
-revenues are increases in stockholders' equity that result from delivering goods or services to customers
-expenses are decreases in stockholders' equity due to the cost of operating the business

a debit ..... an asset account

increases

a credit ..... an asset

decreases

a credit ..... a liability account

increases

a debit ..... a liability

decreases

dividends and expenses in reference to equity accounts

equity accounts increased by a debit. dividends and expense accounts are negative (or contra) equity accounts

journalizing process

1) specify each account affected by the transaction and classify each account by type (asset, liability, stockholders' equity, revenue, or expense)
2) determine whether each account is increased or decreased by the transaction. use the rules of debit and

journal

a chronological record of all company transactions listed by date
-journal DOES NOT indicate how much cash or accounts receivable the business has

ledger

grouping of all the t-accounts, with their balances

keeping the books" refers to...

accounts in the ledger

posting

when data must be copied to the ledger