2-1 Accounting Equation Flashcards
What begins the accounting process?
An economic transaction or event that has a direct impact on the financial position of a company
Accounting Equation
Assets=Liabilities + Stockholder’s Equity
What does the accounting equation reflect?
The basic identity of a corporation
Assets
Probable future economic benefits
Examples of Assets
Cash, Accounts Receivable, Prepaid Expense, Supplies Inventory, Equipment, Building, Intangible Assets
Liabilities
Probable future sacrifices of economic benefits
Examples of Liabilities
Accounts payable, Salaries Payable, Accrued Expenses, Notes Payable, Bonds Payable, Deferred Revenue
Stockholder’s Equity
Residual interest in assets
Examples of Stockholder’s Equity
Paid-in-Capital, Common Stock, Retained Earnings, Revenue, Expense, Dividends
Double Entry System
Duality ensures that the accounting equation stays in balance
What are the two categories of Stockholder’s Equity?
Paid-In Capital
Retained Capital
Paid-In Capital
The amount invested by shareholders into the corporation
Retained Earnings
The amount of income recognized by the corporation (net of dividends) since the inception of the company
What accounts make up Paid-In Capital?
Common Stock, Preferred Stock, Paid-In Capital Excess of Par, Accumulated Other Comprehensive Income, and Treasury Stock (contra-equity account)
