Ch 2 - Accounting Cycle Flashcards
State the basic Accounting Equation
Assets = Liabilities + Equity
State the equation for Stockholder’s Equity
Stockholder’s equity = Contributed capital + Retained Earnings
State the Equation for Retained Earnings
Retained Earnings = Beginning Retained Earnings + Net Income for the period - Dividends
State the equation for Net Income
Net Income = Revenues - Expenses + Other Income - Other Expenses + Gains - Losses
What is double entry accounting?
every journal entry must have at least one debit and one credit
How does a T-account work?
- debit on the left
- credit on the right
State the equation for debits and credits
Dividends + Expenses + Assets = Liabilities + Owner’s Equity + Revenue
DEALER
How do debits and credits affect Assets?
- debits (left) increase assets
- credits (right) decrease assets
How do debits and credits affect Liabilities?
- credits (right) increase liabilities
- debits (left) decrease liabilities
How do debits and credits affect Common Stock?
- credits (right) increase common stock
- debits (left) decrease common stock
How do debits and credits affect Retained Earnings?
- credits (right) increase R/E
- debits (left) decrease R/E
How do debits and credits affect Dividends?
Note: Dividends decrease stockholder’s equity
- debits (left) increase dividends
- credits (right) decrease dividends
How do debits and credits affect revenue?
Note: revenue increases stockholder’s equity
- credits (right) increase revenue
- debits (left) decrease revenue
How do debits and credits affect Expenses?
Note: expenses decrease stockholder’s equity
- debits (left) increase expenses
- credits (right) decrease expenses
What is the “Normal Balance” side of Assets?
debit (left)