Reading 23: Financial Reporting Mechanics

Question 1

Basic Accounting Equation

23.1a

Financial Reporting Mechanics

Answer 1

Assets = Liabilities + Owners’ equity

Question 2

Owners’ Equity

23.1b

Financial Reporting Mechanics

Answer 2

Assets - Liabilities = Owners’ equity

The residual claim of the owners (i.e. the owners’ remaining claim on the company’s assets after the liabilities are deducted).

Question 3

Owners’ Equity ( classified by its origin: capital contributed by owners, and earnings retained in the business up to that date)

23.2

Financial Reporting Mechanics

Answer 3

Owners’ equity = Contributed capital + Retained Earnings

Question 4

Income Statement

23.3

Financial Reporting Mechanics

Answer 4

Revenue - Expenses = Net Income (or loss)

Question 5

Ending Retained Earnings

23.4a

Financial Reporting Mechanics

Answer 5

Ending Retained Earnings =
Beginning retained earnings
+ Net Income
- Dividends

Question 6

Ending Retained Earnings (Substituting Net Income)

23.4b

Financial Reporting Mechanics

Answer 6

Ending Retained Earnings = 
Beginning retained earnings
\+ Revenues
-Expenses
- Dividends

Question 7

Expanded Accounting Equation

23.5a

Financial Reporting Mechanics

Answer 7

Assets =
Liabilities
+ Contributed capital
+ Ending retained earnings

Question 8

Expanded Accounting Equation (using beginning retained earnings)

23.5b

Financial Reporting Mechanics

Answer 8

Assets =
Liabilities
\+ Contributed capital
\+ Beginning retained earnings
\+ Revenue
- Expenses
- Dividends