The accounting equation.
Income Statement.
The company has received the product or service but has not paid for it yet.
Cash is paid to the vendor, resulting in a zero balance in the account.
Posting.
To gather the information necessary to produce the financial statements.
The same as they are for Cash, since both are asset accounts.
Entries made at the end of an accounting period to transfer the balances of temporary accounts to permanent accounts and to zero out the temporary accounts.
An asset account that is decreasing.
They are set back to zero by transferring them to another account.
A debit entry.
To show the net income from a business’s operations for a period of time.
Based on the previous balance and the type of entry (Debit or Credit).
Copying and/or calculating.
No negative amounts should appear in the ledgers. Instead, the balance will appear in the opposite balance column.
To maintain a running balance of each account the business has.
Superscripts are used to match each amount in the journal to its posting in the ledger.
Because the income statement for June reports only June transactions, and the income statement for July reports only July transactions.
Because closing entries on 6/30 were omitted.
Accounts that are not closed out at the end of the accounting period.
When the customer pays the invoice for services provided on account.
To prepare the accounts for the next accounting period and to ensure accurate financial reporting.
A credit entry.
When an investor puts money or other assets into the corporation.
The column in which its running total is maintained.
Complete heading, two columns of numbers, dollar signs at the top number, category headings for revenue and expenses, expenses listed in order of highest to lowest dollar amounts, single underline above the result of a calculation, dollar sign on final net income number, double underline below the final net income result.
It is where the corporation's profits accumulate and are 'stored'.
It is reduced.
The accounting equation.
Date: 6/1, Account: Cash, Debit: $100, Credit: Fees Earned $100.
When the customer pays on the spot.
To prepare for the new accounting period and accumulate profit.
To report changes in the original amount without directly modifying the account.
1. Take note of the account name in the first line of the journal. 2. Copy the date from the journal to the first blank row in that ledger. 3. Leave the Item column blank in the ledger at this point. 4. Take note of the amount on the first line of the journal and the column it is in. 5. Copy that amount to the same column in the ledger on the same line where you entered the date. 6. Update the account’s running balance.
To show the change in the Retained Earnings account balance from the beginning to the end of the month due to net income (or loss) and any cash dividends declared during the accounting period.
A trial balance may be generated at any time to check for accuracy before preparing financial statements.
It represents the accumulated profit over time and is used for paying cash dividends to stockholders.
Common Stock, Retained Earnings, or Cash Dividends accounts.
The ownership value in the business that comes from inside the company—the business makes a profit that is shared by the stockholders.
As a contra (opposite) stockholders’ equity account.
To move the credit balances of revenue accounts into Retained Earnings and transfer the debit balances of expense accounts into Retained Earnings.
When expense accounts and cash dividends are closed out into it.
Total stockholders' equity becomes $90,000.
Total stockholders' equity becomes $75,000.
The amounts are added to previous balances of zero, becoming the beginning balance for the new accounting period.
To set the balances of income statement accounts back to zero and start fresh for the next accounting period.
To track how much customers owe when a business sends invoices for goods or services.
To substitute for the Retained Earnings account in the transaction of paying dividends.
To close the Cash Dividends account to Retained Earnings, reducing the Retained Earnings account by the profit paid out to stockholders.
In the second Debit column.
The buyer uses their own money (equity) and other people’s money (the loan) to pay for the truck.
To maintain the running total for each account.
Land, building, truck, equipment, and furnishings.
There is an error that must be found and corrected.
The ownership value in the business that comes from outside the company—investors who pay their own money into the business.
The correct balances are not going to happen.
Due to a net loss or dividend payouts.
It is closed into Retained Earnings.
Total stockholders’ equity.
Total assets equal total liabilities and stockholders’ equity.
Assets, liabilities, and stockholders' equity.
Accounts on the income statement used to record operational transactions for a specific period of time.
To indicate that a closing entry has been posted.
They are carried forward and become the starting balances at the beginning of the next period.
If the first entry is a Credit, subsequent credit entries are added and debit entries are subtracted from the running balance.
It is set back to zero.
Amount customers owe to a business from being invoiced on account.
The asset is the truck, the liability is the loan, and the down payment is the owner’s equity.
The total of all the Debit balances must equal the total of all the Credit balances.
How much profit is it making?
A form of business that is a separate legal entity from its owners, and the people and/or organizations who own it are called stockholders.
Credit any liability when it increases, and debit any liability when it decreases.
They impact the value of stockholders’ equity by affecting the value of Retained Earnings.
As a corporation, the liability is limited to the amount invested and earned in the business, while in a sole proprietorship, the risk is not limited to the amount invested and earned in the business.
Common Stock + Retained Earnings.
An expense account that is increasing.
Assets = Liabilities + Stockholders' Equity.
Net income, which is revenue minus expenses.
Revenue and expense balances become zero, and the Retained Earnings balance increases.
In the first Debit column.
Recording assets at what they cost the business or what the business paid to acquire them.
Because the assets will last more than one accounting period.
Debit balance instead of the normal credit balance for a revenue account.
The amount of a business’s total assets that is owned by the stockholders.
Debts a business has on the assets it possesses, which are claims on the assets by people and entities that are not owners of the business.
Both statements report a beginning balance, additions, subtractions, and an ending balance.
It shows the value of shares of stock issued to stockholders.
Credit balance.
Total stockholders' equity becomes $30,000.
To report the revenue earned in a period in conjunction with the expenses incurred in that same period.
To record revenue earned when providing a service.
Assets, Liabilities, and Stockholders' Equity.
It dictates whether the running balance will appear in the Debit or the Credit balance column.
Compound transaction.
It is used for closing entries and to store accumulated profit.
Truck account debited with $30,000, and Cash account credited with $30,000.
Temporary accounts such as revenue, expense, and dividend accounts.
Assets that are either cash or are expected to be converted to cash within one year.
Journalize transactions, Post to ledgers, Income statement, Retained earnings statement, Balance sheet, Journalize closing entries, Post closing entries to ledgers.
The stockholders' share of ownership of the assets that the business possesses, or the claim on the business's assets by its owners.
Accounts Payable is a payment agreement with a vendor who gives time to pay for a product or service, while Note Payable is a loan for cash or on any of the assets owned.
To maintain a running total for each account and update it every time an amount is posted.
Payouts of profits (retained earnings) to stockholders.
When revenue accounts are closed out into it.
Positive numbers represent increases and negative amounts indicate decreases.
Assets = Liabilities + Stockholders’ Equity / Common Stock + Retained Earnings / Revenue - Expenses.
The July balances erroneously contain amounts from June as well.
To give the customer thirty days to pay for the service provided, making it a revenue transaction on account.
Not paid out of owner investments or common stock.
Asset, Liability, Stockholders’ Equity, Revenue, and Expense.
Assets = Liabilities + Stockholders’ Equity.
It becomes zero.
Credit balance instead of the normal debit balance for an asset account.
Fixed assets are relatively expensive and will last for more than one accounting year, whereas expenses are costs related to a particular accounting period.
A formal, signed loan contract that may include an interest rate and spells out the terms and conditions of repayment over time.
In either the Debit balance column or Credit balance column.
The matching principle, reporting revenue and expenses in a specified window of time.
The owners can only lose what they invested in the business, and their other assets cannot be taken to satisfy the obligations of the company they invest in.
It increases.
Analysis of the transaction and selecting accounts to debit and credit.
A liability account that is increasing.
Distributions of retained earnings to stockholders.
If the first entry is a Debit, subsequent debit entries are added and credit entries are subtracted from the running balance.
The total of the debits and the total of the credits.
A list of all a business’s accounts and its current ledger balances to test whether total debits equals total credits.
Produce the financial statements on a regular basis over the same time interval, such as a month or year.
Added to the previous debit balance.
Deducted from the previous debit balance.
1. Start with Retained Earnings balance at the beginning of the month. 2. Add net income from the current month’s income statement. 3. Subtract from net income any dividends declared during the month. 4. End with new Retained Earnings balance at the end of the month.
Common Stock and Retained Earnings accounts.
Enter an 'x' or checkmark in the PR column to indicate that the line item has been posted.
Assets = Liabilities + Stockholders’ Equity.
To recognize the investor's ownership and maintain a total of all investments made in the corporation.
Revenue - Expenses = Net income (or Net loss).
Subtract the debit amount from the balance and enter the difference in the Credit balance column.
The net income amount that appears on the retained earnings statement comes from the income statement. The ending retained earnings balance feeds to the stockholders’ equity section of the balance sheet.
To ensure that the total of all the debit balances in a company’s ledger accounts always equals the total of all the credit balances.
Payouts of profits from retained earnings to stockholders.
