Accounting Fundamentals - Brief
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REVIEW OF ACCOUNTING FUNDAMENTALS THE ACCOUNTING EQUATION Assets = Liabilities + Equity Equity = Contributed Capital + Retained Earnings Retained Earnings = Beginning Retained Earnings + Net Income for the Period – Dividends Net Income = Revenues – Expenses + Gains – Losses Assets Probable future economic benefits obtained or controlled by a particular accounting entity as a result of past transactions or events Liabilities Probably future sacrifices of economic benefits arising from present obligations of a particular accounting entity to transfer assets or provide services to other entities in the future as a result of past transactions or events. Equity Residual interest in the assets of an entity that remains after deducting its liabilities. ACCOUNTS A company may have many assets and liabilities, and many revenues, expenses, gains and losses. The effects of transactions that cause changes in the various financial statement elements are summarized in “accounts”. An “account” in T-account form, is: Account Number and Title Debit side Credit side A dollar amount is debited to an account when it is entered on the left side and credited to an account when it is entered on the right side. Debits Indicate Credits Indicate Asset increases Asset decreases
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Brief Introduction about accounts.
Transcript of Accounting Fundamentals - Brief
Review of Accounting Fundamentals
The Accounting Equation
Assets = Liabilities + Equity
Equity = Contributed Capital + Retained Earnings
Retained Earnings = Beginning Retained Earnings + Net Income for the Period Dividends
Net Income = Revenues Expenses + Gains Losses
Assets Probable future economic benefits obtained or controlled by a particular accounting entity as a result of past transactions or events
Liabilities Probably future sacrifices of economic benefits arising from present obligations of a particular accounting entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.
Equity Residual interest in the assets of an entity that remains after deducting its liabilities.
Accounts
A company may have many assets and liabilities, and many revenues, expenses, gains and losses. The effects of transactions that cause changes in the various financial statement elements are summarized in accounts.
An account in T-account form, is:
Account Number and Title
Debit sideCredit side
A dollar amount is debited to an account when it is entered on the left side and credited to an account when it is entered on the right side.
Debits IndicateCredits Indicate
Asset increasesAsset decreases
Liability decreasesLiability increases
Equity decreasesEquity increases
ExpensesRevenues
LossesGains
Revenue reductionsExpense reductions
Gain reductionsLoss reductions
Relationship Between the Financial Statement Elements and the Principle of Debit and Credit
Assets = Liabilities + EquityRevenues/Gains Expenses/Losses
AssetsLiabilitiesEquityRevenuesExpenses
IncreasesDecreasesDecreasesIncreasesDecreasesIncreasesDecreasesIncreasesIncreasesDecreases
DebitCreditDebitCreditDebitCreditDebitCreditDebitCredit
Contributed CapitalGainsLosses
DecreasesIncreasesDecreasesIncreasesIncreasesDecreases
DebitCreditDebitCreditDebitCredit
Retained Earnings
DecreasesIncreases
DebitCredit
Note:
Each transaction has a dual effect on the accounting equations Dollar amounts of the transactions are entered into the appropriate accounts as increases and decreases in accordance with the rules of debit and credit For every debit made to an account, a corresponding credit is made to another account double-entry system A = L + E is maintained after each transaction
