FINANCIAL ACCOUNTINGCHAPTER 1

ACG 2021

Pace yourself and don’t let up!

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Question Which is the Home Team

Indiana PacersMiami Heat

Accounting Concepts & Principles

Entity AssumptionGoing-Concern AssumptionHistorical Cost PrincipleStable-Monetary-Unit Assumption

The Accounting Equation

Assets = Liabilities + Stockholders Equity Assets = Liabilities + Paid in Capital + Retained Earnings Assets = Liabilities + Paid in Capital (+ Revenue – Expenses –

Dividends) Assets + Expenses + Dividends = Liabilities + Paid in Capital +

Revenue

The Financial Statements

Income Statement

• Revenue• Expenses

Statement of R/E

• + Net Income

• - Dividends

Balance Sheet

• Assets• Liabilities• Equity

Cash Flow Statement

• Beg. Cash• +/- Adj.• End Cash

Income Statement

Also Known As: Statement of Operations

Measures: Net Income Net Earnings Net Profit or Loss

Revenues – Expenses

Time Period During a specific period of time (arbitrary cutoff dates)

Monthly Quarterly Annually

Statement of Retained Earnings

How did a company use it’s Earnings Paid out in Dividends

Reduces retained earnings since earnings are leaving the company in the form of dividends to owners

Retained for Re-investment Increases retained earnings

Balance Sheet

Also Known As: Statement of Financial Position

Measures: Assets

Resources of a business Liabilities

Amounts business owes to others Stockholders Equity

Paid in Capital Amount invested by shareholders

Retained Earnings

Time Period A single point in time – A Snapshot of the Corporation

Cash Flow Statement

Most Important Statement!What did the company do to:

Generate Cash Spend Cash

Examines 3 Aspects of Cash Creation/Use Operating Investing Financing

Assets Liabilities & Equity

CashAccounts ReceivablesInventoryShort term investmentsPrepaid AssetsSuppliesLandProperty, Plant &

Equipment

Accounts PayableOther PayablesLong-tern Payables

Notes Payable Bonds

Common StockRetained Earnings

Beg Retained Earnings + Revenue - Expenses - Dividends

Accounts