The Balance
Sheet
Sheet
The basic accounting equation
What are assets = liabilities + stockholders' equity
The income statement equation
What is revenues - expenses = net income
Ms. Lloyd bought equipment for $3,000 on credit. Record the journal entry.
DR Equipment $3,000 (+A)
CR Cash $3,000 (-A)
What is accounting?
The "language of business"; a system of analyzing, recording, and summarizing the results of a business's operating, investing, and financing activites
The current ratio and what does it assess?
What are current assets / current liabilities
Cash-basis vs accrual-basis accounting
Cash-basis: records revenues when cash is received and expenses when cash is paid
Accrual-basis: records revenues when earned and expenses when incurred
Kennedy Kites sold 2,000 shares of common stock for $20,000. Record the journal entry.
DR Cash $20,000 (+A)
CR Common Stock (+SE)
What type of account is accumulated depreciation?
Contra-asset
Describe long-term liability
A liability that will be paid over a year from the balance sheet date
Net profit margin
What is net income / total revenue
Depreciation for the year was $5,000. Record the journal entry.
DR Depreciation Expense $5,000
CR Accumulated Depreciation $5,000
What does GAAP stand for?
Generally accepted accounting principles
Kennedy Kites purchases a tractor for $33,000. They pay for half with cash and sign a 15-month note for the rest. Determine the impact to assets.
Increase by $16,500
The retained earnings equation
Beginning RE + Net Income - Dividends Paid = Ending RE
Kennedy Kites accrues $300 of interest in April 2023. They receive their interest payment in September. Record the initial and adjusting journal entries.
4/2023 Interest Receivable $300
Interest Revenue $300
9/2023 Cash $300
Interest Receivable $300
What are the four basic financial statements and in what order are they prepared?
What are the balance sheet, the income statement, the statement of cash flows, and the statement of retained earnings
1. Income Statement
2. Statement of Retained Earnings
3. Balance Sheet
4. Statement of Cash Flows
In July, Kennedy Kites sold 100 shares of common stock for $10,000. In the same month, they purchased equipment on credit for $3,000 and agreed to provide $8,000 worth of services for Ms. Lloyd the following month. Determine the impact to the accounting equation.
Assets +$25,000
Liabilities +$15,000
Stockholders' Equity +$10,000
Kennedy Kites was in its first year of operations in 2021. Their 2021 revenues were $10 million and their expenses were $3.5 million. They sold 100 shares of common stock on 11/1/2021 and paid $10,000 of dividends on 1/1/2022. What amount will they report as retained earnings on December 31, 2021?
$6.5 million
Kennedy Kites rents its warehouse. They paid $15,600 for a year-long lease on 4/1/2023. The balance in prepaid rent was $8,000 on 12/31/2023. Record the end-of-year adjusting journal entry.
12/31/2023 Rent Expense $4,100
Prepaid Rent $4,100
Describe operating, investing, and financing activities and provide an example of each
Operating- transactions directly from running the business to earn profit (day-to-day operations, payments to employees, taxes, payments to suppliers, etc.)
Investing- transactions buying and selling productive resources with long lives, purchasing investments, and lending to others (long-term assets, purchase of equipment/property)
Financing- transactions borrowing from banks, repaying bank loans, receiving cash from stockholders for company stock, or paying dividends to stockholders (long-term liabilities & stockholders' equity, paying cash dividends, issuing common stock)