chapter 1
what is the accounting equation?
assets = liabilities + equity
what are the main sections of a classified balance sheet?
current assets, long-term assets (PPE, long-term investments, intangible assets), current liabilities, long-term liabilities, stockholder's equity
what does US GAAP stand for?
united states generally accepted accounting principles
what are the main forms of business organization?
sole-proprietorship, partnership, incorporation
If a company purchases an equipment worth $1000 in cash, do their assets increase? decrease? or stay the same?
stays the same
debit equipment $1000
credit cash $1000
which companies are required to follow US GAAP?
public companies
how to calculate retaining earnings balance at the end of the accounting period?
r/e beg + rev - exp - div = r/e end
a company purchases equipment for $200,000. They sign a note payable for $150,000, and pay in cash for the rest. what effect does that have on the accounting equation? and by how much for each?
Assets: increase by 150,000 (200,000 - 50,000)
Liabilities: increase by 150,000
Equity: no change
what is the historical cost principle?
companies must record assets at their original purchase price (cost) and not their current market value
which statement has dividends
statement of retained earnings
what is the time requirement for a liability to be classified as a long-term liability?
12 months (year)
what is the difference between accruals and deferrals?
accruals: service now, pay later
deferrals: pay now, service later
what is the difference in the PURPOSE of the balance sheet and income statement?
balance sheet: shows a company's financial position at a specific point in time, what they own and owe
income statement: shows a company's profitability over a period of time
what is total liabilities/total assets equal to?
&
what is total liabilities/total equity equal to?
*formula will be provided on exam*
debt to asset ratio
debt to equity ratio
how to calculate profit margin/net income ratio?
net income/net sales