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Midterm%20study%20guide-%20Chs%201-4%202016.doc - Notes for...

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Notes for Chapters 1- 4 Midterm Study GuideChapter 1Assets = Liabilities plus Shareowners’ EquityAssetsare economic resources of a company that are expected to benefit future operations. Some assets like Accounts receivable are amounts owed tothe company. Other assets can be characterized as deferred expenses.Liabilitiesare obligations to pay cash, transfer assets, or provide services to other entities.Shareholders’ Equityis the owners’ investment in the business. Theoretically, it is what would be left over for the owners after all the liabilities are paid. It is equal to net assets:Stockholder equity = Assets – liabilities.It consists of two parts:1) Contributed Capital or Common stock2) Retained Earningsis equity that has been generated by the company’s income producing activities and kept for use in the business, .ie not distributed to shareholders as a Dividend.Revenues and expensesare increases and decreases in Retained Earnings (and Stockholders’ Equity) that result from operating the business. They are reported in the Income Statement only. Dividendsare distributions of Retained Earnings. Dividends are NOTexpenses.Balance Sheetsare cumulative. They represent a given point in time. They represent all transactions since inception.Income Statementsrepresent only the results of a particular accounting period.Recognitionrefers to deciding whento record a transaction.1
Notes for Chapters 1- 4 Midterm Study GuideAccountsare storage units for accounting data. An accounting system has a separate account for each type of asset, each liability, and each component ofstockholders’ equity.The Normal Balanceof an account is its usualbalance and is the side (debitor credit) that increasesthe account. Assets (except accumulated depreciation), expenses and dividendshave anormal debit balance; therefore, they are increasedby debits. Liabilities, shareholders’ equity, revenue, and Accumulated Depreciationhave a normal credit balance; therefore, they are increasedby credits.

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Term
Fall
Professor
AnneGomer

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