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26 - The business issues common stock to the owners...

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Equity Accounts Common stock Shareholders’ investment in the company Retained earnings Earnings kept by the company Cumulative net income minus dividends paid to shareholders Revenues Earned by providing goods or services Expenses Costs of operating a business Transaction Analysis Every transaction has at least two parts The accounting equation always balances before and after each transaction A common transaction for a new business is to issue stock to its owners How would this impact the accounting equation? Example Transaction Three friends decide to start a salon They invest $40,000 to begin the business
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Unformatted text preview: The business issues common stock to the owners Double-entry Accounting • Each transaction affects at least two accounts Debit and Credit Rules • Debit and credit are neutral terms Not good or bad • Mean either a decrease or increase depending on the type of account Stockholders’ Equity Debit & Credits • Common stock and Retained Earnings are increased by credits • Dividends reduce Retained Earnings Dividends are increased by debits • Net income increases Retained Earnings Net Income = Revenues minus Expenses • Revenues are increased by credits • Expenses are increased by debits...
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