Lecture04 Spring 2009

Lecture04 Spring 2009 - Lecture 4 Income Statement: Cash...

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Lecture 4 Income Statement: Cash versus Accrual Accounting
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Goals of Today’s Class Better understanding of Revenues and  Expenses Better understanding of the Income  Statement Better understanding of cash versus  accrual accounting
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+ - Asset (Debit) (Credit) Liability or Owners’ Equity (Debit) (Credit) + - Retained Earnings Expenses/Losses (Debit) Revenues/Gains (Credit) + + Quick Review of Debits and Credits Memorize this for Assets Flip it for Liabs + OE An increase in an Expense  is a decrease in Retained  Earnings.  (We decrease  Owners’ Equity accounts  with a debit.) An increase in a  Revenue is an  increase in Retained  Earnings. (We  increase Owners’  Equity accounts with  a credit.) Remember RE is an  Owners’ Equity Account
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Review of Shareholders’ Equity What is “ contributed capital ”? The initial investment of owners e.g., common stock What is “ retained earnings ”? The cumulative net income of the company that has not been distributed as dividends.
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Peeking Ahead -- Contributed Capital: Common Stock Accounting for initial public issuance  of common stock Very simple if stock has no par value Debit Cash for the amount of the contribution  Credit Common Stock for the amount of the contribution Example: Sell 2,000 shares of “no par common” for $8 per share (Debit) Cash  $16,000 (Credit) Common Stock $16,000
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Peeking Ahead -- Contributed Capital: Common Stock Accounting for initial public issuance  of common stock More complicated if stock has a stated par value Debit Cash for the amount of the contribution  Credit Common Stock for par value only Example: Sell 2,000 shares of “$1 par common” for $8 per share (Debit) Cash  $16,000 (Credit) Common Stock (2,000 shs. @ $1 par) $2,000 Credit Other Paid in Capital for the difference (contribution – par value) (Credit) Other Paid in Capital  $14,000
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Balance Sheet Equation A t = L t + SE t A t = L t + CS t + APIC t + RE t A t-1 = L t-1 + CS t-1 + APIC t-1 + RE t-1 (A t - A t-1 ) = (L t - L t-1 ) + (CS t - CS t-1 ) + ( APIC t - APIC t-1 ) + ( RE t - RE t-1 ) ∆A = ∆L + ∆CS + ∆APIC + ∆RE ∆A = ∆L + ∆CS + ∆APIC + Net Income - Dividends ∆A = ∆L + ∆CS + ∆APIC + Revenue - Expenses - Dividends
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Income Statement Reports Net Income earned by the business over a period of time as a result of its profit-directed activities. Changes in shareholders’ equity due to profit-directed activities during an accounting period . Income statement accounts are temporary accounts . Net Income = Revenues – Expenses
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Accrual Accounting Goal is to account for all transactions that economically  occurred in the pd.
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This note was uploaded on 02/02/2012 for the course ACCT 101 taught by Professor Armstrong during the Spring '09 term at UPenn.

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Lecture04 Spring 2009 - Lecture 4 Income Statement: Cash...

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