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Monday, February 16, 2015are not a component of net income. Instead, dividends directly reduce retained earnings. The effect of the transaction on the accounting equation is:•Assets and equity both decrease.•Recap:Assets[=]Liabilities[+]Stockholders EquityCashRetained Earnings-$500-$500AssetsLiabilitiesStockholders’ EquityContributed CapitalRetained EarningsCashAccts Rec.SuppliesInsuranceEquipmentAccts PayableUn RevNotes payableStockRevenueExpensesDividends1100010002150015003(450)450425025058008006145014507(250)(250)8(120)(120)91000(1000)1075(75)111950195012(300)30013(500)(500)4630450250300450751950150010002250(195)(500)6080608017
Monday, February 16, 2015•Next Steps:-First, we verify that the accounting equation is in balance. Each transaction must keep the equation in balance, and the totals must also be in balance. We can use the information provided in the transactions analysis grid to prepare financial statements. •We know revenues and expenses to find net income:-Revenue - expenses = net income-(2250 – 195) = $2,055.•We can determine the ending balance of RE: -Beginning RE + Net income – dividends = ending balance of RE-0 + 2055 – 500 = $1,555•We can prepare a balance sheet that shows the following: Powerpoint: The Recording Process -Review•Financial events called transactions occur. •We analyze these transactions to determine their affect on the accounting equation.