Chapter 1 Tricks and Notes

"Why are you taking accounting?

-- "because it is required? Hopefully, as we progress through the chapters, you will see
the knowledge you obtain is a tool for making good personal and business decisions.
Not only does accounting provide information for management decisions but also for
stakeholders in the business creditors, investors, stockholders, employees, and the
government.
Accountants should use Generally Accepted Accounting Principles to document
activities with the Accounting Equation (A = L + SE) as the foundation for their books.
{ Assets (something owned), Liabilities (something owed), Stockholders Equity (net
worth in business)}.
Knowledge/Understanding of this equation is essential to your successful completion of
the course. Dollar amounts are assigned to the specific accounts with their affect on the
account recorded. At the end of a period, the ending balances in the accounts can then
be transferred to financial statements (Income Statement, Retained Earnings
Statement, Balance Sheet, and Cash Flow Statement) that serve to summarize the
periods activities and the financial status of the company.
To be done correctly, an articulation among the statements must occur. The Income
Statement has to be done first. Net Income is then integrated into the Retained
Earnings Statement. From the Retained Earnings Statement, the Ending Retained
Earnings is then carried to the Balance Sheet. The Cash Account in The Balance Sheet
should match the Net Cash Flow in the Cash Flow statement. If not done in this order,
the numbers will not have been updated and the statements wont reflect correct
information. It is from these statements, decisions are made about the health of the
business.
Quick formulas for financial statements:
Income Statement is Revenue minus Expenses equals Net Income. (R-E=NI)
Retained Earning Statement is Beginning Retained Earnings plus Investments (if any) plus Net
Income (from Income Statement) minus Dividends equals Ending Retained Earnings.(BRE + NI
-D=ERE)
Balance Sheet is Assets equal Liabilities plus Stockholder's Equity (in other words, the
Accounting Equation).(A=L+SE -- Stock plus Ending Retained Earnings from the Retained
Earnings Statement
Once you understand which accounts comprise each classification assets, liabilities ,
stockholders equityyou will then easily be able to 'plug' accounts and their amounts in these
financial statements.
Access Accounting Coach for additional tutorials of Accounting Videos (Ch. 1)