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UA / Accounting / AC 310 / What are the 3 forms of business?

What are the 3 forms of business?

What are the 3 forms of business?

Description

School: University of Alabama - Tuscaloosa
Department: Accounting
Course: Financial Reporting & Analysis of Business Activities I
Professor: Thomas lopez
Term: Fall 2018
Tags: financial accounting and Accounting
Cost: 50
Name: AC 310
Description: Income Statement; balance sheet; AOCI; ratios; net income; accounting terms, principles, and concepts; etc.
Uploaded: 09/16/2018
18 Pages 178 Views 2 Unlocks
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AC 310 Chapter 1 & 2 Study Guide


What are the 3 forms of business?



Chapter 1:

∙ Financial Accounting: provides financial information to various external  users

o Provides investors and creditors with information that will help  them make investment and credit decisions

∙ Financial Statements:

1. Statement of Financial Position (balance sheet): a position  statement that presents an organized list of assets, liabilities,  and equity at a particular point in time

2. Statement of Operations (income statement):

3. Statement of Cash Flows: change statement summarizing the  transactions that caused cash to change during the period  Operating Activities

 Cash from customers Don't forget about the age old question of What are the 3 mechanisms of evolution?

 Cash paid for supplies and to employees


What is included in the income statement?



 Investing Activities We also discuss several other topics like What were 5 poems of bilgames?

 Cash to buy equipment and software

 Financing Activities

 Cash dividends paid to stockholders

 Cash received from stock issuance

 Cash borrowed from the bank

4. Statement of Shareholder’s Equity: statement disclosing the  source of changes in the shareholders’ equity accounts We also discuss several other topics like What is the goal behind society portraits?

∙ Financial Reporting: the process of providing information to external  users

∙ Capital Markets: mechanisms that foster the allocation of resources  efficiently

o Composite of investors and creditors

∙ 3 forms of businesses:

o Sole Proprietorship: single owner of a business


What is included in other comprehensive income?



o Partnership:

o Corporation: dominant form of business organization that  acquires capital from investors in exchange for ownership  interest and from creditors by borrowing.

∙ Initial Market Transactions: involves issuance of stocks and bonds by a  corporation

∙ Secondary Market Transactions: the transfer of stocks and bonds by  between individuals and institution

∙interest=principal∗rate∗time period

∙ Rate of Return on Stock Investment:  Types of Accounting

dividends+share price appreciation initialinvestment

∙ Accrual: measurement of the entity’s accomplishments and resource  sacrifices during the period, regardless of when cash is received or  paid We also discuss several other topics like What do you call the behaviors that are instinctively known?

onet income=revenues−expenses

o Net Income is a better indicator of future operating cash flows  than its current operating cash flow

∙ Cash Basis: difference between cash receipts and cash disbursements  during a reporting period from transactions related to providing goods  and services to customers

o Net Operating Cash Flow: produces this measure

∙ Generally Accepted Accounting Principles (GAAP): set of both broad  and specific guidelines that companies should follow when measuring  and reporting the information in their financial statements and related  notes

∙ Securities and Exchange Commissions (SEC): has the authority to set  the accounting standards for companies, but it relies on the private  sector to do so Don't forget about the age old question of What damage does huntington's disease cause?

o The power still lies with them.

∙ Committee on Accounting Procedures (CAP): 1st private sector body  that was delegated the task of setting accounting standards o It was a committee of American Institute of Accountants (AIA),  national organization of professional public accountants o Renamed American Institute of Certified Public Accountants in  1957 If you want to learn more check out How to prepare journal entries?

∙ Accounting Principle Board (APB): 2nd private sector body delegated  the task of setting accounting standards

∙ Financial Accounting Standards Board (FASB): the current private  sector body that has been delegated the task of setting accounting  standards

∙ Financial Accounting Foundation (FAF): responsible for selecting the  members of the FASB and its Advisory Council, ensuring adequate  funding of FASB activities, and exercising general oversight of the  FASB’s activities

∙ Emerging Issues Task Force (EITF): formed to improve financial  reporting by resolving narrowly defined financial accounting issues  within the framework of existing GAAP

∙ International Accounting Standards Committee (IASC): an umbrella  organization formed to develop global accounting standards ∙ International Accounting Standards Board (IASB): objectives are to  develop a single set of high-quality, understandable global accounting  standards, to promote the use of those standards, and to bring about  the convergence of national accounting standards and International  Accounting Standards

∙ International Financial Reporting Standards (IFRS): developed by the  IASB and used by more than 100 countries

∙ Auditors: independent intermediaries who help ensure that  management has appropriately applied GAAP in preparing the  company’s financial statements

∙ Principles-based: approach to standard setting stresses professional  judgment, as opposed to following a list of rules

∙ Rules-based Accounting Standards: a list of rules for choosing the  appropriate accounting treatment for a transaction

∙ Ethics: a code or moral system that provides criteria for evaluating  right and wrong

∙ Institute of Management Accounting (IMA): primary national  organization of accountants working in industry and government ∙ Institute of Internal Auditors: national organization of accountants  providing internal auditing services for their own organizations ∙ Conceptual Framework: deals with theoretical and conceptual issues  and provides an underlying structure for current and future accounting  and reporting standards

∙ Economic Entity Assumption: presumes that economic events can be  identified specifically with an economic entity

∙ Decision Usefulness: the quality of being useful to decision making ∙ Relevance: one of the primary decision-specific qualities that make  accounting information useful; made up of predictive value and/or  feedback value, and timeliness

∙ Faithful Representation: exists when there is agreement between a  measure or description and the phenomenon it purports to represent ∙ Predictive Value: confirmation of investor expectations about future  cash-generating ability

∙ Confirmation Value: confirmation of investor expectations about future  cash-generating ability

∙ Material: has qualitative or quantitative characteristics that make it  matter for decision making

∙ Complete: depiction is complete if it includes all information necessary  for faithful representation

∙ Neutral: implies freedom from bias

∙ Free from Error: information is free from error if it contains no errors or  omissions

∙ Conservatism: practice followed in an attempt to ensure that  uncertainties and risks inherent in business situations are adequately  considered

∙ Verifiability: implies a consensus among different measurers ∙ Timeliness: information that is available to users early enough to allow  its use in the decision process

∙ Understandability: users must understand the information within the  context of the decision being made

∙ Cost Effectiveness: the perceived benefit of increased decision  usefulness exceeds the anticipated cost of providing that information ∙ Consistency: permits valid comparisons between different periods ∙ Comparability: the ability to help users see similarities and differences  among events and conditions

∙ Recognition: process of admitting information into the basic financial  statements

∙ Measurements: process of associating numerical amounts to the  elements

∙ Disclosure: including pertinent information in the financial statements  and accompanying notes

Accounting Terms:

∙ Revenues: inflows or other enhancements of assets of an entity or  settlements of its liabilities (or a combination of both) from delivering  or producing goods, rendering services, or other activities that  constitute the entity’s ongoing major or central operations

∙ Expenses: outflows or other using up of assets or incurrences of  liabilities during a period from delivering or producing good, rendering  services, or other activities that constitute the entity’s ongoing major,  or central, operations

∙ Net Realizable Value: the amount of cash the company expects to  actually collect from customers

∙ Current Costs: costs that would be incurred to purchase or reproduce  an asset

∙ Present Value: today’s equivalent to a particular amount in the future,  after backing out the time value of money

∙ bases measurements on the price that would be received to sell assets or transfer liabilities in an orderly market transaction

∙ fair value option: allows companies to report specified financial assets  and liabilities at fair value

∙ Full-disclosure Principle: financial reports should include any  information that could affect the decisions made by external users ∙ Historical Cost: original transaction value

Chapter 2:

∙ Economic events: any event that directly affects the financial position  of the company

∙ External events: exchange between the company and a separate  economic entity

∙ Internal events: events that directly affect the financial position of the  company but don’t involve an exchange transaction with another  entity

∙ Accounting Equation: the process used to capture the effect of  economic events

o assets=liabilities+stockholder's equity

∙ Transactions: economic events

∙ Double-entry system: dual effect that each transaction has on the  accounting equation when recorded

∙ Accounts: storage areas used to keep track of increases and decreases  in financial position elements

∙ General Ledger: collection of accounts

∙ T-Accounts: account with space at the top for the account title and two  sides for recording increases and decreases

∙ Debits: left side of the account

∙ Credits: right side of the account

∙ Posting: transferring debits and credits recorded in individual journal  entries to the specific accounts affected

∙ Source Documents: relay essential information about each transaction  to the accountant, e.g., sales invoices, bills from suppliers, cash  register tapes

∙ Transaction Analysis: process of reviewing the source documents to  determine the dual effect on the accounting equation and the specific  elements involved

∙ Journal: a chronological record of all economic events affecting  financial position

∙ Special Journal: record of a repetitive type of transaction, e.g., a sales  journal

∙ General Journal: used to record any type of transaction

∙ Sales Journal: records credit sales

∙ Cash Receipt Journals: record of cash receipts

∙ Purchases Journal: records the purchase of merchandise on account  (Accounts Payable)

∙ Cash Disbursement Journal: record of cash disbursements ∙ Journal Entry: captures the effect of a transaction on financial position  in debit/credit form

∙ Unadjusted Trial Balance: a list of the general ledger accounts and their balances at a particular date

∙ Adjusting Entries: internal transactions recorded at the end of any  period when financial statements are prepared

∙ Comprehensive Income: traditional net income plus other nonowner  changes in equity

∙ Other Comprehensive Income: certain gains and losses that are  excluded from the calculation of net income, but included in the  calculation of comprehensive income

∙ Worksheet: used to organize the accounting information needed to  prepare adjusting and closing entries and the financial statements ∙ Reversing Entries: optional entries that remove the effects of some of  the adjusting entries made at the end of the previous reporting  period for the sole purpose of simplifying journal entries made during  the new period.

∙ Subsidiary Accounts: record of a group of subsidiary accounts  associated with a particular general ledger control account ∙

Permanent Accounts

∙ represent assets, liabilities, and shareholders’ equity at a point in time ∙ e.g. Retained Earnings

∙Rev .−exp .=Net Income ; Net Income+Beg . R.E .−Dividends=Retained Earnings ∙

Temporary Accounts

∙ represent changes in the retained earnings component of  shareholders’ equity for a corporation caused by revenue, expense,  gain, and loss transactions

∙ Revenue Accounts (close to income summary)

∙ Expenses Accounts (close to income summary)

∙ Income summary (close to retained earnings)

o An account that is a bookkeeping convenience used in the  closing process that provides a check that all temporary  

accounts have been properly closed.

Shareholder’s Equity

∙ Paid-in Capital: invested capital consisting primarily of amounts  invested by shareholders when they purchase shares of stock from the  corporation

∙ Retained Earnings: amounts earned by the corporation on behalf of its  shareholders and not (yet) distributed to them as dividends ∙ Common Stock

AC 310 Ch. 3 & 4 Study Guide

Chapter 4: Income Statement

∙ Statement of Operations/Earnings (Income Statement): reports  a company’s profit during a particular reporting period

∙ Comprehensive Income (OCI): includes few types of gains and losses  excluded from the income statement

Income Statement Items

1. Gross Income

o Net Sales

 Sales or Service Revenue

 (minus) Allowance for doubtful Accounts (contra to Acc.  Receivables)

 (minus) Sales Discount (not Purchase discounts)

o (minus) Cost of Goods Sold

2. Operating Expenses:

o Selling exp.

o Restructuring Costs

o General and Admin. exp.

o Research and Development

3. Other Income (Expenses):

o Interest Revenue

o Gain (Loss) on sale of investment

o Interest Expense

4. Income from Continuing Operations (Before Taxes)

o Income Tax

5. Discontinued Operations

o NOTE: items that are considered held for sale, is classified as a  discontinued component

o Impairment Loss

o Income (Loss) from operations of discontinued component  Including gain (loss) on disposal

o Income Taxes

6. Net Income

o Income from Operations (After Tax)

o Income from Discontinued Operations (After Tax)

Other Comprehensive Income (OCI):

1. Unrealized Gain (Loss) from investments, Net Tax

2. Loss (Gain) from Foreign currency translation, Net Tax

Earnings Per Share: Ratio that indicates the amount of income earned by  a company expressed on a per share basis

weighted average

net income−preferred dividends

o

¿of common shares outstanding¿

1. Income from continuing operations

2. Income from discontinued operations  

3. Net Income

Chapter 3: Balance Sheet

∙ Financial position: reports a company’s position at a point in time ∙ Liquidity: ability to convert assets to cash

ocurrentratio=current assets

current liabilities

∙ Long-term solvency: whether a company will be able to pay off its long term debt

o Financial Flexibility: company altering cash flows to take  advantage of unexpected investment opportunities and needs ∙ Operating Cycle: the period of time from the initial outlay of cash for  the purchase of inventory until the time the company collects cash  from a customer from the sale of inventory

∙ Current Assets: assets expected to be converted to cash within a year  period, or operating cycle, whichever is longer

o Cash or Cash Equivalents (commercial paper, money market,  money orders, cashier’s check)

o Acc. Rec., net allowance (subtract allowance of doubtful  accounts)

o Short-term investments (stock and debt security)

 Held to maturity

 Trading Securities

 Securities available for sale

o Notes Rec.

o Inventory

o Prepaid Rent (OR insurance)

∙ Long-Term Assets:

o Investments

 Investments in Bonds (Bonds Rec,)

 Investments in UC Inc.

 Notes Rec. (long-term)

 Land held for speculation (not in use; trying to sell)

 Sinking funds

 Pension Funds (retirement)

 Cash Surrender Value Life Insurance (cashing in life  

insurance value)

 Restricting Cash (cannot touch for special purpose)

o Property, Plant, and Equipment

 Land  

 Equipment (subtract Acc. Depreciation)

 Building (subtract Acc. Depreciation)

o Intangible Assets (Net Acc. Amortization)

 Use the straight-line method to calculate amortization  Patents: is an exclusive right granted by the federal  

government to the patent owner prevents others from  

using, manufacturing, or selling the patent item for 20  

years

 Trademark: is a special name, image, or slogan  

 Copyright: gives the owner the exclusive right to publish,  use, and sell a literary, musical, or dramatic work over a  

period not exceeding 70 years after the author’s death

 Franchise: is a contractual right to sell certain products or  services, use certain trademarks, or perform activities in a  geographical region

∙ Current Liabilities

o Acc. Payable

o Salaries and Wages Payable

o Unearned Revenue

o Interest Payable

o Current Maturities of Long-Term Debt

∙ Long-Term Liabilities

o Notes Payable

o Bonds Payable

∙ Shareholder’s Equity

o Common Stock (par, # of authorized shares)

 # of shares issued and outstanding

 Additional Paid-In capital

o Retained Earnings

o (MINUS) Accumulated Other Comprehensive Income (AOCI)  (MINUS) Treasury Stock, at cost, # of shares

Ratios to Know

ACTIVITY: how well a company manages and utilizes its assets

∙ The higher the ratio, the fewer assets are required to maintain a given  level of activity (revenue)

∙Asset Turnover=net creditsales

avg.total assets

o Measures a company’s efficiency of assets producing products

o Avg.= beginning and ending balances

∙Recievable=net credit sales

avg.net Acc .Rec .

o

oaverage collection period=365

receivable sturnover ratio

∙Inventory=CGS

avg. Inventory bal .

o Indicates how quickly inventory is sold

PROFITABILITY

∙ Profitability ratios attempt to measure a company’s ability to earn an  adequate return relative to sales or resources devoted to operations ∙Profit Margin=net income

Net Sales Rev .

∙Return onEquity=net income

avg.shareholder'sequity

∙Return on Assets=net income

avg.total assets

∙Equity Multiplier=avg .total assets

avg.total equity

o Financial Leverage

AC 310 Chapter 1 & 2 Study Guide

Chapter 1:

∙ Financial Accounting: provides financial information to various external  users

o Provides investors and creditors with information that will help  them make investment and credit decisions

∙ Financial Statements:

1. Statement of Financial Position (balance sheet): a position  statement that presents an organized list of assets, liabilities,  and equity at a particular point in time

2. Statement of Operations (income statement):

3. Statement of Cash Flows: change statement summarizing the  transactions that caused cash to change during the period  Operating Activities

 Cash from customers

 Cash paid for supplies and to employees

 Investing Activities

 Cash to buy equipment and software

 Financing Activities

 Cash dividends paid to stockholders

 Cash received from stock issuance

 Cash borrowed from the bank

4. Statement of Shareholder’s Equity: statement disclosing the  source of changes in the shareholders’ equity accounts

∙ Financial Reporting: the process of providing information to external  users

∙ Capital Markets: mechanisms that foster the allocation of resources  efficiently

o Composite of investors and creditors

∙ 3 forms of businesses:

o Sole Proprietorship: single owner of a business

o Partnership:

o Corporation: dominant form of business organization that  acquires capital from investors in exchange for ownership  interest and from creditors by borrowing.

∙ Initial Market Transactions: involves issuance of stocks and bonds by a  corporation

∙ Secondary Market Transactions: the transfer of stocks and bonds by  between individuals and institution

∙interest=principal∗rate∗time period

∙ Rate of Return on Stock Investment:  Types of Accounting

dividends+share price appreciation initialinvestment

∙ Accrual: measurement of the entity’s accomplishments and resource  sacrifices during the period, regardless of when cash is received or  paid

onet income=revenues−expenses

o Net Income is a better indicator of future operating cash flows  than its current operating cash flow

∙ Cash Basis: difference between cash receipts and cash disbursements  during a reporting period from transactions related to providing goods  and services to customers

o Net Operating Cash Flow: produces this measure

∙ Generally Accepted Accounting Principles (GAAP): set of both broad  and specific guidelines that companies should follow when measuring  and reporting the information in their financial statements and related  notes

∙ Securities and Exchange Commissions (SEC): has the authority to set  the accounting standards for companies, but it relies on the private  sector to do so

o The power still lies with them.

∙ Committee on Accounting Procedures (CAP): 1st private sector body  that was delegated the task of setting accounting standards o It was a committee of American Institute of Accountants (AIA),  national organization of professional public accountants o Renamed American Institute of Certified Public Accountants in  1957

∙ Accounting Principle Board (APB): 2nd private sector body delegated  the task of setting accounting standards

∙ Financial Accounting Standards Board (FASB): the current private  sector body that has been delegated the task of setting accounting  standards

∙ Financial Accounting Foundation (FAF): responsible for selecting the  members of the FASB and its Advisory Council, ensuring adequate  funding of FASB activities, and exercising general oversight of the  FASB’s activities

∙ Emerging Issues Task Force (EITF): formed to improve financial  reporting by resolving narrowly defined financial accounting issues  within the framework of existing GAAP

∙ International Accounting Standards Committee (IASC): an umbrella  organization formed to develop global accounting standards ∙ International Accounting Standards Board (IASB): objectives are to  develop a single set of high-quality, understandable global accounting  standards, to promote the use of those standards, and to bring about  the convergence of national accounting standards and International  Accounting Standards

∙ International Financial Reporting Standards (IFRS): developed by the  IASB and used by more than 100 countries

∙ Auditors: independent intermediaries who help ensure that  management has appropriately applied GAAP in preparing the  company’s financial statements

∙ Principles-based: approach to standard setting stresses professional  judgment, as opposed to following a list of rules

∙ Rules-based Accounting Standards: a list of rules for choosing the  appropriate accounting treatment for a transaction

∙ Ethics: a code or moral system that provides criteria for evaluating  right and wrong

∙ Institute of Management Accounting (IMA): primary national  organization of accountants working in industry and government ∙ Institute of Internal Auditors: national organization of accountants  providing internal auditing services for their own organizations ∙ Conceptual Framework: deals with theoretical and conceptual issues  and provides an underlying structure for current and future accounting  and reporting standards

∙ Economic Entity Assumption: presumes that economic events can be  identified specifically with an economic entity

∙ Decision Usefulness: the quality of being useful to decision making ∙ Relevance: one of the primary decision-specific qualities that make  accounting information useful; made up of predictive value and/or  feedback value, and timeliness

∙ Faithful Representation: exists when there is agreement between a  measure or description and the phenomenon it purports to represent ∙ Predictive Value: confirmation of investor expectations about future  cash-generating ability

∙ Confirmation Value: confirmation of investor expectations about future  cash-generating ability

∙ Material: has qualitative or quantitative characteristics that make it  matter for decision making

∙ Complete: depiction is complete if it includes all information necessary  for faithful representation

∙ Neutral: implies freedom from bias

∙ Free from Error: information is free from error if it contains no errors or  omissions

∙ Conservatism: practice followed in an attempt to ensure that  uncertainties and risks inherent in business situations are adequately  considered

∙ Verifiability: implies a consensus among different measurers ∙ Timeliness: information that is available to users early enough to allow  its use in the decision process

∙ Understandability: users must understand the information within the  context of the decision being made

∙ Cost Effectiveness: the perceived benefit of increased decision  usefulness exceeds the anticipated cost of providing that information ∙ Consistency: permits valid comparisons between different periods ∙ Comparability: the ability to help users see similarities and differences  among events and conditions

∙ Recognition: process of admitting information into the basic financial  statements

∙ Measurements: process of associating numerical amounts to the  elements

∙ Disclosure: including pertinent information in the financial statements  and accompanying notes

Accounting Terms:

∙ Revenues: inflows or other enhancements of assets of an entity or  settlements of its liabilities (or a combination of both) from delivering  or producing goods, rendering services, or other activities that  constitute the entity’s ongoing major or central operations

∙ Expenses: outflows or other using up of assets or incurrences of  liabilities during a period from delivering or producing good, rendering  services, or other activities that constitute the entity’s ongoing major,  or central, operations

∙ Net Realizable Value: the amount of cash the company expects to  actually collect from customers

∙ Current Costs: costs that would be incurred to purchase or reproduce  an asset

∙ Present Value: today’s equivalent to a particular amount in the future,  after backing out the time value of money

∙ bases measurements on the price that would be received to sell assets or transfer liabilities in an orderly market transaction

∙ fair value option: allows companies to report specified financial assets  and liabilities at fair value

∙ Full-disclosure Principle: financial reports should include any  information that could affect the decisions made by external users ∙ Historical Cost: original transaction value

Chapter 2:

∙ Economic events: any event that directly affects the financial position  of the company

∙ External events: exchange between the company and a separate  economic entity

∙ Internal events: events that directly affect the financial position of the  company but don’t involve an exchange transaction with another  entity

∙ Accounting Equation: the process used to capture the effect of  economic events

o assets=liabilities+stockholder's equity

∙ Transactions: economic events

∙ Double-entry system: dual effect that each transaction has on the  accounting equation when recorded

∙ Accounts: storage areas used to keep track of increases and decreases  in financial position elements

∙ General Ledger: collection of accounts

∙ T-Accounts: account with space at the top for the account title and two  sides for recording increases and decreases

∙ Debits: left side of the account

∙ Credits: right side of the account

∙ Posting: transferring debits and credits recorded in individual journal  entries to the specific accounts affected

∙ Source Documents: relay essential information about each transaction  to the accountant, e.g., sales invoices, bills from suppliers, cash  register tapes

∙ Transaction Analysis: process of reviewing the source documents to  determine the dual effect on the accounting equation and the specific  elements involved

∙ Journal: a chronological record of all economic events affecting  financial position

∙ Special Journal: record of a repetitive type of transaction, e.g., a sales  journal

∙ General Journal: used to record any type of transaction

∙ Sales Journal: records credit sales

∙ Cash Receipt Journals: record of cash receipts

∙ Purchases Journal: records the purchase of merchandise on account  (Accounts Payable)

∙ Cash Disbursement Journal: record of cash disbursements ∙ Journal Entry: captures the effect of a transaction on financial position  in debit/credit form

∙ Unadjusted Trial Balance: a list of the general ledger accounts and their balances at a particular date

∙ Adjusting Entries: internal transactions recorded at the end of any  period when financial statements are prepared

∙ Comprehensive Income: traditional net income plus other nonowner  changes in equity

∙ Other Comprehensive Income: certain gains and losses that are  excluded from the calculation of net income, but included in the  calculation of comprehensive income

∙ Worksheet: used to organize the accounting information needed to  prepare adjusting and closing entries and the financial statements ∙ Reversing Entries: optional entries that remove the effects of some of  the adjusting entries made at the end of the previous reporting  period for the sole purpose of simplifying journal entries made during  the new period.

∙ Subsidiary Accounts: record of a group of subsidiary accounts  associated with a particular general ledger control account ∙

Permanent Accounts

∙ represent assets, liabilities, and shareholders’ equity at a point in time ∙ e.g. Retained Earnings

∙Rev .−exp .=Net Income ; Net Income+Beg . R.E .−Dividends=Retained Earnings ∙

Temporary Accounts

∙ represent changes in the retained earnings component of  shareholders’ equity for a corporation caused by revenue, expense,  gain, and loss transactions

∙ Revenue Accounts (close to income summary)

∙ Expenses Accounts (close to income summary)

∙ Income summary (close to retained earnings)

o An account that is a bookkeeping convenience used in the  closing process that provides a check that all temporary  

accounts have been properly closed.

Shareholder’s Equity

∙ Paid-in Capital: invested capital consisting primarily of amounts  invested by shareholders when they purchase shares of stock from the  corporation

∙ Retained Earnings: amounts earned by the corporation on behalf of its  shareholders and not (yet) distributed to them as dividends ∙ Common Stock

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