Foundations of Accounting
Foundations of Accounting ACCT 200
Popular in Course
Popular in Accounting
ACCT 200 006
verified elite notetaker
This 3 page Class Notes was uploaded by Mr. Juwan Kautzer on Monday October 26, 2015. The Class Notes belongs to ACCT 200 at University of Tennessee - Knoxville taught by Staff in Fall. Since its upload, it has received 40 views. For similar materials see /class/229899/acct-200-university-of-tennessee-knoxville in Accounting at University of Tennessee - Knoxville.
Reviews for Foundations of Accounting
Report this Material
What is Karma?
Karma is the currency of StudySoup.
Date Created: 10/26/15
A Debit is on the left ALWAYS and A Credit is on the Right ALWAYS for ALL accounts Whether a debit or a credit is an increase or decrease to an account depends on whether the account is an asset liability equity revenue or expense account Increase ison the Same Side as the account relative to the quot Sign in the accounting quotALEquot Eguation Example You buy 400 supplies on account Supplies are an asset and buying supplies increases them so it is a debit to supplies since assets are on the left side of the equation You also increased accounts payable because you owe more money buying it on account Since Accounts payable is a liability increasing it is a credit since it is on the right side of the accounting equation Entry Looks like this Debit is aligned to the left and the credit is indented slightly Supplies Debit I Credit 400 Accounts Payable 400 Assets are on the left side of the sign so an increase is on the left which means a debit increases an asset and a credit decreases an asset Liabilities are on the right side of the sign so an increase is on the right which means a credit increases a liability and a debit decreases a liability Equity is on the right side of the sign so an increase is on the right which means a credit increases equity and a debit decreases equity Liabilities Debit I Credit Equity Debit Credit Assets Revenues Debit Credit Expenses Debit Credit Remember Expenses DECREASE Net Income which is the same as DECREASING Equity So it is the opposite of Revenues a debit increases expenses which ends up decreasing equity when the expense flows from the income statement to the statement of retained earnings to the balance sheet Balance Sheet Balance Sheet contains information about the company at a point in time often the end of a month or a year The balance sheet shows what assets they have what liabilities they owe and how much equity they have at a date ASSETS Something you own Tip off words Receivable Cash on Hand Examples Include Cash Accounts Receivable Buildings Equipment Land 0 Note Buildings Equipment and Land are often listed in one account as llProperty Plant and Equipment Liabilities Something you owe to someone else Tip off words for liability payable Examples Include Accounts payable Notes Payable UNEARNED Revenue You owe someone a service they paid you in advance Wages Payable Utilities Payable Income taxes Payable Eguiy The owners stake in the company owners are also known as shareholders Examples Include Capital Stock Retained Earnings remember retained earnings come from net income Retained earnings is equal to the beginning of the period Retained Earnings Net Income for the period Dividends distributed during the period Income Statement Shows how much money the company made in the period often in the year or the month It shows the revenue and expense activity for that period NET INCOME REVENUES EXPENSES Net Income eguals Revenues Minus Expenses Revenues pg 12 in the book quotA revenue is an increase in assets from selling products or servicesquot Revenue is earned in the operation of the business Revenue tipoff words include quotrevenuequot quotsalesquot quotearnedquot Usually the other part of a revenue transaction is an increase to an asset account Examples Include Revenue Sales Fees earned Expense pg 13 in the book quotCosts used to earn revenuequot For example for a company to operate they need to pay their employees so wages expense is an expense Expenses often have the word quotexpensequot in the title Usually the other part of an expense transaction is a decrease to an asset account or an increase to a liability account remember a decrease to assets and an increase to liabilities are both credits REMEMBER quotPrepaid Expense is not an expense it is an asset Examples of Expenses include Wages Expense Income Tax Expense Cost of Sales also known as quotcost of goods soldquot Rent Expense Utilities Expense How do the Income Statement Statement of Retained Earnings and Balance Sheet tie together 1 You can obtain Net Income on the Income Statement Using Revenues and Expenses Revenues Minus Expenses Equals Net Income Net Income Revenues Expenses 2 Statement of Retained Earnings Use Beginning Retained Earnings and Net Income along with dividends ifany to arrive at Ending Retained Earnings Beginning Retained Earnings Net Income Dividends Ending Retained Earnings 3 Ending Retained Earnings from the Statement of Retained Earnings goes on the Balance Sheet under equity Income Statement Statement of Retained Earnings Balance Sheet Revenues Beginning Retained Earnings Assets Liabilities Equity art of equity Expenses Net Income Ending Retained Earnings is a Net Income Dividends P Ending Retained Earnings