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Types of Business Activities
*Financing -sources of outside funds used to operate the business
*Investing -purchase of resources (assets) the business needs to operate
*Operating -the daily activities of the business
Accounting Equation and components
*Assets = Liabilities + Stockholder’s Equity
*Assets, Liabilities, Stockholders Equity
*Revenue, Expense, Dividends, Stock, Retained Earnings
*The accounting equation must always balance
Basic Financial Statements
*Income Statement-revenue accounts and expense accounts, net income
*Statement of Retained Earnings-retained earnings account, net income and the dividends account
*Balance Sheet-asset accounts, liability accounts and owners’ equity accounts -capital stock and retained earnings
*Statement of Cash Flows-explains how the changes in account balances during an accounting period affect the balance in the cash account
*Interrelationship among the financial statements
Income Statement
*Revenues -Expenses = Net Income
*Net Income vs. Net Loss
*Prepare an Income Statement
Retained Earnings Statement
*Beginning balance in Retained Earnings + Net Income -Dividends = ending balance in Retained Earnings
*Retained Earnings Statement links the income statement and dividends to the Balance Sheet
*Prepare a retained earnings statement
Balance Sheet
*Assets = Liabilities + Owners’ Equity
*Owners’ Equity = Common Stock + Retained Earnings
*Prepare a balance sheet
Categories: Financial Accounting