Acct 200 Lecture 3Outline of Last Lecture I. Assets and Liabilities; different accounting boards, general accounting termsOutline of Current Lecture II. Fundamental Accounting Model III. Business Effect on Retained Earningsa. Quid Pro QuoIV.T-AccountsCurrent LectureFundamental Accounting Model: Assets = Liabilities + Owner's EquityOwner's Equity = Paid-In-Capital + Retained Earnings (RE)so,Assets = Liabilities + Paid-In-Capital + Retained EarningsBusiness Effect on Retained Earnings: Net income: after ALL expenses have been paidRevenues – Expenses = Net Income and, Retained Earnings = Lifetime Net Income – DividendsQuid pro quo: an exchange of goods or services, where one transfer is contingent upon the otherRetained Earnings are decreased when a firm uses resources for its productive activity-called expenses. Dividends also reduce retained earnings, but dividends are not an expense. They are simply a return to shareholders.More expenses = less retained earningsT-Accounts: there is one T-account for each account. They are used to keep track of transactions as they occur in the journal. At sometime, the company moves these transactions to the appropriate accounts. All accounts make up the company LEDGER. The left side of a T-account isknown as a debit and the right side is the credit side.**DEBITS MUST ALWAYS EQUAL CREDITS**These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Assets, liabilities, and owner's equity are broad names for accounts. Cash is known as an asset and something like a mastercard debt is known as a liability. Remember: Assets = Liabilities + EquityIf assets increases, liabilities or equity would equally decrease.For example: The professor paid $100 in cash for land. Therefore, assets would increase as a debit, and liabilities would decrease as a