ACCT 200 1st Edition Lecture 3 Outline of Last Lecture I. Important ReviewII. Important EquationsIII. GAAP (Generally Accepted Accounting Principles)IV. MiscellaneousOutline of Current Lecture I. Review of Key Points to Remember II. Transactions JournalIII. Solutions to Brief Exercise 2 – 10 IV. Solutions to E 2 – 3 V. Intro to Debits and CreditsVI. Basic Accounting Equation Expanded – with Debits and CreditsCurrent LectureAnything the company prepays is an assetWhen revenue increases, equity, net income, and retained earnings all increase as wellWhen expenses increase, equity, net income, and retained earnings all decreaseWhen dividends increase, retained earnings and equity both decrease (dividends not on income statement)When you buy on account, you use accounts payable When you sell on account, you use accounts receivableTransactions JournalTransaction Assets Liabilities Equity(1) sell stock cash +25,000 common stock +25,000(2) borrow money cash +10,000 note payable +10,000(3) buy equipment cash -24,000Equipment +24,000(4) pay advance rent cash -6000Prepaid rent +6000(5) buy supplies on account supplies +2300 acct payable +2300(6) service cash +3600 retained earnings +3600(7) service on account acct receivable +2500 retained earnings +2500(8) cash in advance cash +600 unearned revenue +600(9) wages cash -2800 retained earnings -2800(10) pay dividends cash -200 dividends -200Solutions to Brief Exercise 2 – 10 a. Services to customers for $25,000 cash – (assets) +25,000 cash, (equity) +25,000 service revenueb. Buy supplies on account for $15,000 – (assets) +15,000 supplies, (liabilities) +15,000 accts payablec. Pay $6000 salaries – (assets) -6000 cash, (equity) -6000 expensesSolutions to E 2 – 3 Transaction Assets Liabilities Equity(1) issue stock +32,000 cash +32,000 common stock(2) buy land w/notes payable +19,000 land +19,000 note payable(3) buy equipment +8000 equipment-8000 cash(4) hire employees business transaction – no $$ attached yet; not listed in this journal(5) receive cash for rental fees earned +12,000 cash +12,000 revenue(6) buy supplies on acct +2000 supplies +2000 acct payable(7) pay salaries -6000 cash -6000 retained earningsDebits and Credits Debit=DrCredit=CrEffects on AccountsDr CrDividends + -Revenue - +Expenses + -Com. Stk. - +Ret. Earn. - +Assets + -Liabilities - +Assets=Liabilities + EquityA=L + (com. stk. + ret. earn.)A=L + (com. stk. + [beginning ret. earn. + revenue – expenses – dividends])Assets + expenses + dividends=Liabilities + com. stk. + beg. ret. earn. + Revenue (simple math rearranging)(This side ^) Dr + and Cr – (this side ^) Dr – and Cr
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