ACCT 209 1nd Edition Lecture 2 Outline of Last Lecture I What is accounting II What is a Business A Classifications B Forms C Organization III Generally accepted accounting principles IV Objectives and characteristics of accounting V Recognition and measurement criteria VI Financial statements VII Other elements of 10 k Annual reports Outline of Current Lecture VIII Analyzing Financial statements IX How Transactions affect the accounting equation Current Lecture Analyzing transactions and the Financial Statements Financial statements provide the structure for companies to report financial information Example 1 Financial Statements A company reported the following accounts in alphabetical order with their balances as of December 31 20X1 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 L Accounts payable 170 A Other assets A Accounts receivable 325 I S E Other expenses I S E Advertising expense 110 A Property and equipment Eq Capital Stock 950 Eq Retained earnings A Cash I S E Income tax expense L Notes payable 2 400 9 612 283 10 500 1 776 I S I Revenue 875 I S E Wages expense 250 L Liabilities A Assets Eq Equity I S Income Statement E Expense I Income Required 1 Determine the following a net income for the year 20X1 Revenue 875 Expenses 110 250 10 9 496 b total assets at December 31 20X1 Assets 325 2400 283 500 3508 c total liabilities at December 31 20X1 Liabilities 170 612 782 d total equity at December 31 20X1 Equity 950 1176 3508 Note that C and D should add up to get B 2 Assume the company began 20X1 with a balance in Retained earnings of 1 650 How much did the company distribute to the owners as dividends during 20X1 Why are dividends not included on the company s income statement Beginning Balance Net Income Less dividends 1650 From the question Retained earnings 496 X End Balance 1776 From the Table Retained earnings 1650 496 X 1776 2146 X 1776 X 370 X 370 The company distributed to the owners as dividends 370 Dividends are distribution of profits to owners They are not included on the company s income statement because only revenue and expenses go on income statements Dividends are not an expense Transaction A financial event that is recorded by an accounting entity The accounting equation Asset Liabilities Stock Equity Every transaction must maintain the equality of the accounting or balance sheet equation must affect at least two accounts in order to keep the equation in balance Example 2 Transactions and the accounting equation For each of the following independent events determine the effect on the accounting equation Transaction Assets Liabilities Stockholders equity a owners invested cash in the business Cash Stock b company borrowed cash from bank Cash c company paid cash to purchase equipment Cash Equipment d company purchased equipment by signing a note payable at the bank Equipment Notes Payable e company completed job for customer and received cash Cash Rev Retained earnings f company paid employee wages for current month Cash Exp Net income Retained earnings Notes Payable