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Lecture Accounting: What the numbers mean (10/e): Chapter 4 - Marshall, McManus, Viele

Chapter 4 - The bookkeeping process and transaction analysis. After reading this chapter, you should be able to answer the following questions: How can the basic accounting equation be expanded to include revenues and expenses? How does the expanded accounting equation stay in balance after every transaction? How is the income statement linked to the balance sheet through owners’ equity?. | © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Accounting: What The Numbers Mean Tenth Edition Marshall, McManus, and Viele Chapter 4 The Bookkeeping Process and Transaction Analysis PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA Chapter 4: The Bookkeeping Process and Transaction Analysis The Balance Sheet Equation—A Mechanical Key A = L + SE A = L + PIC + REBEG + R - E The basic accounting equation can be expanded to include revenues and expenses. LO 1 4- Learning Objective 1: Illustrate the expansion of the basic accounting equation to include revenues and expenses. The balance sheet equation is written as A (assets) equals L (liabilities) plus SE (stockholders' equity). This basic accounting equation can be expanded to include revenues and expenses. There are two major components of stockholders' equity, PIC (paid-in capital which represents investments by stockholders) and RE (retained earnings which represent the accumulated earnings (net income) of the company less dividends paid). NI (net income) equals R (revenue) minus E (expenses). Transactions The stockholders invested $2,000. The company borrowed $6,000 from a bank. Equipment costing $10,000 was purchased for $2,000 cash and signing a note payable for $8,000. Equipment that cost $3,000 was sold for $3,000. The $3,000 will be received within 30 days. The company provided services for $8,000 and received cash. Wages of $2,000 were paid in cash. LO 2 The Balance Sheet Equation 4- Learning Objective 2: Describe how the expanded accounting equation stays in balance after every transaction. The horizontal model shows the effect of recording the transactions a. through f. on the accounts in the balance sheet equation. Transaction a. (the stockholders invest $2,000) results in an increase of $2,000 in the cash and paid-in-capital accounts. Transaction b. (the company borrowed $6,000 from a | © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Accounting: What The Numbers Mean Tenth Edition Marshall, McManus, and Viele Chapter 4 The Bookkeeping Process and Transaction Analysis PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA Chapter 4: The Bookkeeping Process and Transaction Analysis The Balance Sheet Equation—A Mechanical Key A = L + SE A = L + PIC + REBEG + R - E The basic accounting equation can be expanded to include revenues and expenses. LO 1 4- Learning Objective 1: Illustrate the expansion of the basic accounting equation to include revenues and expenses. The balance sheet equation is written as A (assets) equals L (liabilities) plus SE (stockholders' equity). This basic accounting equation can be expanded to include revenues and expenses. There are two major components of stockholders' equity, PIC (paid-in capital which represents investments by .