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Elements of Financial Statements
Official Account Types |
For Beginners |
1. Assets |
1. Assets |
2. Liabilities |
2. Liabilities |
3. Capital/Equity |
3. Capital/Equity |
4. Investments by Owners |
4. Revenues |
5. Distributions to Owners |
5. Expenses |
6. Revenues |
7. Expenses |
8. Gains |
9. Losses |
10. Comprehensive Income |
The Accounting Equation
Assets |
= Liabilities + Owner's Equity |
Computation for Total Owner's Equity |
Beginning Capital |
(+) when Owner transfers Money from Personal Bank Account to a Business Account (Company Name, Capital) |
Income/ Revenues |
(+) will ultimately INCREASE Capital |
Expenses |
(-) will ultimately DECREASE Capital |
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Account Classification Practice
Specific Account Types |
Classification |
Accounts Payable |
Liability |
Cash |
Asset |
Notes Receivable |
Asset |
Equipment |
Asset |
Company Name, Capital |
Capital/Equity |
Supplies Expense |
Expense |
Building |
Asset |
Prepaid Rent |
Asset |
Fees Earned |
Income/Revenue |
Office Equipment |
Asset |
Miscellaneous Expense |
Expense |
Common Stock |
Capital/Equity |
Service Income |
Income/Revenue |
Unearned Fees |
Liability |
Supplies |
Asset |
Accounts Receivable |
Asset |
Prepaid Expenses |
Asset |
Mortgage Payable |
Liability |
Company Name, Drawing |
Capital/Equity |
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T-Accounts
make Seperate Computations for Each Specific Account Type (ex. Cash, Accounts Receivable, Supplies, Rent Expense and etc.) in the form of T-Accounts to Tally the Total of Each Account |
the Debit and Credit of Each T-Account must Balance each other out |
Debits |
money Taken from your account to Cover Expenses |
Credits |
money Coming Into your account |
KEEP IN MIND: The Debit and Credit Entry of Each Specific T-Account depends on their Primary Classification which are as follows |
Primary Classification of Accounts |
Dr. |
Cr. |
1. Assets (A) |
(+) |
(-) |
Cash or things like Land, Equipment, or Business Vehicles that could be CONVERTED into Cash |
2. Liabilities (L) |
(-) |
(+) |
Debts you owe an individual or other businesses (ex. Accounts Payable, Notes Payable, Loans, Unearned Revenue and etc.) |
3. Capital/Equity (C) |
(-) |
(+) |
this is the Beginning Capital + Income - Expenses |
also Owner's Equity = Assets - Liabilities |
4. Income/Revenues (I) |
(-) |
(+) |
Cash earned through Sales (INCREASES CAPITAL) |
5. Expenses (E) |
(+) |
(-) |
what you Spend money on to Operate the Business (DECREASES CAPITAL) |
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