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Elements of Financial StatementsOfficial 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 EquationAssets | = 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 |
| | Account Classification PracticeSpecific 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 |
| | T-Accountsmake 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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