Accounting 1

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Review of Accounting Fundamentals

The Accounting Equation

Assets = Liabilities + Equity

Equity = Contributed Capital + Retained Earnings

Retained Earnings = Beginning Retained Earnings + Net Income for the Period – Dividends

Net Income = Revenues – Expenses + Gains – Losses

Assets ( Probable future economic benefits obtained or controlled by a particular accounting entity as a result of past transactions or events

Liabilities ( Probably future sacrifices of economic benefits arising from present obligations of a particular accounting entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.

Equity ( Residual interest in the assets of an entity that remains after deducting its liabilities.

Accounts

A company may have many assets and liabilities, and many revenues, expenses, gains and losses. The effects of transactions that cause changes in the various financial statement elements are summarized in “accounts”.

An “account” in T-account form, is:

Account Number and Title

Debit sideCredit side

A dollar amount is debited to an account when it is entered on the left side and credited to an account when it is entered on the right side.

|Debits Indicate |Credits Indicate | |Asset increases |Asset decreases | |Liability decreases |Liability increases | |Equity decreases |Equity increases | |Expenses |Revenues | |Losses |Gains | |Revenue reductions |Expense reductions...
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