Assets equal liabilities plus equity: this equation is the foundation of all the sophisticated financial reporting that we now have in the world.
- Let's begin our analysis of transactions … by reviewing some of the basics. … First, remember the fundamental accounting equation, … assets must equal liabilities … plus owner's equity. … That is a company's resources … can be financed using two sources, … creditors or owners. … As we said previously, … the accounting equation must always remain in balance. … To see how this balance is maintained … when accounting for business transactions, … consider the following activities. … In the first transaction, … $50,000 is invested by owners. … This would cause our assets, … specifically cash to increase … and our equity, specifically capital stock to increase … both by $50,000. … In the second transaction we borrow $25,000 … from a bank, again our assets, cash, … increased by $25,000 … and our liabilities since we will have … to repay this notes payable increased … by $25,000 as well. … Note that so far our accounting equation balances … after each transaction … and in fact, we can always count on that. …
- Reviewing financial statements
- Analyzing transactions
- Categorizing transactions
- Obtaining financing and buying equipment
- How revenue and expenses fit in the accounting equation
- Recording the sale of goods or services
- Posting journal entries to accounts
- The accounting cycle: step by step
Skill Level Beginner
1. Review of the Financial Statements
2. Fours Steps in the Bookkeeping Process
3. How Transactions Affect the Accounting Equation
4. The General Ledger
5. Illustration of the First Three Steps in the Accounting Cycle
The role of computers3m 44s
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