accounting final Flashcards


Will cause a reduction in the‘s retained earnings, which in turn reduces the corporation’s stockholders’ equity. However, this will not reduce the corporation’s net income. For each of the transactions in items 2 through 13, indicate the two effects on the accounting equation of the business or company. This equation sets the foundation of double-entry accounting, also known as double-entry bookkeeping, and highlights the structure of the balance sheet.


This number is the sum of total earnings that were not paid to shareholders as dividends. We also show how the same transaction affects specific accounts by providing the journal entry that is used to record the transaction in the company’s general ledger. Although the balance sheet always balances out, the accounting equation can’t tell investors how well a company is performing.

How Do Equity And Shareholders’ Equity Differ?

The Accounts Receivable will decrease. However, the asset Cash will increase. Therefore, the total amount of assets will not change.

What Are the 3 Elements of the Accounting Equation?

The three elements of the accounting equation are assets, liabilities, and shareholders’ equity. The formula is straightforward: A company’s total assets are equal to its liabilities plus its shareholders’ equity. The double-entry bookkeeping system, which has been adopted globally, is designed to accurately reflect a company’s total assets.

Immaterial and will significantly alter the statements. Material and will significantly alter the financial statements. Material and will not significantly alter the financial statements.

Accounting Equation:

Owner’s draws will cause owner’s equity to decrease. Company X provides consulting services to Client Q in May. Company X bills Client Q in May for the agreed upon amount of $5,000.

  • Liabilities are said to be either current or long-term.
  • This entry would be recorded as a ________________ on the _________________ side of a T-account.
  • The posting process creates a link between the ledger and the journal.
  • Net income reported on the income statement flows into the statement of retained earnings.
  • Accounts receivable reflects the amount owed by customers.
  • Use the accounting equation to see the difference.

A balance sheet shows a snapshot of a company’s assets, liabilities and shareholders’ equity at the end of the reporting period. It does not show the flows into and out of the accounts during the period. Net income reported on the income statement flows into the statement of retained earnings. If a business has net income for the period, then this will increase its retained earnings for the period. This means that revenues exceeded expenses for the period, thus increasing retained earnings. If a business has net loss for the period, this decreases retained earnings for the period. This means that the expenses exceeded the revenues for the period, thus decreasing retained earnings.

Which Of The Following Represents The Accounting Equation?

Your bookkeeping team imports bank statements, categorizes transactions, and prepares financial statements every month. For every transaction, both sides of this equation must have an equal net effect. Below are some examples of transactions and how they affect the accounting equation.

accounts payable

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