Accounting 201 Rephrase in own words

1.Basic Accounting Equation: Assets=Liabilities+Stockholders’ Equity

Business transactions are economic events that require to record in the financial statement, and Assets, Liabilities, Stockholders’ equity items will change as a result of some economic events.

2.Journal entry records transactions in chronological order, shows debit and credit effects on account.

For example:

Date	Account Titles and Explanation	Debit	Credit
2018 Oct.1 Oct.2	Cash Common Stock (Issued stock for cash) Cash Note Payable (Issued 3 month,12% note payable for cash)	10,000 5,000	10,000 5,000

3.Assets: Cash. Debits should exceed credits, show debit balances when it’s a normal balance.

Liability：Account payable. Credits should exceed debits, show credits balances when it’s a normal balance.

Equity：Common Stock. Investments by stockholders and revenues increase Stockholders’ equity. Show credit balances when it’s a normal balance.

Revenue account: Increased by credits and decreased by debits. Show credit balances when it’s a normal balance.

Expense account: Increased by debits and decreased by credits. Show debit balances when it’s a normal balance.

4. First, determine what type of account is involved. Second, determine what items increased or decreased and by how much. Lastly, translate the increases and decreases into debits and credits.

5. The purpose of a trial balance is to prove that debits equal credits.

6.Operating activities are types of activities the company performs to generate profits. Relate to cash received or spent to directly support its guide services. For example: Oct.3 paid $900 cash for October rent.

Investing activities are activities including purchase or sale of long lived assets used in operating the business or investment securities. For example: Oct.2 purchased equipment for $5000 cash.

Financing activities are borrowing money, issuing shares of stock, and paying dividends. For example: Oct.1 issued not payable for $5000 cash.