Financial Accounting: Fundamentals:

Handouts and Practice Questions:

BBA 2nd

Lecture 1:

Accounting equation.

The basic accounting equation, also called the balance sheet equation, represents the relationship
between the assets, liabilities, and owner's equity of a business. It is the foundation for the double-entry
bookkeeping system. For each transaction, the total debits equal the total credits.

The accounting equation is: Assets = Liabilities + Shareholder Equity.

What is the expanded accounting equation? ...

In the expanded accounting equation for a corporation, Stockholders' Equity in the basic accounting
equation (Assets = Liabilities + Stockholders' Equity) is replaced by these components: Paid-in Capital +
Revenues – Expenses – Dividends – Treasury Stock.

What is a Balance sheet?:

Accounting balance sheets classify a company's assets and liabilities into distinctive groupings such as
Current Assets; Property, Plant, and Equipment; Current Liabilities; etc. ... There also some notes to the
financial statements.

Notes To Financial Statements:

The notes (or footnotes) to the balance sheet and to the other financial statements are considered to be
part of the financial statements. The notes inform the readers about such things as significant
accounting policies, commitments made by the company, and potential liabilities and potential losses.
The notes contain information that is critical to properly understanding and analyzing a company's
financial statements.

Retained Earnings:

It is recorded under shareholders' equity on the balance sheet. The formula calculates retained earnings
by adding net income to, or subtracting any net losses from, beginning retained earnings, and
subtracting any dividends paid to shareholders. The following balance sheet example is a classified
balance sheet.