Free Accounting Flashcards about Accounting Chapter 1


About the Author – Dr Geoffrey Mbuva(PhD-Finance) is a lecturer of Finance and Accountancy at Kenyatta University, Kenya. He is an enthusiast of teaching and making accounting & research tutorials for his readers. If you recall, the balance of Owner’s Equity (“Ma Capital”) is affected by her kids Revenue, Expense, Investment, and Draws. We calculate the future value of your bank deposits in Equation 8. For instance, you deposit $500 into the bank account every year at 6% interest. Domestic return is the interest rate earned by a $1 investment in a foreign bank account after T days of maturity converted into the domestic country’s currency. When a bank accepts a new checking account, the bank must hold a percentage of the deposit, which is Equation 2.

The Net Worth of the business will always be equal to the assets of the business minus liabilities. Closing stock is not included in the trial balance as it does not reflect a transaction that has a dual aspect – it is merely the purchases that have not been sold in the year. If there is any opening stock it is included in the trial balance at the year end. If you finance invoices worth $1,300, your assets increase by $1,300. If you borrow $25,000 from a bank, your assets increase by $25,000. However, because you have to pay the loan back, your liabilities also increase by $25,000. Flows fromincome activities, and cash flows from equity activities.

Shareholders’ Equity

If you know any two of the three components of the equation, you can calculate the third component. If you look at a balance sheet, you will see that the balance sheet is basically an extended form of the accounting equation. In this form, it is easier to highlight the relationship between shareholder’s equity and debt . As you can see, shareholder’s equity is the remainder after liabilities have been subtracted from assets. This is because creditors – parties that lend money such as banks – have the first claim to a company’s assets. Journal entries often use the language of debits and credits .


Full BioAmy is an ACA and the CEO and founder of OnPoint Learning, a financial training company delivering training to financial professionals. She has nearly two decades of experience in the financial industry and as a financial instructor for industry professionals and individuals.

What Is a Subsequent Event in Accounting?

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In, a separate account for each type of expense and revenue is kept. Accounts are named and organized in a fashion that each type of transaction can easily be related and recorded into these accounts. Profit and loss are the result of a specific period and are transferred to the capital after the end of the accounting period. The frequency of calculation of profit and loss depends upon the organization and usually for larger organizations it is calculated more frequently. Profit is the amount by which revenues exceed the costs.

Generally accepted accounting principles regulate

This relationship is in the form of an equation. In the final activity of this section, you will need to apply your knowledge of the double-entry rules, the P&L account, the balance sheet and the accounting equation. 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. The balance sheet represents the accounting equation. A general ledger is a record-keeping system for a company’s financial data, with debit and credit account records validated by a trial balance.