Chapter 4 Outline

The Bookkeeping/Accounting

1. Owners' Equity expanded:
1. OE = Paid-in Capital + Retained Earnings
2. Net income causes retained earnings to increase
3. Net income = Revenues - Expenses
4. OE = Paid-in Capital + Retained Earnings (beginning) + Revenues - Expenses
2. The Balance Sheet Equation expanded:
   A = L + PIC + Retained Earnings (beginning) + Revenues - Expenses
3. Equation stays in balance after every transaction
4. Illustration of the effect of transactions on the equation

Bookkeeping Jargon and Procedures

1. Transactions recorded in a journal, then posted to an account in the ledger.
2. Accounts use a "T" format
1. Left side of "T" is debit
2. Right side of "T" is credit
3. Normal balances
1. Debit: Assets and expenses
2. Credit: Liabilities, owners' equity, and revenues
4. Journal entry
1. Transaction entries
2. Adjusting entries

Effect of Transactions on the Financial Statements (Horizontal Model)

Transaction Analysis Methodology

1. Five questions:
1. What's going on?
2. What accounts are affected?
3. How are they affected?
4. Does the balance sheet balance?
5. Does my analysis make sense?
2. Illustration of applying the five questions
3. Understanding the reasons for changes in account balances

Adjustments/Adjusting Entries

1. Accruals
2. Reclassifications