Building a Balance Sheet
Assets = Liabilities + Stockholders' Equity
Assets: Everything that can create future value for your firm
Liabilities: Measurable amounts that the company owes to creditors.
Stockholders' Equity: Owners' claim to the business resources.
Companies rely on two sources of financing: Debt (L) financing and Equity (SE) financing
Financing and Investing Activities
A company always documents its activities.
A company always receives something and gives something.
A dollar amount is determined for each exchange.
Study the Accounting Methods
A systematic accounting process is used to capture and report the financial effects of a company's
A transaction is a business activity that affects the basic accounting equation.
Duality of Effects: Every transaction has at least two effects on the basic accounting equation.
A = L + SE: Assets must equal liabilities plus stockholders' equity for every accounting equation.
Step 1: Analyze Transactions
As part of transaction analysis, a name is given to each item exchanged. Accountants refer to these
names as account titles.
The chart of accounts is tailored to each company's business, so although some account titles are
common across all companies (Cash, Accounts Payable) others may unique to a particular company.
(a) Issue stock to Owners.
Jordan incorporates Noodlecake Studios Inc. on August 1. The company issues common stock to Jordan
and Ty as evidence of their contribution of $10,000 cash, which is deposited in the company's bank
Noodlecake receives $10,000 cash. (+Asset)
Chapter 2 - The Balance Sheet
Tuesday, January 28, 2020
Accounting Page 1