MIS 302F Study Guide - Midterm Guide: Retained Earnings, Accounting Equation, Common Stock

• School: UT-Austin
• Department: Management Information Systems
• Course: MIS 302F
• Professor: Tuttle Clint

Document Summary

To demonstrate how to analyze transactions in terms of the accounting equation, we will review the business activities of softbyte inc. , a computer programming business, during its first month of operations. As part of this analysis, we will expand the basic accounting equation. This will allow us to better illustrate the impact of transactions on stockholders" equity. Recall that stockholders" equity is comprised of two parts: common stock and retained earnings. Common stock is affected when the company issues new shares of stock in exchange for cash. Retained earnings is affected when the company earns revenue, incurs expenses, or pays dividends. The following diagram shows the expanded accounting equation. If you are tempted to skip ahead after you"ve read a few of the following transaction analyses, don"t do it. Each has something unique to teach, something you"ll need later. (we assure you that we"ve kept them to the minimum needed!)