Riordan Manufacturing Wan Security
Fundamentals of Financial Statements
The accounting equation:
The accounting equation defines the relationship between the five account types. The
basic equation is assets equal liabilities plus equity. This is the format seen on a balance
sheet. The profit and loss accountsrevenues and expensesalso affects equity. Revenues
from the sale of goods and services increase equity, while expenses incurred in the course of
business decrease equity. Therefore, the accounting equation can be expanded to assets equal
liabilities plus equity plus revenues minus expenses. Small Business Accounting will record
the appropriate debits and credits, and track the changes to assets, liabilities, equity, revenue,
and expense accounts. Connie Rocha started a small new business Aunt Connie's Cookies',
and she would take care of the marketing activities. She wants to extend her business, and
Connie's only concern was that she needed some one to maintain the accounts in her new
firm. Here I am analyzing the transactions using Horizontal model. The model arranges the
balance sheet, income statement and statement of cash flows horizontally across a single line
of text as shown below.
Assets = Liabilities + Owner's Equity == Net Income = Revenue - Expenses
Balance Sheet Income Statement
Assets, Liabilities, Equity, Revenue and Expenses:
These are all the different types of accounting transactions the Aunt Connie's
accounting system utilizes. Assets are accounts that add value to Connie's individual or
business worth. Liabilities are accounts that remove value from Connie's individual or
business worth. Equity is used...
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