| A | B |
|---|
| basic elements of a financial accounting system | (1) a set of rules for determining what, when, and the amount that should be recorded for economic events, (2) a framework for facilitating preparation of financial statements, and (3) one or more controls to determine whether errors may have arisen in the recording process. These elements apply to all businesses from a local restaurant to General Motors. All businesses require a financial reporting system so that financial statements can be provided to stakeholders. |
| A primary control for determining the accu-racy of record keeping | the equality of the accounting equation. |
| payment of dividends (effect on accounting equation) | The payment of $39,000 of dividends decreases total assets (decrease in cash) and decreases stockholders’ equity (decrease in retained earnings). This transaction does not affect liabilities. |
| Is net income affected by the payment of dividends? | Net income is not affected by the pay-ment of dividends. Dividends are a dis-tribution of income to stockholders and are not an expense. |
| effect of revenue/expenses on stockholders' equity | revenues increase stockholders' equity (retained earnings) and expenses decrease stockholders' equity. |
| Elements of income statement | fees earned, operating expenses, net income |
| elements of retained earnings statement | original retained earnings, net income, less dividends, new retained earnings |
| elements of balance sheet | assets, liabilities, stockholders' equity |
| elements of statement of cash flows | cash flows from operating activities, cash flows from investing activities, cash flows from financing activities, net increase in cash, old cash balance, new cash balance |
