There are 5 elements of the financial statements: assets, liabilities, equity, revenue, expenses
The accounting equation shows the relationship between assets, liabilities and equity.
Assets = Liabilities + Equity
Each accounting transaction impacts the accounting equation. Both sides must always BALANCE.
Before we go through the slides, play the “RECAP GAME” to warm up for the day. Everyone needs to stand up and can only sit down when the tell us one thing they learned or thought was important from the day before.
Go through bullets
A second accounting equation shows the relationship between revenues and expenses
Revenues – Expenses = Net Income (Net Loss)
Since net income increases equity, we can also say that revenue increases equity and expenses decrease equity