Dividends paid to owners (stockholders)

Stockholders' equity is (1) increased by capital contributed by stockholders and by revenues earned through operations and (2) decreased by expenses incurred in producing revenues. The payment of cash or other assets to stockholders in the form of dividends also reduces stockholders' equity. Thus, if the owners receive a cash dividend, the effect would be to reduce the retained earnings part of stockholders' equity; the amount of dividends is not an expense but a distribution of income.


An ethical perspective: State university

James Stevens was taking an accounting course at State University. Also, he was helping companies find accounting systems that would fit their information needs. He advised one of his clients to acquire a software computer package that could record the business transactions and prepare the financial statements. The licensing agreement with the software company specified that the basic charge for one site was USD 4,000 and that USD 1,000 must be paid for each additional site where the software was used. James was pleased that his recommendation to acquire the software was followed. However, he was upset that management wanted him to install the software at eight other sites in the company and did not intend to pay the extra USD 8,000 due the software company. A member of management stated, "The software company will never know the difference and, besides, everyone else seems to be pirating software. If they do find out, we will pay the extra fee at that time. Our expenses are high enough without paying these unnecessary costs". James believed he might lose this client if he did not do as management instructed.


An accounting perspective: Uses of technology

Accountants and others can access the home pages of companies to find their annual reports and other information, home pages of CPA firms to find employment opportunities and services offered, and home pages of government agencies, universities, and any other agency that has established a home page. By making on- screen choices you can discover all kinds of interesting information about almost anything. You can access libraries, even in foreign countries, newspapers, such as The Wall Street Journal, and find addresses and phone numbers of anyone in the nation. We have included some Internet Projects at the end of the chapters to give you some experience at “surfing the net” for accounting applications.

A. Summary of Transactions
 METRO COURIER, INC. Summary of Transactions Month of July 2010
Assets -Liabilities+ Stockholders' Equity
Transaction Explanation Cash Accounts Receivable Trucks Office Equipment Accounts Payable Notes Payable + Capital Stock Retained Earnings
Beginning balances (Illustration 1.2) $13,500 $ -0- $20,000 $ 2,500 = $ -0- $ 6,000 + $30,000 $ -0-
1b Earned service revenue and received cash 4,800 4,800 (A)
$18,300 $20,000 $ 2,500 = $ 6,000 + $30,000 $4,800
2b Earned service revenue on account 900 900 (B)
$18,300 $900 $20,000 $ 2,500 = $ 6,000 + $30,000 $5,700
3b Collected cash on account 200 -200
$18,500 $700 $20,000 $ 2,500 = $ 6,000 + $30,000 $5,700
4b Paid salaries -2,600 (2,600) (C)
$15,900 $700 $20,000 $ 2,500 = $ 6,000 + $30,000 $3,100
5b Paid rent -400 (400) (D)
$15,500 $700 $20,000 $ 2,500 = $ 6,000 + $30,000 $2,700
6b Received bill for gas and oil used 600 (600) (E)
End-of-month balances $15,500 (F) $ 700 (G) $ 20,000 (H) $ 2,500 = (I) $ 600 (J) $ 6,000 + (K) $ 30,000 (L) $ 2,100 (M)
$38,700 $6,600 $32,100

B. Balance Sheet
METRO COURIER , INC.
Balance Sheet 2010 July 31
Assets Liabilities and Stockholder's Equity
Cash (F) $15,500 Liabilities:
  
Account receivables
(G) 700  Accounts payable (J $600
Trucks (H) 20,000  Notes payable (K) 6,000
Office equipment
(I) 2,500  Total liabilities $6,600
 
 Stockholders equity:  
     Capital stock (L) $30,000


 Retained earnings (M) 2,100


 Total stockholders' equity $32,100
Total assets
 $38,700
 Total liabilities and stockholders' equity  $38,700

C. Income Statement
METRO COURIIER INC
Income Statement For the Month Ended
2010 July 31
Revenues:
Service revenue ( A+B) $5,700
Expenses:
Salaries expense (C) $2,600
Rent expense (D) 400
Gas and oil expense
(F) 600
Total expenses 3,600
Net income $2,100