or services used in the process of earning revenues. Instead, dividends are considered a distribution of earnings to stockholders.
Summary The transactions of NetSolutions are summarized below. Each transaction is identified by letter, and the balance of each item is shown after every transaction.
Assets  Liabilities  Stockholders’ Equity
Accounts Capital Fees Wages Rent Supplies Utilities Misc.
Cash  Supp.  Land  Payable  Stock  Dividends  Earned  Exp.  Exp.  Exp.  Exp.  Exp.
a. 25,000 25,000
b. 20,000 20,000
Bal. 5,000 20,000 25,000
c. 1,350 1,350
Bal. 5,000 1,350 20,000 1,350 25,000
d. 7,500 7,500
Bal. 12,500 1,350 20,000 1,350 25,000 7,500
e. 3,650 2,125 800 450 275
Bal. 8,850 1,350 20,000 1,350 25,000 7,500 2,125 800 450 275
f. 950 950
Bal. 7,900 1,350 20,000 400 25,000 7,500 2,125 800 450 275
g. 800 800
Bal. 7,900 550 20,000 400 25,000 7,500 2,125 800 800 450 275
h. 2,000 2,000
Bal. 5,900 550 20,000 400 25,000 2,000 7,500 2,125 800 800 450 275
Nov. 30, 2009 NetSolutions pays $2,000 to stockholders (Chris Clark) as dividends.
Copyright 2009 Cengage Learning, Inc. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.
Licensed to:Chapter 1 Introduction to Accounting and Business 15
You should note the following in the preceding summary:
1. The effect of every transaction is an increase or a decrease in one or more of the accounting equation elements.
2. The two sides of the accounting equation are always equal.
3. The stockholders’ equity (owner’s equity) is increased by amounts invested by stockholders (capital stock).
4. The stockholders’ equity (owner’s equity) is increased by revenues and decreased by expenses. 5. The stockholders’ equity (owner’s equity) is decreased by dividends paid to stockholders.
As discussed earlier, the owner’s equity