Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

2. Transaction Analysis

Accounting Flow Intuition: BASE Formula

Financial Accounting

2. Transaction Analysis

Accounting Flow Intuition: BASE Formula

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Multiple Choice

Which situation describes a company experiencing an accounting loss according to the BASE formula?

The company issues new shares, increasing the equity balance.

The ending balance of retained earnings is higher than the beginning balance due to revenues exceeding expenses.

The company pays dividends, reducing the retained earnings balance.

The ending balance of retained earnings is lower than the beginning balance due to expenses exceeding revenues.

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Verified step by step guidance

Understand the BASE formula, which stands for Beginning balance + Additions - Subtractions = Ending balance. This formula is used to calculate changes in accounts such as retained earnings.

Recognize that retained earnings are affected by revenues, expenses, and dividends. Revenues increase retained earnings, expenses decrease retained earnings, and dividends also reduce retained earnings.

Identify the situation described in the problem: an accounting loss occurs when expenses exceed revenues, leading to a decrease in retained earnings.

Apply the BASE formula to the retained earnings account: if the ending balance of retained earnings is lower than the beginning balance, it indicates that expenses have exceeded revenues during the period.

Conclude that the correct situation describing an accounting loss is when the ending balance of retained earnings is lower than the beginning balance due to expenses exceeding revenues.