Accounting 2000 Exam 1

What Are Liabilites

Accounts Payable

Notes Payable

Salaries Payable

Interest Payable

What Are Assets

Cash

Equipment

Supplies

Prepaid

Inventory for sale

Buildings

Land

Assets eq.

= Liabilities + Equity

Equity eq.

= Common stock + Retained Earnings

Retained earnings end of year

= Beginning RE + Net Income - Dividends

Retained earnings

= Equity - Common Stock

Increase Asset

Debit

Decrease Asset

Credit

Normal Balance Asset

Debit

Increase Liability

Credit

Decrease Liability

Debit

Normal Balance Liability

Credit

Increase Equity

Credit

Decrease Equity

Debit

Normal Balance Equity

Credit

Increase Revenue

Credit

Decrease Revenue

Debit

Normal Balance Revenue

Credit

Increase Expense

Debit

Decrease Expense

Credit

Normal Balance Expense

Debit

Financial Accounting

Used by outsiders to make decisions

Generally Accepted Accounting Principles (GAAP)

Concepts, standards companies are supposed to follow when preparing financial statements

Current Assets

Cash, accounts receivable, inventory, supplies

Long-Term Asset

PPE (property, plant, equipment), Intangibles (Trademarks, patents, copyrights)

Current Liabilities

Accounts payable, short- term notes payable (anything due within a year), salaries payable, income taxes payable, utilities payable

Long-term liabilities

Long-term notes payable (anything after a year), mortgage payable

Realization Principle

Record revenues in period they are earned, without regard as to cash.

Realize revenue.

Matching Concept

Record expenses in period they help generate revenues without regard as to payment of cash.

Match expense

Journal

Place where transactions are initially recorded

Journal entry

Means used to record transaction in the journal

Interest eq

PRT- Principle x Rate x Time

How is time shown in interest

Fraction over 12

Gain

when you sell an asset other than inventory for more than its cost

gain is = selling price - cost

classified as a revenue account

Loss

when you sell an asset other than inventory for less than its cost

loss is = cost - selling price

classified as an expense account

Deferral

exchange of cash happens first before recording revenue or expense

Accrual

recording of revenue or expense happens first before exchange of cash

Prepaid Expenses (Deferred Expenses)

recorded as an asset account

becomes an expense once asset is used up

AJE: debit expense, credit asset

Unearned Revenue (Deferred Revenue)

recorded as a liability account

becomes revenue when company performs service or provides goods to customer

AJE: debit liability, credit revenue

Supplies Balance

Beginning Supplies Balance (debit) + Supplies Purchased (debit) - Supplies Expense (credit) = Ending Supplies Balance

Accrued Expenses

debit an expense account and credit a liability account

Accrued Revenues

debit an asset account and credit a revenue account

Historical Cost Concept

assets are to be shown on the balance sheet at their cost (the amount which the company paid to acquire them)

Working Capital

current assests - current liabilities

Current Ratio

current assets / current liabilities

Gross Profit

sales revenue - cost of goods sold

Balance Sheet

a point in time financial statement

portrays: economic resources owned by a business (assets), the debts owed by a business (liabilities), and the amount of the owners investment in the business (equity)

Income Statement

financial statement that shows the profitability of the company for a period of time (revenues and expenses)

Common Stock

beginning balance + additional stock sold to owners = ending common stock

Ledger

all accounts of a business entity taken together