ACCT Unit 1 Test Review

Revenues

amount of income generated by a company’s business/operations

Expenses

costs incurred to generate revenue

Creditors

people or business a company owes money to

Investors

people or entities that provide money to a business in exchange for ownership (equity)

Buying Land

an asset purchase that increases assets and decreases cash

Journal Entries

records of financial transactions using debits and credits

Effect on Total Assets

total assets increase with purchases or revenues and decrease with expenses or asset use

Generally Accepted Accounting Principles (GAAP)

standard rules used to prepare financial statements in the U.S

Financial Accounting Standards Board

the organization that creates GAAP and other accounting principles in the United States

Balance Sheet

shows assets, liabilities, and equity at a specific point in time

Income Statement

shows revenue, expenses, and net income over a period of time

Statement of Change in Stockholder’s Equity

shows changes in a owner’s equity over a period

Statement of Cash Flows

shows how cash moves in and out of a business

Types of Cash Flows

operating, investing, and financing

The Accounting Equation

assets = liabilities + equity

Assets increase with _____, decrease with _____.

debits; credits

Liabilities & equity increase with ____, decrease with _____.

credits; debits

Accounts Receivable

sales of goods an account where a customer is billed and pays later

Initial Entry for Accounts Receivable

debit accounts receivable, credits revenue

Collecting Cash for Accounts Receivable

debit cash, credit accounts receivable

Accruals

accounting event where revenue/expenses are recognized before cash is received (payment at the end)

Accrual Accounting

method of accounting that recognizes revenue when it is earned and expenses when incurred, regardless of when cash changes hands

Accrual On Journal Entries

affect income statement and balance sheet before cash moves

Deferrals

accounting event where revenue/expense are recognized after cash is received (collecting cash before doing service)

Deferral Journal Entries

cash first → asset/liability → later becomes expense or revenue

Net Income

profit of a company

Net Income Formula

net income = revenue - expenses

Prepaid Rent

• initial recording

  • debit prepaid rent (asset), credit cash

• adjusting entry

  • debit rent expense, credit prepaid rent

Supplies

• initial recording

  • debit supplies (asset), credit cash

• expense entry

  • debit supplies expense, credit supplies

Calculating Supplies Expense

beginning supplies + supplies - ending supplies

Unearned Revenue

when you get prepaid and haven’t earned the revenue, you record it as a liability/debit until you earn it as a revenue

• initial recording

  • debit cash, credit unearned revenue (liability)

• adjusting entry

  • debit unearned revenue, credit revenue

Prepaid Insurance

• initial recording

  • debit prepaid insurance (asset), credit cash

• adjusting entry

  • debit insurance expense, credit prepaid insurance

Calculating Balance Changes

beginning balance + increases - decreases

Retained Earnings

cumulative net income minus dividends

Retained Earnings Formula (ending)

end retained earnings = beginning retained earnings + net income = dividends

Accounts Receivable

asset representing money customers owe

Accounts Payable

liability representing money the company owes to others