Accounting 210 - Test 1

What are the first steps?

1. What two accounts are affected?

2. Classify the accounts

3. Decide if an account is increasing or decreasing

4. What do reales of debit and credit say

Asset Source Transaction

A transaction that increases total assets and total claims.

Asset Exchange Transaction

A transaction that increases one asset while decreasing another.

Asset Use Transaction

A transaction that decreases total assets and total claims.

What is on the Income Statement and what does it show?

A financial statement showing all revenue and expenses for a given period.

Revenue - expenses = net income/loss

Net Income/Loss

The result of revenue minus expenses on the income statement.

Statement of Change in Stockholders’ Equity

Beginning balance of retained earning + net income - dividends = ending balance of retained earnings

What is on the balance Sheet

A financial statement showing assets, liabilities, and stockholders' equity.

Assets + cash + land = liabilities + notes payable + common stock + retained earnings

Cash Flow Activities

Types of activities categorized as operating, investing, financing, and claims exchange

What accounts close?

• Revenue, expenses and dividends transfer to retained earnings

• Retained earnings, Liabilities, Assets are permanent

What is the accounting Cycle

1. Record transactions

2. Adjust accounts

3. Prepare statements

4. Close temporary accounts

What is an Accrual Transaction

A transaction where revenue or expense is recognized BEFORE cash exchange.

What is a deferral Transaction

A transaction where revenue or expense is recognized AFTER cash exchange.

What is Accounts Receivable?

Money owed to a company by consumers - company receives

What is accounts Payable

Money a company owes to others. - Company pays

What side of T-Charts are debits on?

Debits are recorded on the left side, credits on the right side.

What side do assets increase on?

Assets increase on the debit (left) side.

What side do liabilities increase on?

Liabilities increase on the credit (right) side.

What side do stockholders increase on?

Stockholders' equity increases on the credit (right) side.

What side does common stock increase on?

Common stock increases on the credit (right) side.

What side do dividends increase on?

Dividends increase on the debit (left) side.

What size does revenue increase on?

Revenue increases on the credit (right) side.

What side do expenses increase on?

Expenses increase on the debit (left) side.

What transaction goes first in general journals?

Debits are recorded first, credits are below indented

Return on Assets Equation

Net income divided by total assets.

What is the equation for debt to assets and what does it measure?

Total debt divided by total assets, measuring total risk.

Return on Equity Equation

Net income divided by stockholders’ equity.

What is financial leverage

The use of borrowed funds to enhance returns on stockholders’ equity.

Accounting Equation

Assets - liabilities = total stockholders’ equity.

How is Net Worth Measured

Assets - liabilities = total stockholders’ equity

What is GAAP?

Generally Accepted Accounting Principles, standards for financial reporting.

Rules and practices that accountants agree to follow in financial reports prepared for public distribution

What is included in stockholders equity?

Includes common stock, retained earnings, dividends, revenue, and expenses.

What is OA in statement of cash flows?

Operating Activities – day to day revenue/expenses

What is IA in statement of cash flows?

Investing Activities – buying and selling long term assets

What is FA in statement of cash flows?

Financing activities – bank, investors or stockholders, dividends

What is CE in statement of cash flows?

Claims exchange – One claim increases another decrease