ACC221 Exam 1 Study Set - Cooney

Cash Method of Accounting

An overall method of accounting under which revenue is accounted for when payment is received and expenses are accounted for when payment is made.

Accrual Method of Accounting

recording revenue when it is earned regardless of when cash is received

Double Entry Accounting

The recording of debit and credit parts of a transaction (every transaction in two places)

Liabilities

Non Owners Claims to Assets

Owners Equity

Owner's Claims to Assets

Assets

Stuff, physical things

Note Payable

A Loan

Accounting Equation

Assets = Liabilities + Owners Equity

Inventory

Asset - Items Held for Sale

Equipment

Asset - Items used in the business (Not Sold)

Common Stock

Owners Equity - Owners Investment

Accounts Receivable

Asset - Promise of Cost To Pay In Near Future

Interest Payable

Liability - Interest owed on a loan

Retained Earnings

Owners Equity - Owners claim to asset account due to the operation of the business

Accounting Cycle

The sequence of steps an organization's accounting system goes through each accounting period

Accounting Period

The amount of time an organization will take to complete the steps in the accounting cycle

Cost Of Goods Sold

Expense - The Cost of Inventory Sold

Rent Expense

Expense - Assets consumed for rent

Wages Expense

Expense - Assets consumed for wages

Interest Expense

Banks claim for interest on a loan

Gross Profit

Sales Revenue minus Cost of Goods Sold

Total Expenses

Sum of all expense accounts except Cost of Goods Sold

Permanent Accounts

Never closed; assets, liabilities, C/S, R/E

Temporary Accounts

Revenue and Expense Accounts; closed at the end of each accounting period. Balances re set to 0

Post Closing Trial Balance

a trial balance prepared after the closing entries are posted

Pre Closing Trial Balance

a trial balance prepared before any revenue/expense accounts closed

Owners Claim to assets resulting from the owners' putting money into the business

Common Stock

Owners claim to assets resulting from the operation of the busiess

Retained Earnings

Accounts Payable

Liability - Amount owed to vendors (for goods and services purchased on credit)

Dividends Payable

Liability - The amount the company owes for dividends

Balance Sheet Tracks ________________

Assets, Liabilities, Owner's Equity

Income Statement Tracks _____________________

Revenues and Expenses

Manufacturing Company

Makes Products

Merchandising Company

Buys Products and Re Sells It

Service Company

Does not sell a product

Sole Propriotorship

-Easy to start and terminate

-1 person business

-unlimited liability

Limited Liability Company (LLC)

-easy to form

-limited liability

-cant loose personal assets

-hard to convert to public company

S corporation

-limited to 100 owners

private company

-limited liability

501(c)(3) organization

-non profit corporation

-people get tax deductions for giving donations

GAAP (Generally Accepted Accounting Principles)

Standards and practices used by publicly held corporations in the United States and a few other countries in the preparation of financial statements

SEC

enforces GAAP, oversees public companies

Type of Statement Income Statement

Period in Time

Type of Statement Balance Sheet

Point in Time

Private Company Types

LLP, LLC, Sole Proprietorship

C Corporation

The most common type of corporation, which is a legal business entity that offers limited liability to all of its owners, who are called stockholders

C Corporation Examples

Apple, Amazon, Microsoft

S Corporation Examples

Local Law Firms, Medical Practices, Real Estate Agencies

LLP

used mainly by professional service firms where partners want liability protection.

LLC

flexible business structures that provide liability protection and pass-through taxation. Common for small businesses and startups.

C Corporation

-must be public

-more than 100 owners

-double taxation