Accounting Exam

Transaction in accounting

Event that affects the financial position of a business

Components of a Journal Entry

Who, What, When, Debit, Credit, Narration

Term for transferring journal entries to the ledger

Posting

Cash Receipt

An A/R is paying off debt in CASH

Sales and Purchase Invoice

Evidence for CREDIT sale/purchase

Qualitative Characteristics

Relevant, Reliable, Comparable

Double Entry Principle

Every transaction has an equal effect of DR and CR

Business Entity Principle

Business and owner are two separate entities

Accrual Accounting Principle

Revenue and Expenses must be recorded at at the time they are earned and incurred, respectively, irrespective of cash flow.

Objectivity Principle

Financial transactions should be recorded based on true and verifiable evidence (ie source documents)

Matching Principle

In an income statement, all expenses of a period should be matches with the revenues of that period.

Asset=

Liability+ Capital

What is the purpose of accounting

Record, analyze and report financial info

Nature of Unearned Revenue

Liability

Two groups of accounts

Asset and Expense (DR)

Liability, Revenue and Capital (CR)

Nature of HST Payable

Liability

Nature of HST Recoverable

Contra-Asset

Service Business VS Merchandising Business

Serv.: Sells service, “Fees Earned”, No Inventory

Merch.: Resells Goods, “Sales”, Inventory

Accounting Cycle (7)

1. Source Document

2. Journal

3. Ledger

4. Trial Balance

5. Adjustment Entries

6. Income Statement

7. Balance Sheet

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Why is a journal prepared

Chronological order of financial statements

Why is a ledger prepared

Easily find the balance of each account

Why is a trial balance prepared

Ensure mathematical accuracy of the ledger accounts

Why is income statement prepared

Profitability

why is balance sheet prepared

Financial position

What is a source document

Original record of a transaction

Formula for Straight Line Depreciation

=( Purchase Cost - Salvage ) / Useful life

COGS

= (opening inventory + PURCHASES + freight in) - closing inventory

Income Statement (5)

1. Revenue

2. COGS

3. Gross Profit (Revenue - COGS)

4. Net Income (Gross Profit- Expenses)

5. Net Income (after tax→ —13%)

What is earned discount and nature

Applied when business earns a discount. CREDIT bc acts as income

What is allowed discount and nature

Discount applied to something business is selling to another. CREDIT bc acts as expense

what is HST Payable

The business makes a sale, 13% of which is to be paid to the government

What is HST Recoverable

The business buys something, 13% of which is tax dollars that they are paying to the government through the purchase.

Which HST when the business is purchasing something

HST RECOVERABLE

Which HST when a business is selling something

HST PAYABLE

Nature of HST when selling/buying

CR

Nature of HST in returns

DR

Adjustments (5)

1. Supplies (DR supplies expense, CR supplies)

2. Prepaid Insurance (DR Insurance, CR Prepaid Insurance)

3. Late-Arriving Invoices (DR Expense, CR. A/P)

4. Unearned Revenue (DR Fees Earned, CR Unearned Revenue)

5. Depreciation (DR Depreciation Expense CR Asset)

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