Accounting

3 business entities

1. Sole Proprietorship

2. partnership

3. corporation

equation

a=l+s/e

business involved in 3 activities

1. financing 2.investing

2. operating

financing

obtaining cash from outside source

investing

purchasing assets to operate business

operating

conducting normal operating activity of business

revenue

amount earned

expenses

The cost of assets consumed or services used

Accounts Receivable

the right to receive money from a customer as result of a sale

cost of renting property

expense

truck purchase

asset

notes payable

liability

cost of goods sold

expense

insurance of ownership share

common stock

amount earned from service

service revenue

4 primary financial statements

1. Income Statement

2. Statement of retained earning

3. Balance Sheet

4. Statement of Cash Flows

cash received from customer

operating

cash paid to stockholders

financing

cash received from issuing new common stock

financing

cash paid to suppliers

operating activities

Cash paid to purchase a new office building

investing activities

cash

asset

retained earnings

s/e

stock

s/e

prepaid insurance

asset

inventory

asset

accounts recievable

asset

notes payable

liablity

prepaid vs unearned

asset- liability

prepaid

asset- debit

Retained Earnings Statement

beg. retained earning (beg of year) + Net Income - Dividends = RE end of year

Income Statement

Revenues – Expenses = Net Income

balance sheet

A=L+ S/E

Know how to prepare journal entries, ledgers, unadjusted trial balances, and balance sheets.

Notes

Know the accounting cycle (journal, ledger (t-accounts), and unadjusted trial balance)

Notes?

Know the difference between earned revenues (R/E) and unearned revenues (liability)

Earned revenue means you have provided the goods or services and therefore have met your obligations in the purchase contract.

Unearned revenue is you have the money in hand, but you still need to provide the services.

Know how to journalize transactions inside and out

tracking them in chronological order, and generally includes the date, the account you're debiting or crediting and a brief description of the transaction that occurred

The effects on the basic accounting equation of performing services for cash are to

increase assets and increase stockholders' equity

Know debit and credit rules, and the normal balances (i.e. debit or credit) of accounts (asset accounts, liability accounts, equity accounts)

Debits - assets and expense Credits- income, equity, liability

comparability,

compared with similar info from another enterprise

Know what assets are listed under non-current assets, non-current liabilities (> 1 year)

Know how to calculate current assets, total assets.

Know what typical accounts are listed under current assets, current liabilities (<or=1 year)

Know how to prepare balance sheet.

Know classified balance sheet and how assets are presented (liquidity)

Know each element on Retained Earnings (how to calculate ending R/E)

Know what creditors' claim and owners' claim are (how to calculate them)

Creditors' claims- liabilities. Owners' claims- equity.

Know each element on Balance Sheet 2 parts of S/E

A= L+ S/E (Common stock and retained earnings)

Know each element on Income Statement (how to calculate NI)

Revenue-Expense

Know the 4 statements under financial reporting

1. Income statement

2. Statement of Retained Earnings

3. Balance sheet

4. Statement of cash flow

Investing

purchasing assets to operate business

Financing

obtain cash from outside source (borrow money, sell shares, pay dividends)

operating

conducting normal operating activity of business (Revenue, Expenses, A/R)

Know the three types of business entities/structures (advantages and disadvantages)

1. Sole proprietorship

2. partnership

3. Corporation

Partnership

A- easy to establish D- liable for business, transfer ownership

Corperation

A- easier to transfer, raise funds D- Unfavorable tax, higher

Know the three types of business activities

1.operating 2 investing 3 financing

Sole Proprietorship

Advantages- easy to establish, owner controls Disadvantages- liable to all expenses, transfer ownership

Genesis Company buys a $900 machine on credit. This transaction will affect the

balance sheet only

Which of the following events is not recorded in the accounting records?

employee is fired

During 2017, Gibson Company assets decreased $50,000 and its liabilities decreased $90,000. Its stockholders' equity therefore

increased 40,000

Which statement about an account is true?

An account is an individual accounting record of increases and decreases in specific asset, liability, and stockholders' equity items.

debits

Debits increase assets and decrease liabilities

a revenue account:

Revenues are increased by credits. Revenues have a normal credit balance.

8. Which accounts normally have debit balances?

Assets, dividends, and expenses

Paying an account payable with cash affects the components of the accounting equation in the following way:

When paying an account payable with cash, the asset cash decreases. Accounts payable, a liability, decreases as well

Which is not part of the recording process?

Preparing an income statement is not part of the recording process

Which of these statements about a journal is false

It contains only revenue and expense accounts.

A ledger:

is a collection of the entire group of accounts maintained by a company.

Posting:

Posting transfers journal entries to ledger accounts.

A trial balance:

list of accounts with their balances at a given time

A trial balance will not balance if:

a $100 cash dividend is debited to Dividends for $1,000 and credited to Cash for $100.

BALANCE Stockholders invested $10,000 in cash in exchange for common stock of Legal Services Inc.

CASH + SE+

BALANCE Paid $800 for July rent on office space.

CASH-RE (Expense) -

BALENCE Purchased office equipment on account $3,000.

Equipment + L (Acc Payable)-

BALENCE Performed legal services for clients for cash $1,500.

Cash +RE (rev) +

BALANCE Borrowed $700 cash from a bank on a note payable.

cash -L (NP) +

Balance Performed legal services for client on account $2,000.

A (Accounts receivable)+R/E (rev) +

balance Paid monthly expenses: salaries $500, utilities $300, and advertising $100.

Cash - 500, -300, -100R/E (EXP) -

Journalize Purchases office equipment for $1,700, on account.

Supplies debitAP credit

Journalize Sells a house and lot for B. Clinton; bills B. Clinton $4,200 for realty services performed.

AR debit ServiceRev credit

Pays $900 on the balance related to the transaction of October 3.

AP debitCash credit

Pays the administrative assistant $2,800 in salary for October.

salary and wage expense debitCash credit

Journalize transactions, post, and prepare a trial balance. Purchased industrial carpet‐cleaning equipment for $25,000, paying $10,000 in cash and signing a $15,000 6‐month, 12% note payable

Equipment debit cash credit Notes Payable credit

consistency

uses same principles from 1 period to the next

materiality

all items that are reasonably likely to impact investors' decision-making must be recorded or reported in detail in a business's financial statements using GAAP standards

conservatism,

principle that requires company accounts to be prepared with caution and high degrees of verification.

economic entity assumption,

separates the transactions carried out by the business from its owner.

periodicity assumption

an organization can report its financial results within certain designated periods of time.

going concern assumption

fundamental accounting principle that a company is financially stable enough to stay in business in the long term or at least beyond the next fiscal period.

historical cost principle

Purchase price U.S. GAAP. most assets are to be recorded on the balance sheet at their historical cost even if they have significantly increased in value over time.

full disclosure principle etc

concept that requires a business to report all necessary information about their financial statements and other relevant information to any persons who are accustomed to reading this information.

measuring principle

Historical cost- purchase price fair value - selling price