ACCO 1030 EXAM 1

Sole Proprietorship

One owner, entity does not pay tax, unlimited liability, not a separate legal entity, entity ends with owner death

Partnership

Two owners, entity does not pay tax, unlimited labiality, not a separate legal entity, entity ends with a partner death

Corporation

One or more owners, entity pays tax, limited liability, separate legal entity, operates indefinitely

Limited Liab Co (LLC)

One or more owners, entity does not pay tax, limited liability, separate legal entity, operates indefinitely

Measurement (cost) principle

Acquired assets should be recorded at their actual cost (aka: historical cost)

Revenue recognition principle

Revenues are recorded when earned

Expense recognition (matching)principle

Expenses are recorded in the same period as the revenue to which they relate

Full disclosure principle

Companies must disclose information that would impact stakeholders' decisions

Business entity assumption

A business is accounted for separately from other businesses and from its owners

Going-concern assumption

Assumes the business will continue into the foreseeable future

Monetary unit assumption

Economic data must be recorded in money

Time period assumption

The life of a company can be broken down into finite periods of time

Revenues

Earnings generated from operations

Expenses

Cost of generating the revenues

Income Statement Equation

Revenue - Expenses = Net income (Net Loss)

Retained Earnings Equation

Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings

Net Income

Revenues - Expenses

Dividends

Distribution of assets to owners

Accounting Equation

Assets = Liabilities + Equity

Assets

Resources owed by a business

Equity

The owners' claim to assets (the residual)

Liabilities

Amounts owed to creditors in the form of debts and other obligations

What makes up the balance sheet?

assets, liabilities, and equity

What makes up the income statement?

revenues, expenses, net income

Examples of Assets

cash, accounts receivable, notes receivable, prepaid rent, supplies, inventory, equipment, and land

Examples of Liabilities

accounts payable, notes payable, wages payable, taxes payable, unearned revenue

Examples of Equity

common stock, retained earnings, dividends, revenues, expenses

Examples of Revenue

sales revenue, service revenue, rental revenue, consulting revenue

Example of Expenses

rent, insurance, utilities, salaries, miscellaneous

What is true about the accounting equation?

Must always balance, can use to solve for the unknown

Contributed Capital (Common Stock)

the amount invested in the company by owners

What increases contributed capital?

Owner contributions (stock issuances)

What increases retained earnings?

Net income

What decreases retained earnings?

Dividends

What have normal debit balances?

dividends, expenses, and assets

What have normal credit balances?

liabilities and equity (revenues, common stock, retained earnings)