ACC211 TEST 1 NVCC

ACCOUNTING

info system that identifies, records & communicates the economic events of a company

SOLE PROPRIETORSHIP

1 owner, easy to set up, tax advantage, personal liability. auto repair shop, barber shop, farms,

PARTNERSHIP

More than 2 owners, simple to set up, tax advantage, personal liability. doctors and lawyer offices

CORPORATION

easier to transfer ownership and raise funds, no personal liability, high taxes, owned by stockholders. Coca Cola, Microsoft, Citi, Exxon

INTERNAL USERS

Managers who plan, organize and run a business. Marketing managers, production supervisors, company officers & directors, sales staff, internal auditors

EXTERNAL USERS

Lenders, shareholders, government, external auditors, costumers

IDENTIFYING

Select transactions and events

RECORDING

Input, measure, classify

Communicating

prepare, analyze, interpret

GAAP

Generally

Accepted

Accounting

Principles for financial reporting

Relevant info

affects decision of users

Reliable info

trusted by users

comparable info

helpful in comparing organizations

FASB

Financial Accounting Standards Board

US private group sets broad & specific principles

SEC

Security & exchange commission, government agency establishes reporting requirements for corporations

Income Statement

Revenue - Expenses = Net Income or Net Loss shows the revenue and expenses & resulting NI or NL for a PERIOD of time..for a year, a month, etc.

Cash Flow Statement

Shows the change in cash (increases - decreases) for a PERIOD of time from OPERATING, INVESTING and FINANCING activities.

These are the 3 main business activities of a company.

what are the 3 main business activities of a company?

OPERATING, INVESTING and FINANCING

Operating

cash inflow/outflow related to a business operation cash received from clients

cash paid for supplies, rent, wages

Investing

purchases of equipment, delivery truck, computer, building to operate business

Financing

Borrowing money to grow the business from banks or through bonds, notes payable or by selling stock

investment by owner, withdrawal by owner (dividends)

Retained Earnings

Increased by a Net Income.

Decrease by a Net Loss and paying dividends

What causes RE to be larger at the end of the year than it was at the beginning of the year?

Net Income is larger than the Dividends paid.

Classified Balance Sheet

a balance sheet where Assets and Liabilities are classified into Current and Long-Term (or non-Current).

What is the order of Assets

Current

Long Term Investments

Property

Plant and Equipment (PP&E)

Intangible.

accounting equation

A = L + E

Can it be expressed any other way?

A-L=E

A-E=L

ASSET ACCOUNTS

CASH

ACCOUNTS RECEIVABLE

SUPPLIES

EQUIPMENT

LIABILITY ACCOUNTS

anything that says payable

unearned revenue

EQUITY ACCOUNTS

+ Owners capital/Stockholder equity (common stock)

- Owners withdrawals/Dividends

+ Revenues

-EXPENSES

Are Dividends expenses?

NO they are stockholder withdrawals

What effect does paying Dividends to shareholders have on Equity?

decreases assets (cash) & equity (stockholder withdrawals)

When a corporation sells stock, is that a Revenue?

What would the accounting entry look like?

How does this effect the Accounting Equation?

NO they are stockholder's equity

+ Stockholder's equity + Assets (cash)

Common stock sold increases assets & equity

Calculate Ending Retained Earnings: Remember, this is ONLY a calculation for Retained Earnings (not Common Stock).

Beginning Retained Earnings

+ Net Income (or - Net Loss)

- Dividends Paid

= Ending Retained Earnings

If you see "unearned" in the name of an account, what type of account is it?

Do all of these types of accounts have the word "unearned" in them?

Do they all have the word "payable" in them?

liability

no

Not all but if it does then it is a liability

Definition of Liabilities

Debts and obligations that a business owes.

like unearned revenue! You have an obligation to do the work

Current Liabilities vs. Long Term Liabilities:

You owe part of it this year and the rest in future years.

Be able to give examples of Current and Long Term Liabilities.

Current are due within 1 year or less; Long Term are due after 1 year. Current liabilities: notes payable, accounts payable, unearned sales revenue, salaries payable, interest payable

Long Term Liabilities are notes and bonds payable, mortgage payable

NOTE: The CURRENT portion of a long term liability is CURRENT; the rest is LONG TERM.

You owe part of it this year and the rest in future years. Example: 30 year mortgage on land and building; the principal amount for the next 12 months need to be recorded as current liability. The rest of the mortgage payable, are long term liability

assets

written in Order of Liquidity

current to concurrent

accounts:

cash

investments

prepaid expenses

accounts receivable

notes receivable

inventory

store fixtures

supplies

Property

Equipment

land

buildings

Goodwill

Intangibles

key words: prepaid, investments, receivable

liabilities

Owed

written in order of maturation

current to Non current

accounts:

accounts payable

accrued expenses payable

notes payable

taxes payable

unearned revenue

deferred revenue

bonds payable

dividends payable

key words: payable, unearned

stockholders equity

Common Stock

Additional Paid in Capital

Retained earnings

Contributed Capital

Always record CS at par value, the difference btwn the cash received and the CS is the APIC

NI gets closed into RE

dividends come out of retained earnings

revenue

Sales revenue

fee revenue

interest revenue

rent revenue

service revenue

earned, performed, sold, service provided

Rev = #units sold X unit price

expenses

cost of goods sold

wages expense

rent expense

interest expense

depreciation expense

advertising expense

insurance expense

repair expense

Income tax

supplies used - supplies expense

cost of business,

cost of goods sold = #units sold x unit cost

Price does NOT equal cost

current assets

cash

accounts receivable

short term investments

prepaid expenses

inventory

supplies

non-current assets

not sold/converted into cash within a year

PPE

Land

buildings

patents

copyrights

long term investments

intangibles

accounting cycle

1. original transactions

2. analyze

3. record in gen journal as journal entry

4. post in gen ledger to T-accounts

5. compute ending balances in T-accounts

6. make trial balance

7. EOP Adjustments (redo steps 2-6)

8. prepare financial statements

9. Report, I/S, O, B/S, CF

Accrual accounting

recognize revenue when earned, regardless of time when collected

Revenue is NOT cash

must use under rules of GAAP

you can either:

1.

Dr. accounts receivable

cr. revenue

2.

dr. cash

cr. revenue

3. * when customer prepays

dr. cash

cr. Unearned revenue (liability)

* once service performed

dr. unearned rev, (remove the liability)

cr. service revenue ( recognize rev.)

Monetary Unit Assumption

Only things that can be expressed in money are included in accounting records

Going Concern Assumption

Financial statements reflect the assumption that the business continues operating.

Historical Cost Principle

Information is based on actual costs incurred in transactions.

Periodicity

life of a company can be divided into time periods, such as months and years.

Materiality

determines whether an amount is significant in size so that it would affect a decision. In other words, is the amount BIG enough to make a difference in a financial decision.

Balance Sheet

For a POINT in time (a specific date). Example: December 31, 2017.

A = L + E:

Total Assets = Total Liabilities + Owners' Equity (Shareholders' Equity for a corporation).

gaap

A set of accounting rules and practices that have authoritative support.