unit 1 review acct 2301

SE= common stock + retained earnings

• SE equation

beginning CS + new issuances = Ending CS

• ending CS eq

Beginning RE + Net income- dividends= ending RE

• retained earnings eq

economic entity assumption

• distinction btw the economic activities of owners and those of the company

monetary unit assumption

• need a unit or scale of measurement to measure financial statement elements

• use dollar or euro

periodicity assumption

§  Timeliness

§  External users need periodic info

§  Artificial time periods for periodic financial reporting

§  LLC required to provide financial info to the SEC on a quarterly and an annual basis

§  Quarterly- more timely

§  Annual- full application of GAAP

§  Indefinite life of a company can be broken into definite periods

going concern assumption

§  Business entity operates indefinitely

§  Justification for measuring assets on their original costs (historical cost principle)

·      if we knew an enterprise was going to cease operations in near future, we’d measure assets and liabilities not at original costs but at current liquidation values

adjusting entries

o   Prepaid expenses (asset)

§   Recognize expense (adjustment)

o   Deferred revenue (liability)

§  Recognize revenue (adjustment)

accrued expenses

• company used costs in current peirod, but hasn’t yet paid cash for these costs

  • create adjusting entry to record the liability for the amount ot be paid and recognize salries expense

accrued revenues

o   Company provides goods and services but hasn’t yet received cash

§  Create adjusting entry to record amount receivable and recognize revenue

permanent accts

• carry balances to next period

• assets

• liabilities

• SE

• retained earnings

temporary accts

• transfer balance at end of year to retained earnings, start next year with $0 balance

  • revenues (REMEMBER deferred revenue is a liability, don’t close it)

  • expenses

  • dividends

BRE+ net income- dividends

• ending balance of Retained earnings after closing

adjusting entries

• needed when cash flows or obligations occur before the revenue or expense related activity (prepayment) or when cash flows occur after the revenue or expense related activity (accrual)

d revenue; c RE

JE closing revenues

(NOT deferred revenue, a liability)

d RE; c expenses

• closing entry for expenses

d RE, c dividends

• closing dividends

d rent expense; c prepaid rent

• adjusting entry for prepaid rent

d supplies expense, c supplies

• adjusting entry for supplies

d dep expense; c accum dep

adjusting entry for depreciable assets

d deferred revenue; c service revenue

adjusting entry for deferred revenue

d salaries expense, c salaries payable

• adjusting entry for accrued salaries

d utility epxense; c utilities payable

• adjusting entry for accrued utility cost

d interest expense, c interest payable

adjusting entry for accrued interest

d interest receivable; c interest revenue

adjusting entry for interest receivable

d supplies expense; c supplies

• adjusting entry for supplies

d deferred revenue, c service revenue

• prepaid services (u are providing services)

d salaries payable c cash

• adjusting entry for accrued salary expense (u are now paying)

d cash, c accts receivable

• adjusting entry for accrued revenue