ACG2021- EXAM 1 STUDY GUIDE
ACG2021- EXAM 1 STUDY GUIDE ACG 2021
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This 16 page Study Guide was uploaded by JillianRing on Sunday September 27, 2015. The Study Guide belongs to ACG 2021 at Florida State University taught by Ronald Pierno in Summer 2015. Since its upload, it has received 661 views. For similar materials see Financial Accounting in Accounting at Florida State University.
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Date Created: 09/27/15
ACGZOZl Intro to Financial Accounting Chapter 1 Introduction to Financial Statements 0 Forms of Business Organization 0 Sole proprietorship owned by one person small business 0 Partnership owned by two or more persons 0 Corporation ownership in shares of stock UsersUses of Financial Info 0 Internal Users 0 External Users 0 Business Activities 0 Financing Two Primary sources of outside funds 0 1 Borrowing Money liabilities 0 To whom the money is owed creditors 0 Notes payable accounts payable 0 2 Issuing shares of stock for cash 0 Payments to stockholders dividends NOT AN EXPENSE 0 Investing Purchase of resources a company needs to operate 0 Computers delivery trucks furniture etc 0 Resources own by a business Assets 0 Operating Once a business has the assests it needs it can begin its operations Revenues amounts earned from the sale of products sales revenue service revenuse interest revenue income statement 0 Inventory goods available for sale to customers balance sheet 0 Accounts receivable right to receice money from a customer in the future as the result of a sale or service balance sheet Expenses cost of assets consumed or services used Cost of goods sold selling marketing interest income tax exp Income statement Liabilities arising from expenses incld Accounts payable interest payable wages payable etc Balance sheet 0 Net Income revenues exceed expenses 0 Net loss expenses exceed revenues o Revenues expenses Net IncomeLoss lncome statement 0 Communicating with Users 0 Income Statement Revenues Expenses Net IncomeLoss o Retained Earnings Statement Beginning Retained Earning Add Net Income 0 Less Dividends D Ending Retained Earnings amount used in Balance Sheet 0 Balance Sheet Assets Liabilities Stockholder s Equity 0 Statement of Cash Flows Cash in ow cash out ow Net cash ow Used only when physical cash is exchanged Operating Activities cash from operations selling utilities etc 0 Investing Activities equipment trucks etc 0 Financing Activities stock loans etc Assets Liability Stockholder s Equity D B Common Stock Retained Earnings Common Stock equity contributed by owners Retained Earnings equity earned by operations 1 Revenue 2 Expense 3 Dividends Assets 39 Liabilities Stockl ioldersl Equity Common Stock LL REEHiI lEd Earnings Revenues Expenses Dividends Transactions economic events that require recording in the statements 0 Internal payroll etc 0 External selling a productservice borrowing money etc 0 Transaction has dual effect on equation WAIT NOT all activities represent transactions Ex hiring employee meeting with a customer do not require transactions to be recorded even if money is mentioned Example JR amp Co is started when it receives 5000 cash from investors in exchange for common stock Assets Liabilities Com C39lII I Dual Transactions Assets l 5000 Cash Common Stock 5000 Com Stk Cash Flow 5000 FINANACIAL stock Examples of ALSE Assets 0 Cash 0 Accounts Receivable Supplies Prepaid InsuranceRent Equipment 0 Inventory Liabilities Accounts Payable Unearned Service Revenue 0 Notes Payable Stockholder s Equity 0 Common Stock Retained Earnings 0 Balance Sheet Ending Retained Earnings Chapter 2 Further Look into Financial Statements Classi ed Balance Sheet groups similar assetsliabilities together Assets LiabilitiesStockholder s Equty Current Assets Current Liabilities Longtern Investments Longterm Liabilities Property plant equipment Stockholder s Equity Assets Current Assets Company expects to convert to cash or use within one year 0 Cash investments receivables inventories prepaid expenses Longterm Investments Stock investments real estate Property plant Equipment Land Equpiment Accumulated Depreciationequipment Intangible Assets Patents trademarks LiabilitiesStockholder s Equity Current Liabilities pay within the next year or operating cycle whichever is longer 0 Accounts payable salarieswages payable notes payable income taxes payable Longterm Liabilities current liabilities with long term obligations Mortgage payable notes payable Stockholder s Equity Common stock retained earnings Example JR amp Co provides a service to a customer and charges 400 The customer says she ll return next month to pay Assets Liabilities Com ClI I J Dual Transactions Assets 400 AR Common Stock 400 Service Revenue Cash Flow 0 No cash was exchanged Next month when customer pays Cash with increase by the amount of the payment AR will decrease by the amount of the payment There is no revenue recognized next month Revenue is only recognized when service is preformed Current Ratio Current Assets Current Liabilities Chapter 3 The Accounting Information System Steps in the Recording Process 0 The journal where each transaction is recorded 0 The Ledger each component of the transaction is posted to the ledger contains the entire group of accounts maintained by a company 0 Posting The Account Debits Left Credits Right Doubleentry Accounting each transaction must affect two or more accounts to keep the accounting equation in balance 0 Debit one account must credit another account Debits Credits Account Name Debit l Dr E reclit l Cr Debit Balance balance l with a debit l with a credit Assets debits increase assets credits decrease assets 0 Assets expenses dividends Credit Balance balance l with a credit lljlwith a debit Liabilities credits increase liabilities debits decrease liabilities Equity credit increase equity debit decrease equity 0 Liabilities equity revenues o RevenueExpense accounts are NOT equity accounts Revenue credits increase accounts debits decrease accounts Expense debits increase accounts credits decrease accounts Dividends debits increase account credits decrease account Example JR amp Co pays 1500 in advance for three months of rent Assets Liabilities Corn Stk RE 1500 Pro Rent 1500 Cash Prepaid Rent Cash second Ledger Entry Prepaid Rent 150 0 Trial Journal Entry 1500 debit account rst 1500 credit account Cash Bal 8725 1500 Balance total list of all accounts with nal debitcredit balances All amounts on the trial balances come from the accounts JR amp Co Trial Balance December 31 2015 Account Title Debit Credit Cash 7000 Accounts Receivable 3000 Supplies 3000 Equipment 5000 Bank Loan 5000 Accounts Payable 1000 Common Stock 10000 Service Revenue 7000 Rent Expense 600 SalariesWages Expense 2500 Supplies Expense 1200 Utilities Expense 700 Total 23000 23000 Chapter 4 Accrual Accounting Concepts AdjustingClosing Entries Adjusting Entries ensure that the correct amounts are on the balance sheets and the income statement 0 Two categories for adjusting entries Accrual 1 Accrued revenues revenues for services preformed but not yet received in cash or recorded 2 Accrued expenses expenses incurred but not yet paid in cash or recorded Deferrals 1 Prepaid Expenses expenses paid in cash before the were used or consumed 2 Unearned revenues cash received before services are preformed Example Prepaid Rent 0 Companies pay rent in advance 0 Cash is paid purchases an asset prepaid rent 0 Recognition of the expense Passing of the time to which the rent applies March lst JR amp Co paid 1500 for prepaid rent 0 On March 31 Rent expense is recorded when the time of the rent has passed Used upquot on month s worth of rent exp Assets Liabilities Com Journal Entry RentExpense 500 Prepaid Rent 500 Rent Exp Prepaid Rent 500 Beg Eal 1500 500 End Bal 500 End aal 1000 Prepaid Rent 1500 beginning of the moth Used upquot on month of rent 500 Rent Expense Subtract from total amount paid 1500500 1000 0 1000 left from prepaid rent Same application for Supplies Expense o Accruing Interest Expense 0 Money is borrowed interest is charged for the use of that money Interest Expense using of that money over time Recording interest expense would happened when company pays the interest either all of it or some of it Example JR amp Co has a 6month 6000 note payable at 10 given on March 1 Both interest and principal will be paid at maturity September 1 0 Income statement needs to show the interest expense incurred in March even though cash has not been paid Interest principal x rate x time or can be divided by total time rate is quotper yearquot Interest 6000 x 10 x 112 50 Interest 6000 x 10 50 12 Interest Expense and interest payable will each be 50 Assets Liabilities Com Stk RE L En InI D Jl Journal Entry Interest Expense 50 Interest Payable 50 Accrued 50 of interest expense for March Interest Exp Interest Payable 50 5039 End Bel 50 50 End Bel o Accruing Salary Expense 0 Salary expense common exp that need to be accrued before nancial statements are prepared Need to be accrued before nancial statements because employees may have done some work but have not yet been paid Example JR amp Co hired an employee on Monday March 30th at 500 per week NOT a nancial transaction 0 The salary for the week beginning on Monday March 30 will not be paid until Friday April 3 0 March Income Statement show expense for March 30 and 31 Monday Tuesday 0 April Income Statement show expenses for April 1 2 and 3 Wednesday Thursday and Friday Weekly Payroll 500 100 per day March 31 the company should accrue 200 of salary expense March Expense Assets Liabilities Com QIk RF 200 Sal Pay Journal Entry Salary Expense 200 Salaries Payable 200 Salary Salaries Payaiblla 20039 200 End Bal 200 200 End Bal Depreciation when a company buys an asset that is used in the business eg equipment buildings vehicles computers etc and it will be used for more than one year the cost must be expensed over the accounting periods that assets will be used Depreciation Expense portion of cost allocated to any one accounting period 0 Nothing to do with value of asset Depreciation Expense cost of asset useful life how many years intended to use asset Example JR amp Co bought equipment on March 1St for 600 with a useful life of 5 years Depreciation expense 600 5 years 120 Month income statement 120 12 10 monthly depreciation expense Accumulated Depreciation the total depreciation expense taken to date Contraaccount a contraasset Assets Liabilities Com 10 Acc Dep Accumulated Depreciation l thereby net asset book value Journal Entry Depreciation Expense 10 Accumulated Depreciation 10 Accrued 10 of depreciation exp For March Depri Exp Aacumi Deplri 1o 10 End Ball 1D 10 End Ball Balance Sheet always shows the original cost of the asset less accumulated depreciation Assets Equipment 600 Less Acc Dep m 590 value of equipment after depreciation Adjusted Trial Balance after all adjusting entries company prepares another trial balance from ledger accounts 0 Debit credit balances in ledger Then prepare Financial Statements 0 List of total accounts with debitcredit balances new adjusted balances should be included Financial Statements are prepared directly from the Adjusted Trial Balance 0 Income Statement Retained Earnings Statement 0 Balance Sheet Closing Entries at the end of the accounting period AFTER nancial statements companies prepare closing entries Update Retained Earnings account 2 Close the temporary accounts balances transferred to the permanent stockholders equity account Retained Earnings Temporary Permanent Not Closed Closed 1 All asset accounts A revenue accounts 2 All liability accounts All expense accounts 3 StOCthIdel S39 EqUity Dividends Closing entries produce zero balance in each temporary account Balancing entries for RevExp are made to the Income Summary account Dividends balancing entry is made directly to Retained Earnings RevExp only keep track REWWESEI of transactions for one accounting period need Eman es to be zero at the end of period open for the beginning of the next period 1 llnn rn le sumlml r f l Retained Earnings RevExp close to Income Summary Income Summary closed to Retained Earnings Effectively transfers Net Income to Retained Earnings Revenue 0 Revenue accounts are DEBITED reducing them to O 0 Income Summary is CREDITED by same amount l balance Normal credit balance Sales Revenue Inntime man Ba l 2200 2200 El Expenses o Expense accounts are CREDITED reducing them to O 0 Income Summary is DEBITED by same amount l balance Income Summary resulting balance NET INCOME transferred to Retained Emma Earnings 2200 Retained Earnings 2 33 32 500 225 50 490 135 Dividends 490 0 490 Dividends accounts is CREDITED 0 reduces to O o Retained Earnings is DEBITED balance Dividends Retained Earnings Eal 5039 2325 Feb 28 Eel 49 50 50
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