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ACC 200 Week 1: Introduction to Accounting

by: Amanda Notetaker

ACC 200 Week 1: Introduction to Accounting Acct 200

Marketplace > Western Kentucky University > Accounting > Acct 200 > ACC 200 Week 1 Introduction to Accounting
Amanda Notetaker
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These are FREE notes over what we covered the first week of classes!
Introductory Accounting
Sheri L. Henson
Class Notes




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This 8 page Class Notes was uploaded by Amanda Notetaker on Sunday January 31, 2016. The Class Notes belongs to Acct 200 at Western Kentucky University taught by Sheri L. Henson in Spring 2016. Since its upload, it has received 72 views. For similar materials see Introductory Accounting in Accounting at Western Kentucky University.


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Date Created: 01/31/16
(Note: This information is recorded from Sheri Henson's Accounting 200-001 class on dates Wednesday, January 27th, 2016 and Friday, January 29th, 2016, and from the corresponding book Financial Accounting: Tools for Business Decision Making, 7th edition.) Accounting: the language of business. How do I manage my company's finances? How do I package the information? Where do I store this information? Two types of users of accounting information: (found on pages 6 and 7) 1. Internal Users: our company's management team. Help run the business efficiently. 2. External Users: people outside the company's management team. Examples of External Users could be: perspective creditors (who we borrow from) prospective investors securities and exchange commissions (SEC) the IRS Understanding internal user: A finance advisor working for the company. Understanding external user: A bank lending you money for your company. Generally Accepted Accounting Principles (GAAP) 3 Types of Business Activities (found on pages 9-11) 1. Financing Activities - startup cash i. Borrow from creditor; incur a liability (debt or obligation); "payable" ii. Owners can put in cash by buying shares of common stock. Dividends: paying out to shareholders who used their own cash to help start the business. 2. Investing Activities - purchase resources (or assets) that we need to conduct business i. Land, building, and equipment 3. Operating Activities - providing goods and services to customers and clients i. Generating (earning) revenue: service revenue ii. Incur costs to provide services: expenses a. rent expense b. salaries expense c. utilities expense iii. At the end of the period: revenue > expenses = net income (net income>net loss) There are 4 Financial Statements: (Right now we are only covering 3 of the Financial Statements.) 1.Income Statement (Found on pages 18 and 19) -Count revenue and loss Period of time: Found on the third line of income statement Example: For the Month Ended October 31, 2014 -This means that the period began October 1st and ended on the 31st. Here’s an example of an Income Statement: JACKSON’S BOWLING CO. Income Statement st For the Year Ended December 31 , 2012 Revenues Service Revenue $50,000 Expenses Rent Expense $5,000 Utilities Expense +$10,000 Total Expenses: $15,000 Net Income $35,000 Here’s a few things you should notice about this Income Statement: Underneath Service Revenue, there is only one Revenue, so there is no need to write “Total Revenue” under. There is more than one Expense, so the words “Total Expenses” are written underneath the list. You will add the Revenues together, and add the Expenses together. You will take the total Revenues and subtract the Expenses from it. This will equal your net income. 2.Retained Earnings Statement (Found on page 13) Retained simply means "kept." That means that this statement will help you figure out what money you will keep based on your net income and loss. On a Retained Earnings Statement, notice that you will refer to the net loss as “Dividends.” The money amount for Retained Earnings is $0 because this is a new company, and therefore has no retained earnings. You will write “Add Net Income” or “Less Dividends” when adding or subtracting Here’s an example of a Retained Earnings Statement: SIERRA CO. Retained Earnings Statement For the Month Ended October 31, 2014 Retained Earnings, Oct. 1 $0 Add Net Income +2,860 2,860 What if you suffered net loss? Subtract net loss after net income. SIERRA CO. Retained Earnings Statement For the Month Ended October 31, 2014 Retained Earnings, Oct. 1 $0 Add Net Income +2,860 2,860 Less Dividends -500 Retained Earnings, Oct. 31 $2,360 3. Balance Sheet (Found on page 14) Accounting Equation Assets = Liabilities + Stockholders' Equity (Resources) = (Claims of the creditors) + (Claims of the shareholders/owners) Pay out to the creditors first, then split the rest to the owners. Stockholders' equity is divided into two parts. We can find these by asking the question "How do the owners get a claim against your resources?" 1. By paying in your own money for shares of stock 2. Retained earnings Note that the Balance Sheet is for the point in time, not the period of time (Income Statement and Retained Earnings). How do I create a balance sheet using asset information? List assets in order of liquidity (or convertibility to cash), unless it is cash, in which case you order it first. Assets Cash $15,200 Accounts Receivable 200 Supplies 1,000 Prepaid Insurance 550 Equipment, net 4,960 Total assets $21,910 Accounts Receivable - our right to collect from customers and clients to whom we have provided goods and services "on account" (or "on credit"). Beneath the assets portion of the Balance Sheet, there will be a Liabilities and Stockholders’ Equity portion. Liabilities and Stockholders' Equity I buy supplies from Staples. I have Accounts Payable - owe for goods and services which I purchased from a supplier or vender "on account." This means that Staples has Accounts Receivable. Unearned Service Revenue - I collected cash before I provide the goods or services. -Opposite of Accounts Receivable -Not exactly Accounts Payable, but like it (You are doing the goods or services, not owing for them.) Vocabulary/Terms: Know these terms and where/how they apply to the notes. Some of these are terms you will want to know and know how to apply; some of these terms are commonly used in the homework problems. (In alphabetic order) Accounts Payable Accounts Receivable Assets Balance Sheet Common stock Dividends Equipment Expenses External Users Income Statement Internal Users Liabilities Net Income Notes Payable Retained Earnings Statement Revenues Service Revenue Stockholders’ Equity Supplies Total Revenue Unearned Service Revenue Application: Using the information given, Find the net income (or revenues subtracted by expenses) Create an Income Statement Create a Retained Earnings sheet Create a Balance Sheet. TILLY & MADISON CO. (2015) Service Revenue $100,000 Sales Revenue 50,000 Equipment 2,500 Supplies 10,000 Common Stock 75,000 Expenses 125,000 Accounts payable 18,000 Dividends 13,000 Retained Earnings 16,000 Cash 20,000 It’s better to sort out the information how you will use it so you don’t get confused. Also, remember that you need to be very careful with transferring your numbers. One number out of place and the rest of the sheet will be wrong! STEP 1: Find the net income. First, you will need to find your net income. That is simply your revenues subtracted by your expenses. Revenues Service Revenue $100,000 Sales Revenue 50,000 Total Revenue: $150,000 Expenses: $125,000 Net income = Revenues – Expenses Net income = $150,000 – $120,000 Net income = $30,000 STEP 2: Create an Income Statement. You will be creating an Income Statement for Tilly & Madison Co. To create this, you will need to know the following information: All Revenues All Expenses Really, the Income Statement just utilizes the information to create the Net income, and transfers it into a document. TILLY & MADISON Income Statement For the Year Ended December 31, 2015 Revenues Service Revenue $100,000 Sales Revenue 50,000 Total Revenue: 150,000 Expenses: 125,000 Net Income $25,000 STEP 3: Create a Retained Earnings sheet. You will be creating a Retained Earnings sheet for Tilly & Madison Co. To create this, you will need to know the following information: Retained Earnings ($16,000) Net Income/(Loss) (+$30,000) Dividends ($13,000) Before you fill out the information on the form, you may want to do the math separately first. Add the Retained Earnings and the Net Income. (16,000+30,000) Take the sum of the Retained Earnings and Net Income, and subtract the Dividends from that sum. [(16,000+30,000)-13,000] The answer is your Retained Earnings for December 31. This is what the answer should look like: TILLY & MADISON Retained Earnings Statements For Year Ended December 31, 2015 Retained Earnings, January 1 $16,000 Add Net Income/(Loss) +30,000 $36,000 Less Dividends -13,000 Retained Earnings, December 31 $23,000 STEP 4: Create a Balance Sheet. Finally, you will create a Balance Sheet for Tilly & Madison Co. This one is the most difficult, but if you are patient You will need the information for all of the following: Cash ($20,000) Supplies ($10,000) Equipment ($2,500) Notes payable ($10,000) Accounts payable ($18,000) Common stock ($75,000) Retained earnings (The retained earnings for the balance sheet are found at the bottom of the retained earnings sheet, not the original information at the top. That would mean the Retained earnings is $23,000, not $16,000.) Divide the information based on what you need it for. Assets will include anything under company ownership, while Liabilities and Stockholders’ Equity count against it based on liabilities and shareholders. Assets: Cash, Supplies, and Equipment Liabilities: Notes payable, Accounts payable Stockholders’ Equity: Common stock, Retained earnings Using this information, it is easy to plug in and fill out your sheets. TILLY & MADISON Balance Sheet December 31, 2015 Assets Cash $20,000 Supplies 10,000 Equipment 2,500 Total Assets 32,500 Liabilities and Stockholders’ Equity Liabilities Notes payable $10,000 Accounts payable 18,000 Total Liabilities 28,000 Stockholders’ Equity Common Stock 75,000 Retained Earnings 23,000 Total Stockholders’ Equity 98,000 Total Liabilities and Stockholders’ Equity 126,000


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