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ACCT 201 Principles of Accounting Chapters 1-4

by: Kylie Wilson

ACCT 201 Principles of Accounting Chapters 1-4 ACCT 201

Marketplace > Towson University > Accounting > ACCT 201 > ACCT 201 Principles of Accounting Chapters 1 4
Kylie Wilson

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Exam #1 Notes
Neil G. Smuckler
Class Notes
Accounting, ACCT, Professor Smuckler
25 ?





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This 4 page Class Notes was uploaded by Kylie Wilson on Tuesday March 15, 2016. The Class Notes belongs to ACCT 201 at Towson University taught by Neil G. Smuckler in Spring 2016. Since its upload, it has received 48 views. For similar materials see PRINCIPLES OF FINANCIAL ACCOUNTING in Accounting at Towson University.


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Date Created: 03/15/16
Exam #1 Business Organizations: - Sole proprietorship: o Simple to establish o Owner controlled o Tax advantages - Partnership: o Simple to establish o Shared control o Broader skills and resources o Tax advantage - Corporation: o Easier to transfer ownership o Easier to raise funds o No personal liability External Users: investors, creditors, taxing authorities, customers, etc. Cash Flow Statements: - Operating Activities: o Revenues o Accounts receivable o Supplies o Expenses o Accounts payable o Etc. - Investing Activities: o Using that cash for investing—  Property, plan, & equipment - Financing Activities: o Liabilities o Notes payable/accounts payable o Common stock o Dividends Classified Balance Sheet: - Contains: o Current assets: assets that companies expect to convert to cash within one year  Cash  Accounts receivable  Inventory  Prepaid insurance  Short term debt investment o Long term investments  Stock investment  Investment in real estate o Property plan and equipment  Land  Equipment  Less: accumulated deprecation  Cost= 100,000  Useful life= 20 years  100,000/20= 5,000 o Depreciation= 5,000 o Intangible assets: no physical substance  Patent  Franchise  Goodwill  Copyrights  Trademarks o Current liabilities: obligations paid within a year  Notes payable  Accounts payable  Unearned sales revenue  Salary and wages payable  Interest payable o Long term liabilities:  Mortgage payable  Bonds payable  Notes payable—can be current or long term o Stock holder’s equity:  Common stock  Retained earnings Profitability: looks at operating success of company - Earnings per share (only on common stock) o Earnings per share= net income-preferred dividends/ average sharers of common stock outstanding Liquidity: measures short-term ability of company to pay its maturing obligations (amount owed) and to meet its unexpected needs for cash - Working capital= current assets-current liabilities o Positive WC= able to pay creditors o Negative WC= unable to pay creditors—may leads to bankruptcy Current Ratio= current assets/current liability Solvency: ability to survive over long periods of time—pay interest and debt at maturity - Debt to asset ratio=total liabilities/total assets o Lower ratio is better - Free cash flow=net cash provided by operating activities – capital expenditures (PP&E) – cash dividends (dividends on common stock) Debit and Credit Transactions: 1. Assets: a. Increase—DEBIT b. Decrease—CREDIT 2. Liabilities: a. Increase—CREDIT b. Decrease—DEBIT 3. Common stock: a. Increase—CREDIT b. Decrease—DEBIT 4. Retained earnings: a. Increase—CREDIT b. Decrease—DEBIT 5. Revenue: a. Increase—CREDIT b. Decrease—DEBIT 6. Expenses: a. Increase—DEBIT b. Decrease—CREDIT 7. Dividends: a. Increase—DEBIT b. Decrease—CREDIT Revenue Recognition: companies recognize revenue (sales rev or service rev) —credit—in the accounting period, which the performance obligation is satisfied whether or not cash is received Expense Recognition: recognize the expense (when the expense is incurred) before you actually pay the cash Deferrals: cost of expenses that are recognized at the date later than when the cash was originally received - Prepaid expenses: assets on the balance sheet (current) o Ex: prepaid rent 10,000 Cash 10,000 12/31 ADJ. Rent expenses 2000 Prepaid rent 2000 - Supplies - Depreciation Accruals: increase balance sheet account and income sheet account - Accrued Revenue - Accrued expense Adjusted trail balance - Shows all debits and all credits—they end up equaling each other


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