what order must the statements be in?
1) Income Stmt
2) Retained Earnings Stmt
3) Balance Sheet
4) Stmt of Cash Flows
5 Types of Accounts?
Balance Sheet:
1) Assets
2) Liabilities
3) Equity
Income Stmt
4) Revenues
5) Expenses
Accounting Equation
Assets = Liab. + Equity
All businesses are involved in the following?
1) Financing
2) Investing
3) Operating
What is on an retained earnings stmt?
Retained earnings, October 1 $0
Add: Net Income $2860
Less: Dividends $500
Retained earnings, October 31 $2360
What is on an income stmt?
Revenues
Service Revenue $10,600
Expenses
Salaries expenses $5,200
Supplies expenses $1,500
Rent expenses $900
Insurance expense $50
Interest expense $50
depreciation expense $40
Total expenses $7,740
Net Income $2,860
What is on a balance sheet?
Assets
Total Assets
Liabilities and Stockholders Equity
Liabilities
Total Liabilities
Stockholders Equity
Total Stockholders Equity
Total Liabilities and Stockholders Equity
GAAP
G enerally (the rules of accounting)
A ccepted
A ccounting
P rinciple
How long do companies use to determine whether and asset or liability is current or long term?
one year
What does "on account" mean?
somebody owes somebody
What is an asset?
resources of the company
What are examples of current assets (in order of liquidity)?
� Cash *(first)
� Accounts Receivable * (second)
� Notes Receivable
� Prepaid Insurance
� Office Supplies
� Inventories
� Short-term Investments
� Intangible Assets
� Other Assets
What are examples of Property Plant and Equipment PPE assets (in order of liquidity)?
� Equipment/Furniture
� Building
� Land (don't depreciate)
� LESS Accumulated Depreciation (x)
What is an liability?
obligation of the company
What are examples of current liabilities (in order of liquidity)?
� Notes Payable * (first)
� Accounts Payable/Accured Liabilities *(second)
� Unearned Revenue
� Salaries Payable
� Interest Payable
� Taxes Payable / Income Tax payable
� Dividends Payable
What are examples of long-term liabilities (in order of liquidity)?
� Long-term debt
� Bonds Payable
What is Stockholders Equity?
owner's interest in a company
What are expenses?
things we have to pay for to run a business
What is double entry accounting?
Every business transaction will affect at least two accounts
What are the characteristics of partnership?
Shared control, tax advantages, increased skills and resources
What are the characteristics of a corporation?
Easier to transfer ownership and raise funds, no personal liability
What are the characteristics of sole proprietorship?
Simple to set up and maintains control with founder
Internal Revenue Service
Trying to determine whether the company complied with tax laws
Chief Financial Officer
Trying to determine whether the company should employ debt or equity financing
Creditors
Trying to determine whether the company can pay its obligations
Marketing managers
Trying to determine whether a marketing proposal will be cost effective
Investors in common stock
Trying to determine whether the company's net income will result in a stock price increase
Full disclosure principle
Dictates that companies should disclose all circumstances and events that make a difference to financial statement users
Going concern assumption
Is the rationale for why plant assets are not reported at liquidation value
Monetary unit assumption
Assumes that the dollar is the "measuring stick" used to report on financial performance
Periodicity assumption
Separates financial information into time periods for reporting purpose
Cost principle
Indicates that companies should not record in the accounts fair value changes subsequent to purchase
Economic entity assumption
Indicates that personal and business record-keeping should be separately maintained
Materiality constraint
Requires that accounting standards be followed for all significant items
Expense Recognition Principle
Requires recognition of expenses in the same period as related revenues
What are the types of adjusting entries?
1) Accrued Revenue
2) Unearned Revenue
3) Accrued Expenses
4) Prepaid Expense
What is an accrued revenue?
Revenues eared but not yet received in cash or recorded
What is an unearned revenue?
Cash received before a company earns revenues and recored as a liability until earned
What is an accrued expense?
Expense incurred but not yet paid in cash or recorded
What is a prepaid expense?
Assets that result from the payment of expenses that benefit more than one accounting period
What type of adjustment is "Supplies of $400 are on hand. Supplies account shows $1,900 balance.
Prepaid Expense
What was the status before adjustment "Supplies of $400 are on hand. Supplies account shows $1,900 balance.
Assets Overstated
Expenses Understated
What type of adjustment is "Service Revenue earned but unbilled total $700.
Accrued Revenue
What was the status before adjustment "Service Revenue earned but unbilled total $700.
Assets Understated
Revenues Understated
What type of adjustment is "Interest of $300 has accumulated on a note payable.
Accrued Expense
What was the status before adjustment "Interest of $300 has accumulated on a note payable.
Expenses Understated
Liabilities Understated
What type of adjustment is "Rent collected in advance totaling $1,100 has been earned.
Unearned Revenue
What was the status before adjustment "Rent collected in advance totaling $1,100 has been earned.
Liabilities Understated
Revenues Understated
Prepare an adjusted entry for "Interest on notes payable of $300 is accrued" on Dec 31st
12/31
Interest Expense $300
Interest Payable $300
Prepare an adjusted entry for "Service revenue earned but unbilled totals $1,200" on Dec 31st
12/31
Accounts Receivable $1200
Service Revenue $1200
Prepare an adjusted entry for Salaries of "$780 earned by employees have not been recorded" on Dec 31st
12/31
Salaries Expense $780
Salaries Payable $780
What type of adjustment is "Service Revenue earned but unbilled totals $600
Accrued Revenue
Assets or Liabilities - Overstated or Understated for "Service Revenue earned but unbilled totals $600
Assets Understated
Revenues or Expenses - Overstated or Understated for "Service Revenue earned but unbilled totals $600
Revenues Understated
What type of adjustment is "Store supplies of $300 are on hand. Supplies account shows $1,900 balance
Prepaid Expense
Assets or Liabilities - Overstated or Understated for "Store supplies of $300 are on hand. Supplies account shows $1,900 balance
Assets Overstated
Revenues or Expenses - Overstated or Understated for "Store supplies of $300 are on hand. Supplies account shows $1,900 balance
Expenses Understated
What type of adjustment is "Utility expenses of $275 are unpaid
Accrued Expense
Assets or Liabilities - Overstated or Understated for "Utility expenses of $275 are unpaid
Liabilities Understated
Revenues or Expenses - Overstated or Understated for "Utility expenses of $275 are unpaid
Expenses Understated
What type of adjustment is "Service revenue of $490 collected in advance has been earned
Unearned Revenue
Assets or Liabilities - Overstated or Understated for "Service revenue of $490 collected in advance has been earned
Overstated Liabilities
Revenues or Expenses - Overstated or Understated for "Service revenue of $490 collected in advance has been earned
Understated Revenues
What type of adjustment is "Salaries of $800 are unpaid
Accrued Expense
Assets or Liabilities - Overstated or Understated for "Salaries of $800 are unpaid
Understated Liabilities
Revenues or Expenses - Overstated or Understated for "Salaries of $800 are unpaid
Understated Expenses
What type of adjustment is "Prepaid insurance totaling $400 has expired
Prepaid Expense
Assets or Liabilities - Overstated or Understated for "Prepaid insurance totaling $400 has expired
Overstated Assets
Revenues or Expenses - Overstated or Understated for "Prepaid insurance totaling $400 has expired
Understated Expense