ACCT 220 1st EditionExam # 1 Study Guide Lectures: 1 - 7Lecture 1 (January 20 th ) The Basic Accounting Equation ASSETS = CLAIMS or Assets = Liabilities + Owners Equity *The equation must always equal to have accounting records in proper standings*Lecture 2 (January 22 nd )  Transactions In accounting we report entities by recording transactions of our business Ex. Purchased $100 worth of office supplies- For this transaction we would record to two accounts: cash and supplies- The Cash account would be credited (decreased) by $100- The Supplies account would then be debited (increased) by $100 Important things to remember: You will always deal with at least 2 accounts per transaction Before and after a transaction the accounting equation must still remain equal (as it should at all times!!)  THE FOUR FINACIAL STATEMENTS 1. The Income Statement2. Statement of Changes in Stockholders Equity 3. The Balance Sheet4. The Statement of Cash Flows Lecture 3 (January 29 th )HOW TO FORM THE 4 FINACIAL STATEMENTS: First form the income statement: You’ll need: Revenue Expenses- Revenue – Expenses = Net Income (if income positive) or Net loss (if income is negative) Net Income or Net Loss (just calculated above) Next comes the Statement of Changes in Stockholder’s Equity: You’ll need: Beginning common stock Stock issued during the year- Beginning common stock + stock issued = ending common stock Ending common stock (just calculated above) Beginning retained earnings Net Income or Loss (take the number directly from the income statement which we calculated above) Dividends- Beginning RE+ Net Income or Net Loss – Dividends = Ending Retained Earnings Ending Retained Earnings (just calculated above)- Ending common stock + ending retained earnings = Total Stockholders’ Equity Total Stockholders’ Equity (just calculated above) Next is the Balance Sheet: You’ll need: Assets- List all assets in your company in order from most liquid (cash) to least underneath the asset title Total assets Liabilities- List all liabilities underneath the liability title Stockholders’ Equity- Common stock- Retained Earnings (take from statement of changes in stockholder’s equity) Total Stockholder’s Equity Total Liabilities and Stockholder’s Equity  Statement of Cash Flows You’ll need: Cash flows from Operating Activities- Cash Receipts from revenue- Cash Payments from expenses Net Cash flow from Operating Activities  Cash Flows from Investing Activities - Cash Payments for land  Net Cash flow from Investing Activities  Cash Flow from Financing Activities- Cash Receipts from borrowing money- Cash Receipts for issuing common stock - Cash Payments for dividends  Net Cash Flow from Financing Activities  Net Increase in Cash (Net Cash flows from Operating, Financing, and Investing Activities summed together) Plus: beginning cash balance (if there is one) Ending Cash Balance (Net Increase in Cash + Beginning Cash Balance)Lecture 4 (February 3 rd ) Accrued: accts rec/accts pay- Accts pay/expense  Deferred: cash/ unearned rev - Cash/prepaid asset *** Accrual= Earned revenue before cash come in, and Incurred expenses or bought an asset before cash went out ****Accrual = report revenue when earned and expenses when incurredDeferral = report when you receive/ pay cash regardless of when you actually make the payment or receive the money (After cash comes in or after cash goes out)Lecture 5 (February 5 th ) Steps in the Accounting Cycle 1. Record Transactions2. Adjust Accounts3. Prepare Financial Statements 4. Close Nominal/Temporary Accounts  Deferrals Involves recognizing a revenue or expense at some time after cash has been collected or paid  Cash came out or went in BUT no Revenue was earned and no expense was incurred Pre-paid expenses- Supplies- Prepaid insurance- Prepaid rent  Cost= what you initially spend  Assets become expenses when used(asset  expense) Ex. 1 Conner designed a one year lease agreement and paid $12,000 in advance for a lease, which begins on March 1. 1st transaction: - Cash (asset) decreases by $12,000 - Prepaid Rent (asset) increases by $12,000 - Cash Flows? = Operating Activity (will become an expense when used) Ex. 2 On 1/1 Conner received $18,000 cash in advance from Westberry Company for consulting services to be performed over a one year period starting on June 1st.  Cash (asset) increased  Unearned revenue (liability) increases  Cash Flows? = Operating Activity (will become revenueonce services are complete) Ex. 3 Conner paid $800 for supplies Supplies (asset) is increased by $800 Cash (asset) is decreased by $800 Cash Flows? = Operating Activity (supplies will become an expense when used) Adjusting Entries Why? To update account balances When?  Prior to preparing the finical statements  Adjustments will always affect the balance sheet and the income statement Adjustment 1: As of December 31, Conner earned some of the cash it collected in advance for services to start on June 1.  $18,000/12 months = $1,500 * 7 months used = $10,500- Unearned Revenue (liability) is decreased by $10,500- Retained Earnings (equity) is decreased by $10,500- Cash Flows? = NO CASH Adjustment 2: As of December 31, Conner had used 10 months of the rent that was prepaid on March 1. $12,000/12 months = $1,000*10 months used = $10,000- Prepaid Rent (asset) decreased by $10,000- Retained Earnings (equity) decreased by $10,000- Cash Flows? = NO CASH Adjustment 3: As of December 31, 2011, a physical count of the supplies on hand reveals that $150 of supplies remained available for future use. $800-$150= $650- Supplies (asset) decreased by $650- Retained Earnings (equity) decreases by $650- Cash Flows? = NO CASHLecture 6 (February 10 th )Review of Accruals and Deferrals1. Acquired Cash from issue of common stock = regular2. Paid dividend to stockholders = regular3. Paid cash on accounts payable = regular4. Incurred other operating expenses on account = Accrual5. Paid cash for rent expenses = regular6. Performed services for cash = regular7. Performed serviced for client on account = accrual8. Collected cash from accounts receivable = regular9. Received cash for services to be performed in the future = Deferral 10. Purchased land with