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
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