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MU ACC 221 - Exam 1 Study Guide

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ACC 221 1st EditionExam # 1 Study Guide Lectures: 1 - 12Lecture 1 (January 26) - Introduction to assets, liability, and owner’s equityWhat are the tree types of accounts, and how do they work? Assets – owned by the company, may include cash, equipment, supplies and inventoryDr. increases, Cr. Decreases account balancesLiabilities – claims that non-owners have to the assetsDr. decreases, Cr. Increases account balancesOwner’s equity – claims that owners have to the assetsDr. decreases, Cr. Increases account balancesAccounting formula:Assets = liabilities + owner’s equityTotal assets must always equal total liabilities + total owner’s equityWhat is the general ledger? The general ledger lists all individual transactions; trial balance equals the ending balancesfor each accountOnly positive numbers listed in the general ledger, Dr. always left side, Cr. Always right sideLecture 2 (January 28) - Getting to know the accounting systemWhat are the steps for the accounting system?General journal, general ledger, trial balance, balance sheetMake sure everything is in balanceAccounts are in balance, but not always correctIt is always possible to enter a wrong number, enter something at the wrong time, forgetan entry, put the entry into the wrong claims account or make an entry backwards (Dr. where you should Cr.)What is the common stock account?This represents the owner’s claim to assets. They are only used with corporations, as it s is made up of the investors who have bought shares of stock within the company. These individuals do not have direct access to the money.What is the General Journal? The general journal lists all accounts in date-order, and runs from the beginning to end of the accounting cycle. This includes the date, accounts affected, debits, credits, and a transaction description. These post directly into the general ledger.Lecture 3 (January 30) - Additional facts about accounting systemWhat do the asset, liability, and owner’s equity accounts include?AssetsCash, inventory, supplies, equipmentLiabilities Notes payable, interestOwner’s equityCommon stock, retained earningsEntries do not have to affect both sides of the account to stay in balance. An example of this is when the business uses cash to purchase additional inventory. This transaction would only affect the assets, yet the accounts still remain in balance.The accounting cycle has no set time constraints; it may last less than a month, a month, quarterly, annually, or any amount of time. Lecture 4 (February 2) - The Accounting SystemWhat are some of the basic entries for the accounting system?Sale of inventory to a customerDr. Cash, Cr. Retained earningsDr. retained earnings, Cr. InventoryPaying rentDr. retained earnings, Cr. CashPaying wagesDr. retained Earnings, Cr. CashMaking a sale on creditDr. accounts receivable, Cr. Retained earningsDr. retained earnings, Cr. Inventory Collecting cash for accounts receivableDr. Cash, Cr. Accounts Receivable Pay interest to the bankEven if you don’t pay until the following month, you must include the transaction with the accounting cycle that it pertains to. Dr. Interest Payable, Cr. CashWhat is the account summary?The account summary is a list of individual accounts and expenses that is sent to investors,so they are able to view what is going on within the business. The summary consists of the sale of inventory, minus: the cost of inventory, rent, wages, and the bank’s claim to interest.Lecture 5 (February 4) - Detailing AccountsWhat are revenue and expense accounts?To make the creation of the account summary easier, we are adding a step to the accounting cycle in the general ledger. Rather than post revenue and expenses to the retained earnings account, we will first put them into individual accounts. These accounts include: Sales revenue, cost of goods sold, rent expenses, wages expense, and interest expense.At the end of the accounting period, these individual accounts are used to get the accountsummary, and then dumped into the retained earnings account to get the final balance forretained earnings, used on the balance sheets. At the end of the cycle, all revenue and expense accounts are emptied, always beginning at zero. The retained earnings account balance always continues to roll over through accounting periods. Lecture 6 (February 6) - Additional facts of new accountsWhat other factors influence the accounting system at this point?Cr. Into the sales revenue increases the account balance and will ultimately increase the retained earningsDr. into the expense accounts will increase the account expense balance and ultimately decrease the retained earnings If the sum of all expense accounts is greater than the sum of all revenue accounts, the company will have a net lossLecture 7 (February 9) - Closing accounts and post-closing trial balancesHow do you make the closing entries?Revenue accounts:Dr. Sales Revenue, Cr. Retained earningsExpense accountsDr. retained earnings, Cr. Expense accountsWhat is the post-closing trial balance?Shows the general ledger accounts and makes sure the closing entries have been made. Checks to make sure the ledger is in balance and that the company is prepared to move into a new accounting cycleWhat are the steps in the accounting cycle?Post entries to the general journalPost entries to the general ledgerComplete closing entries and finalize ledgerPre-closing trial balance to check that everything in balanceComplete income statement with temporary accountsMove revenue and expense accounts to retained earnings to get final balance Complete balance sheetPost-closing trial balanceHow do you purchase on account?Buy inventory on accountDr. inventory, Cr. Accounts payableMaking a partial payment Dr. Accounts Payable, Cr. CashPaying interestDr. Interest payable, Cr. Cash (Previous month)Dr. Interest Expense, Cr. Cash (Current month)Lecture 8 (February 11) - Intro to adjusting entriesHow does a service company work, versus a merchandising company?The accounting system works for any type of company, and there are only a few differences between the two types. In a service company, there are no inventory asset accounts, no costs of goods sold accounts. In addition, there are service revenue accounts that replace sales revenue accountsWhat are some basic account transactions?Buying supplies that you intend to use for less than 1 yearDr. Supplies expense, Cr. CashBill a customer with an invoice for services you have


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