ACC 221 1st Edition Exam 4 Study Guide Lectures 1 39 Lecture 1 January 26 Introduction to assets liability and owner s equity What are the tree types of accounts and how do they work Assets owned by the company may include cash equipment supplies and inventory Dr increases Cr Decreases account balances Liabilities claims that non owners have to the assets Dr decreases Cr Increases account balances Owner s equity claims that owners have to the assets Dr decreases Cr Increases account balances Accounting formula Assets liabilities owner s equity Total assets must always equal total liabilities total owner s equity What is the general ledger The general ledger lists all individual transactions trial balance equals the ending balances for each account Only positive numbers listed in the general ledger Dr always left side Cr Always right side Lecture 2 January 28 Getting to know the accounting system What are the steps for the accounting system General journal general ledger trial balance balance sheet Make sure everything is in balance Accounts are in balance but not always correct It is always possible to enter a wrong number enter something at the wrong time forget an 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 system What do the asset liability and owner s equity accounts include Assets Cash inventory supplies equipment Liabilities Notes payable interest Owner s equity Common stock retained earnings Entries 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 System What are some of the basic entries for the accounting system Sale of inventory to a customer Dr Cash Cr Retained earnings Dr retained earnings Cr Inventory Paying rent Dr retained earnings Cr Cash Paying wages Dr retained Earnings Cr Cash Making a sale on credit Dr accounts receivable Cr Retained earnings Dr retained earnings Cr Inventory Collecting cash for accounts receivable Dr Cash Cr Accounts Receivable Pay interest to the bank Even 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 Cash What 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 Accounts What 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 account summary and then dumped into the retained earnings account to get the final balance for retained 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 accounts What other factors influence the accounting system at this point Cr Into the sales revenue increases the account balance and will ultimately increase the retained earnings Dr 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 loss Lecture 7 February 9 Closing accounts and post closing trial balances How do you make the closing entries Revenue accounts Dr Sales Revenue Cr Retained earnings Expense accounts Dr retained earnings Cr Expense accounts What 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 cycle What are the steps in the accounting cycle Post entries to the general journal Post entries to the general ledger Complete closing entries and finalize ledger Pre closing trial balance to check that everything in balance Complete income statement with temporary accounts Move revenue and expense accounts to retained earnings to get final balance Complete balance sheet Post closing trial balance How do you purchase on account Buy inventory on account Dr inventory Cr Accounts payable Making a partial payment Dr Accounts Payable Cr Cash Paying interest Dr Interest payable Cr Cash Previous month Dr Interest Expense Cr Cash Current month Lecture 8 February 11 Intro to adjusting entries How 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 accounts What are some basic account transactions Buying supplies that you intend to use for less than 1 year Dr Supplies expense Cr Cash Bill a customer with an invoice for services you have completed Dr Account s receivable Cr Service revenue What is an adjusting journal entry No actions are prompting you to make these changes to the account t the end