ACCT 211 NOTES Chapter 1 Lesson 1 Introduction to Accounting Accounting Equation Total assets total liabilities total shareholders equity GAAP Generally Accepted Accounting Principle Assets Owned or controlled GAAP probable future bene t Ex cash inventory equipment accounts receivable Liabilities are owed obligations debt owed to creditors GAAP probable future sacri ce of resources Note Payable long term liability Accounts Payable Buying products on account or on credit Shareholders Equity Net Assets residual or leftover amount when assets are used to pay o liabilities claims of the owners Assets liabilities shareholders equity or Equity Shareholders Equity owner s claim Two Types Contributed Common stock C S Earned retained earnings Dividends Revenue Expenses Dividends Way of distributing earnings to shareholders Net income Revenue Expenses Contributed capital CC common stock or C S Earned capital retained earnings or R E total shareholders equity Four Basic Financial Statements Income Statement Net income Revenue expenses net income loss If revenues expenses Net Income If revenues expenses Net Loss Why prepare income statements rst Need net income loss because it is the link between the income statement and the statement of shareholders equity Statement of Shareholders Equity Balance Sheet Statement of Cash Flows CC R E calculated with Net Income from Income Statement Contributed Capital CC Common Stock Earned Capital Retained Earnings Total Shareholders Equity Equity Beginning Contributed capital New Common stock issued Ending Contributed capital Beginning Retained Earnings earned capital Net Income Revenue Expenses income statement Dividends Ending Retained Earnings Total shareholders equity is the link between the Statement of Shareholders Equity and the Balance Sheet Assets liabilities equity calculated with CC R E from statement of shareholders equity and net income from income statement Recording ending balances of assets liabilities and equity Total equity comes from the Statement of Shareholders Equity Ex At December 31 Describes changes in cash and ow of cash during time period In ow and out ow of cash Total cash from Operating Activities Income Statement total cash from Investing Activities Balance Sheet long term assets total cash from Financing Activities Balance Sheet long term and liabilities and equity Net Change in cash Beginning Cash Ending Cash Operating Activities Cash received from customers Expenses Investing Activities more than one year Equipment land Financing Activities Buying and selling assets that are held for long term use Long term borrowing and repaying of cash from lenders and the cash investments from and dividends to stockholders or loans Balance Sheet Point in time prepared AS OF or AT a particular date a snapshot in time Income Statement Statement of Shareholders Equity and Statement of Cash Flows period of time FOR THE PERIOD ENDING For month for year The Accounting Cycle 1 Analyze transactions and create journal entries 2 Post journal entries to ledger accounts T account 3 Balance ledger accounts and transfer balances to unadjusted trial balance 4 Determine required adjustments and create adjusting journal entries 5 Post adjusting journal entries to ledger accounts in 2 above creating new ledger accounts as needed 6 Rebalance ledger accounts and transfer balances to adjusted trial balance 7 Create nancial statements from adjusted trial balance 8 Create closing journal entries 9 Post closing journal entries to ledger accounts in 5 above 10 Rebalance ledger accounts and transfer balances to post closing trial balance Transaction Analysis Transaction 1 Investment by Owner Assets and equity are impacted Cash in assets increases Common stock in equity increases Transaction 2 Purchase Supplies for Cash Assets is impacted Cash decreases Supplies increases Transaction 3 Purchase Equipment for Cash Assets is impacted Cash decreases Equipment increases Transaction 4 Purchase Supplies on Credit Assets and liabilities are impacted Supplies in assets increases Accounts payable in liabilities increases Transaction 5 Provide Services for Cash Assets and equity are impacted Cash in assets increases Revenues in equity increases consulting revenue Transactions 6 and 7 Payment of Expenses in Cash Assets and equity are impacted Cash in assets decreases Expenses in equity Transaction 8 Provide Services and Facilities for Credit Assets and equity are impacted Accounts receivable in assets increases Accounts receivable instead of cash because the payment has not been received yet Revenues in equity increases consulting revenue services and rental revenue facilities Transaction 9 Receipt of Cash from Accounts Receivable Assets is impacted Cash increases Accounts receivable decreases Transaction 10 Payment of Accounts Payable Assets and liabilities are impacted Cash in assets decreases Accounts payable in liabilities decreases Transaction 11 Payment of Cash Dividend Assets and equity are impacted Cash in assets decreases Dividends in equity decreases Lesson 2 Language of Business Double Entry Accounting Debits and Credits Each party in a business transaction will receive something and give something in return T account is a visual depiction of a particular account Debit Enter on left side Credit Enter on right side Types of Accounts Cash A R Inventory A P Common Stock R E Sales Revenue Expense Total Debits Total Credits Debit and Credit Assets liabilities shareholders equity Left side debit Assets Right side credit Liabilities shareholders equity The balance in the accounts on the left side ASSETS of the equation assets will increase with debits and decrease with credits The balance in the accounts on the right side of the equation LIABILITIES and SHAREHOLDERS EQUITY will increase with credits and decrease with debits Shareholders Equity Debit Credit Contributed capital common stock Debit Credit Retained earnings Debit Credit Revenue Expense Debit Credit Debit Credit Contra Equity Dividend Debit Credit All this shit is in the Trial Balance shit Accumulated depreciation contra asset Record in credit account Prepaid expense Asset Accounting Journals Acquire Financing Lesson 3 Accrual Accounting GAAP IFRS Comparability and Consistency GAAP and IFRS GAAP Generally Accepted Accounting Principles Generally accepted accountants accept and adhere Principles guidelines GAAP will imply U S GAAP IFRS International Financial Reporting Standards In some respects international