Accounting Exam 1 Review Slides Chapter 1 Slides Assets Liabilities Equity Assets Cash Accounts Receivable Supplies Equipment Prepaid Insurance Rent Liabilities Accounts Payable Notes Payable Unearned Rent Equity Common Stock Revenue Dividends Expenses Using Accounting Equation to record economic events Using Accounting Equation to record economic events What are Economic Events Business transactions are exchanges that must be measured in monetary terms Not all economic events represent transactions such as natural disasters Each transaction has a dual effect on the accounting equation The accounting equation must remain in balance after each transaction Assets Assets 10 000 Liabilities Liabilities Equity Equity 5 000 10 000 5 000 15 000 Financial Statements 1 Income Statement 1 Income Statement 2 Statement of Retained Earnings 2 Statement of Retained Earnings 3 Balance Sheet 3 Balance Sheet 4 Statement of Cash Flows 4 Statement of Cash Flows Preparing Financial Statements Preparing Financial Statements Financial Statements are prepared directly from the Adjusted Financial Statements are prepared directly from the Adjusted Trial Balance Trial Balance Income Statement Retained Earnings Statement Balance Sheet Financial Statements Income Statement Revenues and Expenses Net Income Revenues Expenses Consulting Revenue Salary Expenses Rent Expenses Utility Expenses Net Income 3500 1200 800 300 1200 Financial Statements Statement of Retained Earnings Subtract Dividends from NET INCOME Retained Earnings Dec 1 2013 Add Net Income Less Dividends Retained Earnings Dec 31 2013 0 1200 500 700 Financial Statements Balance Sheet Balance the accounting equation by listing assets in left column and liabilities and equity in the right column Assets 10500 Cash Acct Receivable 1000 1600 Supplies 3000 Equipment Liabilities Equity Acc Payable Notes Payable Total Liabilities 1400 4000 5400 Common Stock Retained Earnings 10 000 700 Total Assets 16 100 Total Liabilities Equity 16 100 Financial Statements Statement of Cash Flows List of all CASH transactions categorized into OPERATING INVESTING and FINANCING activities Cash Balance should equal Cash Account from Balance Sheet Operating Activities Cash received from clients Purchase supplies Cash for rent Cash for salaries Net Cash Investing Activities Purchase of equipment Net Cash for Investing Financing Activities Stock issued Dividends paid Cash Balance Dec 31 2013 Chapter 2 Slides The T account The T account A T account represents a ledger account and is a tool used to understand the effects of one or more transactions Title of Account T Account Left side Debit Right side Credit Friends don t let friends do Accounting without t accounts Anonymous Rule of Double Entry bookkeeping Rule of Double Entry bookkeeping Double entry accounting system Each transaction must affect two or more accounts to keep the basic accounting equation in balance Recording done by debiting at least one account and crediting another TOTAL DEBITS must always equal TOTAL CREDITS Normal Balance An account s balance is usually on the side that increases the account Determining Account Balances Determining Account Balances An account s balance is usually on the side that increases the account It is referred to as the Normal Balance Name of Account Debit Accounts with typical debit balances are Expenses Assets Dividends Credit Accounts with typical credit balances are Owners Equity Liabilities Revenues Remember the mnemonic memory device DEAD COLR Journalizing Transactions Journalizing Transactions using Double entry Bookkeeping using Double entry Bookkeeping GENERAL JOURNAL Description Debit Page 1 Credit Date 2012 Sep 1 Travel Expense Cash Payment for Plane fare 300 300 Trial Balance Terps Company Unadjusted Trial Balance December 31 2013 Cash Accounts receivable Supplies Prepaid Insurance Equipment Accounts payable Unearned consulting revenue Common stock Dividends Consulting revenue Rental revenue Salaries expense Rent expense Utilities expense Total Debits 3 950 1 500 9 650 2 400 23 500 600 1 400 2 000 300 45 300 Credits 6 200 3 000 30 000 5 800 300 45 300 The trial balance lists The trial balance lists all account balances in all account balances in the general ledger If the general ledger If the books are in the books are in balance the total balance the total debits will equal the debits will equal the total credits total credits Searching for and Correcting Errors Searching for and Correcting Errors If the trial balance does not balance the error s must be found and corrected Make sure the trial balance Make sure the trial balance columns are correctly added columns are correctly added Recompute each account Recompute each account balance in the ledger balance in the ledger Make sure account balances Make sure account balances are correctly entered from the are correctly entered from the ledger ledger Verify that each journal entry is Verify that each journal entry is posted correctly posted correctly See if debit or credit accounts See if debit or credit accounts are mistakenly placed on the are mistakenly placed on the trial balance trial balance Verify that each original Verify that each original journal entry has equal debits journal entry has equal debits and credits and credits Chapter 3 Slides Matching Principle Matching Principle Recognizing Revenues and Expenses Match expenses with revenues in the period when the company makes efforts to generate those revenues revenues Let the expenses follow the The Basics of Adjusting Process and Adjusting Entries The Basics of Adjusting Process and Adjusting Entries Adjusting Process The analysis and updating of accounts at the end of the period before the financial statements Adjusting entries The journal entries that bring the accounts up to date at the end of the accounting period Are needed to ensure that the revenue recognition and matching principle are followed Make it possible to report correct amounts on the balance sheet and on the income statement Are mandatory every time financial statements are prepared Types of Adjusting Entries Types of Adjusting Entries Types of Adjusting Entries Deferrals Accruals 1 Prepaid Expenses 3 Accrued Revenues Expenses paid in cash and recorded as assets before they are used or consumed 2 Unearned Revenues Revenues received in cash and recorded as liabilities before they are earned Revenues earned but not yet received in cash or recorded 4 Accrued Expenses Expenses incurred but not
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