BMGT 220 Chapter 1 Assets resources owned by a business Liabilities the rights of creditors are the debts of the business Stockholders equity Rights of the owners for a corporation Owner s equity rights of owners for a proprietorship partnership or limited liability company Assets Cash notes receivable land building equipment store supplies accounts receivable Creditors claim on assets accounts payable notes payable wages payable interest payable taxes payable Owners claim on assets Retained earnings and contributed capital Revenues are resources generated by a business through selling of products or providing services Expenses are the costs of generating revenues Could be resources such as cash that have been used up or they could increase the liabilities for the business Dividends are the distribution of cash or other assets to stockholders Dividends reduce retained earning However dividends are not an expense Financial Statements Income Statement 1 2 Statement of retained earnings 3 Balance sheet 4 Statement of cash flows Income statement describes a company s revenues and expenses along with the resulting net income or loss over a period of time due to earnings activities Balance sheet describes a company s financial position at appoint in time Ratio of liabilities to stockholder s equity Total liabilities Total stockholders equity BMGT 220 Chapter 2 Assets liabilities Stockholder Equity Stockholder Equity Common Stock Dividends Revenues Expenses Retained Earnings An account is a record of increases and decreases in a specific asset liability equity revenue or expense item The general ledger is a record containing all accounts by the accounting system used by a company Debit is an increase left Expenses Assets and Dividends Credit is an increase right Owners Equity Liabilities and Revenues Ledger is a collection of all accounts for an information system A company s size and diversity of operations affect the number of accounts needed Double entry accounting system Journal entry made for each transaction must affect two or more accounts At least one debit and one credit Total value of debits must equal total value of credits Notes payable banks The trial balance may balance even when 1 A transaction is not journalized 2 A correct journal entry is not posted 3 A journal entry is posted twice 4 5 Offsetting errors are made in recording the amount of a transaction Incorrect accounts are used in journalizing or posting Process of financial Reporting Journal entry 1 Analyze transaction 2 3 Posting to ledgers 4 Trial balance 5 Financial statements Income Statement a b Statement of retained earnings c Balance sheet Specific point d Statement of cash flows BMGT 220 Chapter 3 Adjusting process the analysis and updating of accounts at the end of the period before the financial statements Adjusting entries are 1 Journal entries that bring the accounts up to date at the end of the accounting period 2 Are needed to ensure that the revenue recognition and matching principle 3 Make it possible to report correct amounts on the balance sheet and on the are followed income statement 4 Are mandatory every time financial statements are prepared An adjusting entry is recorded to bring an asset or liability account balance to its proper amount Paid received cash before Expense revenue recognized Prepaid deferred expenses Unearned deferred revenues Adjustments Paid received cash after Expense revenue recognized Accrued expenses Accrued revenues Types of adjusting entries 1 Deferrals a Prepaid expenses expenses paid in cash and recorded as assets before they are used or consumed b Unearned revenues revenues received in cash and recorded as liabilities before they are earned 2 Accruals recorded recorded a Accrued revenues revenues earned but not yet received in cash or b Accrued expenses Expenses incurred but not yet paid in cash or Each adjusting entry always involves at least one Balance sheet account asset liability and one Income Statement account revenue expense Adjusting entries never involve the Cash account Adjusting entries are generally made at the End of the accounting period Tips for adjusting entries Balance sheet Income statement Cash is never involved End of accounting period Adjusting entry for prepaid expenses Increases debits and expense account 1 2 Decreases credits an asset account Depreciation Statement Presentation 1 Accumulated depreciation is a contra asset account 2 Appears just after the account it offsets equipment on the balance sheet Unearned Deferred Revenues Cash received in advance of providing product service 1 Decrease debut to a liability account 2 Increase Credit to a revenue account Adjusting entries for accrued revenues Revenues earned in a period that are not received or recorded 1 Increase debits an asset account 2 Increases credits a revenue account Adjusting entries for accrued expenses costs incurred in a period that are both unpaid and unrecorded 1 2 Increases debits and expense account Increases credits a liability account After all adjusting entries are journalized and posted the company prepares another trial balance from the ledger accounts adjusted trial balance BMGT 220 Chapter 5 Service businesses Provide a service to earn revenue Net income revenues expenses Merchandising companies buys and sells goods i e best buy cvs target etc Wholesaler Retailer Consumer Sales Revenue Cost of goods sold Gross Profit Gross Profit Operating expense Operating Income Sales revenue operating expense Operating Income Cost of goods sold and gross profit not used in a service business Cost of beginning inventory net cost of purchases cost of good available for sale Cost of ending inventory cost of goods sold cost of goods available for sale Periodic Inventory System Merchandise inventory at the end of the period is determined by taking a physical count of inventory on hand Perpetual Inventory System Amounts of inventory purchased available for sale and sold are continuously updated in the inventory records Flow of costs in perpetual inventory system 1 Purchases increase merchandise inventory 2 Freight costs purchase returns and allowance and purchase discounts are included in Merchandise inventory 3 Cost of goods sold is increased and merchandise inventory is deceased for each sale 4 Physical count done to verify merchandise inventory balance Flow costs in a periodic Inventory System 1 Purchases of merchandise increase purchases 2 Ending inventory determined by
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