ACCT 200 1st Edition Exam 1 Study Guide Lectures 1 8 Lecture 1 Financial acct measures business activities of a company and communicates those measurements to external parties for decision making purposes Sole proprietorship owned by a single person works for small operations that don t have a lot of risk Partnership owned by two or more persons e g dentists still pretty easy but slightly more risky Corporation legally separate from its owners Business activities to measure 1 Financing activities involves funding from external sources 2 Investing activities involves purchase and sale of long term resources restaurant oven tables cash register refrigerator etc 3 Operating activities involves transactions in primary operations of business BASIC ACCOUNTING EQUATION Assets liabilities stockholders equity Assets resources owned by the business cash accounts receivable land equipment supplies inventory Cash money in a checking account Accounts receivable money due from customers Supplies little things paper pencils Inventory things you sell the customers Liabilities debts owed to creditors accounts payable notes payable wages payable and unearned revenue Stockholders Equity owners claim to net value of company common stock retained earnings Revenue expenses net income then company can distribute dividends to investors Revenue expenses net loss Revenues the amounts earned from selling products or services to customers Expenses costs associated with running the business paying wages insurance rent etc Supplies on a balance sheet asset account supplies sitting in a cabinet waiting to be used Supplies expense supplies used up Revenue when earned provided a service for a customer sold an item to a customer they left with it work is completed for a customer provided a flight to the Bahamas for a customer not buying a ticket but actually transporting me is when the airline has revenue Expenses hired a repair crew to repair plumbing issue that was fixed At the end of each day a company has increased wage expense Communicating through financial statements financial statements are periodic reports published by the company for the purpose of providing information to external users Income statement financial statement that reports only the revenues and expenses over an interval of time shows whether the company was able to generate enough revenue to cover the expenses of running the business shows if there was a net profit or loss Statement of stockholders equity financial statement that summarizes the changes in stockholders equity over an interval of time consists of common stock retained earnings Retained earnings the cumulative profits of the business Balance sheet financial statement that presents the financial position of the company on a particular date summarized by basic acct equation assets liabilities stockholders equity Statement of cash flows financial statement that measures activities involving cash receipts and cash payments over an interval of time can be classified into three categories operating cash flows investing cash flows financing cash flows Lecture 2 GAAP Generally Accepted Accounting Principles Economic Entity Assumption running personal expenses through a business account would be a violation Periodicity Assumption just means regular reporting periods usually every year Going Concern Assumption means you should let investors know if you may go out of business Sarbanes Oxley Act SOX sends frauds to jail Unearned revenue is a liability advance payment prior to the customer actually getting the service or product like layaway or buying a plane ticket Pre paid expenses are assets Lecture 3 Transactions Journal Transaction Assets 1 sell stock 25 000 cash 25 000 2 borrow money cash 10 000 3 buy equipment cash 24 000 Liabilities Equity common stock note payable 10 000 Equipment 24 000 4 pay advance rent cash 6000 Prepaid rent 6000 5 buy supplies on account supplies 2300 acct payable 2300 6 service earnings 3600 cash 3600 retained 7 service on account earnings 2500 acct receivable 2500 retained 8 cash in advance cash 600 9 wages earnings 2800 cash 2800 retained 10 pay dividends cash 200 dividends 200 Effects on Accounts Dr Cr Dividends Revenue Expenses Com Stk Ret Earn unearned revenue 600 Assets Liabilities Assets Liabilities Equity A L com stk ret earn A L com stk beginning ret earn revenue expenses dividends Assets expenses dividends Liabilities com stk beg ret earn revenue simple math rearranging This side Dr and Cr this side Dr and Cr Lecture 4 When you pay a phone bill you have less cash asset and less retained earnings equity Cash is decreased so credited Retained earnings are going down because an expense went up and when an expense increases it is debited So for every business transaction there should be a debit and a credit Total debits must equal total credits in a trial balance the summary of the ending balance in each account is called a trial balance Debits are referred to as left and credits as right Debits are written above credits and credits should be indented Moving debit and credit info from the journal to individual accounts in the general ledger is called posting Assets and expenses should have a debit balance Dividends have to have a debit balance Liabilities and revenues should have a credit balance Common stock has to have a credit balance A checking account should be a debit but if it has a credit then it is overdrawn It is rare to credit an expense Example Debit Credit 1 Company receives 20 000 cash in exchange for common stock Cash 20 000 Common Stock 20 000 2 Rented computer for 100 month made June payment by check Rent expense 100 Cash 100 3 Bought supplies on account for 1950 Supplies 1950 Acct payable 1950 4 Bought furniture 2500 cash and 1500 on account Equipment 4000 Cash 2500 Acct payable 1500 5 Advertised for 200 cash Adv Expense 200 Cash 200 6 Received advance payment of 500 Cash 500 Unearned revenue 500 7 Paid utilities for June 400 Utilities expense 400 Cash 400 8 Paid 60 900 of a 1500 liability Acct payable 900 Cash 900 9 Collected fees for 3900 Cash 3900 Revenue 3900 10 Paid salary of 2000 Salary expense Cash 2000 2000 Lecture 5 Acct receivable means you will get cash acct payable means you will need to pay Service revenue revenue fees revenue means you have earned the money Unearned revenues means you collected the money before you provided the customer with the good service unearned revenues are liabilities which have a credit