ACCT 200 1st EditionExam 1 Study Guide: Lectures 1-8Lecture 1Financial acct – measures business activities of a company and communicates those measurements to external parties for decision-making purposesSole proprietorship – owned by a single person – works for small operations that don’t have a lot of riskPartnership – owned by two or more persons – e.g., dentists; still pretty easy but slightly more riskyCorporation – legally separate from its ownersBusiness activities to measure:1) Financing activities: involves funding from external sources2) 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 businessBASIC ACCOUNTING EQUATION: Assets=liabilities + stockholders’ equityAssets – resources owned by the business (cash, accounts receivable, land, equipment, supplies,inventory)Cash=money in a checking accountAccounts receivable=money due from customersSupplies=little things (paper, pencils…)Inventory=things you sell the customersLiabilities – 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 investorsRevenue<expenses=net lossRevenues=the amounts earned from selling products or services to customersExpenses=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 usedSupplies expense=supplies used upRevenue 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 fixedAt the end of each day a company has increased wage expenseCommunicating through financial statements: financial statements are periodic reports published by the company for the purpose of providing information to external usersIncome 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 lossStatement of stockholders’ equity – financial statement that summarizes the changes in stockholders’ equity over an interval of time; consists of common stock + retained earningsRetained earnings=the cumulative profits of the businessBalance 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 2GAAP – Generally Accepted Accounting PrinciplesEconomic Entity Assumption – running personal expenses through a business account would be a violationPeriodicity Assumption just means regular reporting periods, usually every yearGoing Concern Assumption means you should let investors know if you may go out of businessSarbanes-Oxley Act (SOX) – sends frauds to jailUnearned 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 assetsLecture 3Transactions JournalTransaction Assets Liabilities Equity(1) sell stock cash +25,000 common stock+25,000(2) borrow money cash +10,000 note payable +10,000(3) buy equipment cash -24,000Equipment +24,000(4) pay advance rent cash -6000Prepaid rent +6000(5) buy supplies on account supplies +2300 acct payable +2300(6) service cash +3600 retained earnings +3600(7) service on account acct receivable +2500 retained earnings +2500(8) cash in advance cash +600 unearned revenue +600(9) wages cash -2800 retained earnings -2800(10) pay dividends cash -200 dividends -200Effects on AccountsDr CrDividends + -Revenue - +Expenses + -Com. Stk. - +Ret. Earn. - +Assets + -Liabilities - +Assets=Liabilities + EquityA=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 4When 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 balanceDividends have to have a debit balanceLiabilities and revenues should have a credit balanceCommon stock has to have a credit balanceA checking account should be a debit but if it has a credit then it is overdrawnIt is rare to credit an expenseExample:Debit Credit(1) Company receives $20,000 cash in exchange for common stockCash 20,000Common Stock 20,000(2) Rented computer for $100/month, made June payment by checkRent expense 100Cash 100(3) Bought supplies on account for $1950Supplies 1950Acct payable 1950(4) Bought furniture - $2500 cash and $1500 on accountEquipment 4000Cash 2500Acct payable 1500(5) Advertised for $200 cashAdv. Expense 200Cash 200(6) Received advance payment of $500Cash 500Unearned revenue 500(7) Paid utilities for June $400Utilities expense 400Cash 400(8) Paid 60% ($900) of a $1500 liabilityAcct payable 900Cash 900(9) Collected fees for $3900Cash 3900Revenue 3900(10) Paid salary of $2000Salary expense 2000Cash 2000Lecture 5Acct receivable means you