ACCT 200 1st Edition Lecture 9 Outline of Last Lecture I 1 Step Income Statement II Activity 3 answers III Internal Controls IV E 4 4 V Cash VI Reconciling VII 4 2 A VIII Petty Cash Outline of Current Lecture I Chapter 1 Review II Chapter 2 Review III Chapter 3 Review IV Chapter 4 Review Current Lecture Chapter 1 Investing buying or selling long term assets such as land building equipment or vehicles Financing borrowing money or issuing stock external financing Operating revenues and expenses related to running the business day to day stuf Business forms Look up diference between proprietorship partnership or corporation Income statement Revenues minus less expenses Revenues also called sales revenues earned fees earned Statement of stockholders equity Shows changes in common stock and retained earnings Be prepared to calculate ending retained earnings Beginning retained earnings 10 000 revenues 100 000 expenses 80 000 dividends 5000 ending retained earnings 10 000 20 000 net income 5000 25 000 Balance sheet Assets 2 categories current assets net long term assets Total assets Liabilities current liabilities total liabilities Equity common stock end retained earnings Relevance should be able to confirm the value a predictive value read book Faithful representation complete neutral and free from material error Assumptions Economic entity keep diferent companies or personal and company separate can t buy personal items with company money Monetary unit can express things in dollars Periodicity can express things based on calendar regular time frames usually a month year Going concern staying in business longer than a year keep going 2 ways to test given example have to define which rule it breaks OR given name have to define which definition matches In appendix Chapter 2 Accounting equation assets liabilities equity assets liabilities common stock beginning retained earnings revenue expenses dividends Assets increase by 600 and liabilities decrease by 2000 change in equity is 6000 2000 8000 Debit and credit rules DEAD debit expenses assets dividends INCREASE Normal balance is what increases the account cash asset should have debit balance acct payable liability should have credit balance Rare to credit an expense reducing it won t have to for exam 1 Rare to debit revenues reducing it NEVER debit common stock in this class Should not credit dividends Analyzing transactions Purchase supplies on account Acct equation increase asset and increase liability Journal entry dr supplies 33 cr acct payable 33 Sale on account Acct equation assets increase and equity increases Journal entry dr acct receivable cr revenue Purchased supplies for cash Acct equation one asset increases and one asset decreases What is the change in TOTAL ASSETS No change Chapter 3 Matching principle record an expense when it happens Employee worked in June paid in July expense in JUNE Revenue recognition record revenue when earned when work is done or completed Airline when they provide the flight Magazine when they mail out the magazine Taxes when they complete the tax return Adjusting entries Prepaid expenses prepaid rent insurance supplies Original entry pay for prepaid asset Dr supplies 4000 cr cash 4000 Later count supplies and only 1000 are still left used 3000 Adjusting entry Dr Supplies expense 3000 cr supplies 3000 Unearned Revenue Advance payment from a customer dr cash cr unearned revenue Work gets done so now it is revenue Adjusting entry dr unearned revenue cr revenue Change liability change revenue Income statement changed statement of stockholders equity changed balance sheet changed Depreciation Accumulated depreciation is a contra asset negative asset since it has a credit balance Journal entry dr depreciation expense cr accumulated depreciation Equipment 10 000 Vehicles 5000 Accum depr Net Long Term Assets 1000 14 000 Accrued expenses record an expense due but not yet paid i e wages Dr expense cr liability Accrued revenues revenues earned but not yet recorded sale on account or interest on a note Dr receivable cr revenue All adjusting entries change a balance sheet account and income statement account All adjusting entries change net income income statement statement of stockholders equity balance sheet Closing process Temporary accounts get reset to zero yearly revenues expenses dividends Permanent accounts don t get reset yearly assets liabilities common stock and retained earnings Close revenues and expenses net income to retained earnings Close dividends to retained earnings Mirroring statement of retained earnings in stockholders equity statement Chapter 4 Know what Sarbanes Oxley is read in book Internal controls basic definition questions or which one a particular case violates Control environment Risk assessment Control activities Separation of duties Physical controls Proper authorization Employee management Reconciliations Performance evaluations Monitoring Bank reconciliations Bank side Start with bank statement balance Add deposits in transit Subtract outstanding checks adjusted bank balance Start with balance per checking account checkbook Subtract NSF checks bounced checks Subtract service charges Add collection of notes receivable interest check errors adjusted book balance Adjusted bank balance adjusted book balance In this class only companies will make mistakes not banks Journal entries NSF check dr acct receivable cr cash Service charge dr service fee expense cr cash Notes receivable dr cash cr notes receivable Interest on notes dr cash cr interest revenue Study guide questions after trial balance Net income 22 000 Ending retained earnings 0 22 000 4000 18 000 Current assets 55 28 5 2 90 000 Total assets 90 000 85 000 5000 25 000 155 000 Current liabilities 10 5 12 27 000 Total liabilities 27 000 60 000 87 000 Equity common stock 50 000 ending retained earnings 18 000 68 000 Total liabilities equity 87 000 68 000 155 000