ACCT 200 1st Edition Final Exam Study Guide Lecture 1 22 Lecture 1 BASIC ACCOUNTING EQUATION Assets liabilities stockholders equity 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 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 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 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 3 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 Lecture 4 Review of adjusting journal entries Prepaid expenses supplies prepaid insurance prepaid rent Original entry dr prepaid insurance cr cash Adjusting entry dr insurance exp increase expense decrease equity cr prepaid insurance decrease asset Only adjust for amount that has been used Adjusting entries NEVER change cash account Depreciation we record to show usage of long term equipment such as vehicles Adjusting entry dr depreciation expense cr accumulated depreciation Accumulated depreciation is a contra asset listed with the assets but is subtracted from assets Equipment 100 000 dr Accumulated depreciation 10 000 cr Net equipment 90 000 net value dr Accrued revenues revenue earned but not recorded interest on investments record a sale on account Adjusting entry dr acct receivable cr revenue Accrued expenses have been incurred but not yet recorded Adjusting entry dr expense wages due cr liability Lecture 5 Internal Controls Know basic what when and companies of Sarbanes Oxley Act SOX of 2002 Misuse of company resources includes wasting your time at work being on Facebook sending personal emails through work address etc Monitoring is when managers make sure employees are doing what they re supposed to do and aren t using loopholes Examples of control activities read in book too Preventive controls 1 Separation of duties 1 person per job to pinpoint who is causing problems 2 Physical controls such as locks passwords security cameras 3 Proper authorization limit access to information 4 Employee management supervision and training Detective controls 1 Reconciliations keeping inventory 2 Performance reviews management giving feedback for improvement CEO and CFO are ultimately responsible for the company s internal controls Errors are more likely than fraud Who you hire is all important Bank Side Start w bank statement balance Add deposits in transit Deduct outstanding checks expenses charges Book Side Start w check book balance Deduct NSF Deduct service fee Add notes collected by bank Add interest related to notes receivable errors made Adjusted bank balance Adjusted book balance KNOW NSF check dr accounts receivable cr cash Service fee expense dr service fee expense cr cash Notes receivable dr cash cr notes receivable Lecture 6 Sales discount incentive to pay quickly 2 10 n 30 means customer receives 2 discount if they pay within 10 days no discount if over 10 days still must be within 30 days Sales discount contra revenue account debit balance reduces revenues Write off means the company is never going to receive the money Balance of uncollectible accounts means either overestimated last period still waiting on some accounts receivable Acct receivable transactions Sales Sales return Sales discount Trade discount Collection from customer w out discount Receivables value on balances at true collectible value net realizable value Set up contra asset account allow for uncollectible accounts Lecture 7 Matching bad debt expense is recorded in same year as revenues H Jones company goes bankrupt so 1000 they owe will never get paid write off the account removes acct receivable and reduces allowance for uncollectable acct Allow for uncollectable acct Acct receivable 1000 1000 90 000 in acct receivable 5 uncollectable 90 000 05 4500 in allow acct as end balance Interest rates are always annual for this class don t forget to adjust calculations for interest based on how many months are included Lecture 8 FIFO best method LIFO good for tax purposes to save money 10 15 of companies use LIFO isn t allowed internationally Weighted Average Cost simplest If costs are rising LIFO lowest end inventory highest COGS lowest net income FIFO highest end inventory lowest COGS highest net income Weighted Average Cost in the middle for all Purchase transactions company is buying inventory to resell later to customers Buy inventory on acct terms 2 10 net 30 3000 3 1 Inventory 3000 Acct payable 3000 Look at purchase