RETL 261 1st Edition Exam 1 Study Guide Lectures 1 8 Lecture 1 August 22 Introduction to Accounting What is accounting List the four primary financial statements Accounting is the language of business consisting of a set of rules and methods GAAP for financial and economic data that is collected processed and summarized into reports by decision makers Primary Financial Statements Income Statement Statement of Owner s Equity Balance Sheet Cash Flow Statement Lecture 2 August 27 What are the 3 types of business ownership Sole proprietorship run business by yourself Partnership two or more people run business Corporation owned by a group of members What are the 3 types of operations Service business sells something you do Merchandising business sells and works with inventory Manufacturing business converts raw material into product What are the two main business objectives Profitability to make money Solvency to stay in business What is an income statement used for reports on Revenue and Expenses for a given period of time month year quarter through the equation Revenue Expenses Net Income Loss What is a balance sheet financial statement that measures assets liabilities and owner s equity at a specific point in time using the equation Assets Liabilities Owner s Equity What is a statement of owner s equity financial statement that looks at changes in ownership over a given period of time using the equation Beginning balance of owner s capital Additional investments by owner Net income Loss withdrawals by owner not an expense ending balance of owner s capital Lecture 3 August 29 What is the basic accounting equation Assets Liabilities Owner s Equity List the Generally Accepted Accounting Principles Business entity concept every business should be kept separate from the owner s and any other businesses Going concern concept we assume a business is going to keep on going or last forever Monetary unit assumption a businesses life is divided into equal time periods for reporting purposes Cost principle resources in accounting are recorded at their cost what a buyer and a seller agree to trade Lecture 4 September 3 What is an account and what are the 3 different types Account something you keep up with 3 types o Asset something you own that s worth value o Liability something you owe debt o Owner s equity owner s investment interest in business Debit Asset Credit How are the different accounts credited and debited increases decreases Owner s Equity Account Liabilities Debit Credit Debit Credit decreases increases decreases increases How would you record the events a an owner invested 5000 in a business b you purchased 1000 of equipment on credit c you collected 500 from a customer on account Owner invested 5000 cash in a business Cash A Capital OE Debit Credit 5000 5000 Purchased 1000 of equipment on credit Equipment A Accounts Payable L Debit Credit 1000 1000 Collected 500 cash from customer on account Cash A Debit Accounts Receivable A Credit 500 500 Lecture 5 September 5 What is a general journal and how do you make recordings on one Financial history book that is the first place where all financial information is recorded All the data is recorded in chronological order and each transaction is recorded in one place General Journal Date Sep 5 Account Titles and Explanations Debit First Credit Indented Cash A Reeves Capital OE Debit Credit 10000 10000 How would you record buying land and paying cash for it vs selling land and receiving cash for it Cash 5000 Land sold land and received cash Land 5000 VS 5000 Cash 5000 bought land and paid cash for it What are ledgers A complete record of financial transactions over the life of a company that are divided into different accounts They hold the account information that are needed to prepare financial statements and there needs to be a ledger for every account a business holds Lecture 6 September 10 What is a trial balance and what would an example of one look like Trial Balance listing of accounts and its balance Debit 94 850 1 575 1 250 10 050 Cash Accounts Recievable Office Supplies Office Equipment Accounts Payable Spade Capital Spade Withdrawal Fees Earned Rent Expense Credit 0 100 750 10 000 18 200 1 225 118 950 118 950 What is the Accounting Cycle Posting General Journal Ledgers Trial Balance Adjusting Process Ch 3 Financial Statements What is the Adjusting Process How would you record an adjusting entry for the following example If you started out with 1000 worth of office supplies but at the end of the year you only have 200 worth then you will have to adjust your records to better reflect the amount of office supplies you have for that time period Adjusting Process cleaning up or correcting of the accounting records before financial statements are prepared You would record the adjustment in the general journal like this Dec 31 Debit 800 Supplies Expense Office Supplies Credit 800 Lecture 7 September 12 What is Cash Basis Accounting vs Accrual Basis Accounting Cash basis accounting o DO NOT USE IN ACCOUNTING can manipulate net income loss o Recognize revenue only when receiving cash and only recognize expenses when paying cash Accrual Basis Accounting o Revenues are recognized recorded when they are earned and expenses are recognized recorded when they are incurred or used up o NOT WHEN CASH IS EXCHANGED How do you record an adjusting entry when a business provides a service earns revenue but will bill the customer later Dec 31 Accounts Receivable Service Revenue 800 800 How do you record an adjusting entry when you receive payment for work that won t be done until 3 months from now Oct 20 Cash 3000 Unearned Revenue liability 3000 Dec 31 Unearned Revenue 2000 Service Revenue 2000 Nov Dec How do you record an adjusting entry when you prepaid 2400 for a 12 month insurance policy on Nov 1 Nov 1 Prepaid Insurance Asset 2400 Cash Asset 2400 At the end of December you ve used up 2 months of the insurance policy How do you adjust your accounting records 2400 12 months 200 200 x 2 400 Dec 31 Insurance Expense 400 Prepaid Insurance 400 What are the adjusting process rules cleaning up or correcting of the accounts before financial statements are prepared They are still journal entries o Follow same rules as general journal still need to balance Recorded at end of the accounting period They DO NOT involve cash Every adjustment will involve either a revenue or an expense but NEVER at the same time Lecture 7 September 17 What are the 5 types of