ACCT 209 1nd Edition Exam 1 Study Guide Lectures 1 4 Note This study guide is organized by topic Intro to Accounting and Business Lecture August 27 Equations needed None What is Accounting Accounting is the process of analyzing recording and classifying business transactions and communicating that information to decision makers Compare accounting and bookkeeping Bookkeeping is a subset of accounting It is the recording part of accounting What is accounting needed for Business external decision making People outside day to day management Also Financial Accounting Business internal decision making Management accounting and other decisionmaking What is a business and what are the different functions and forms A business is an organization that uses resources to provide goods and services to earn a profit Functions Service Provide a service merchandising business Purchase good for resale and manufacturing Forms Proprietorship 1 owner with unlimited liability Partnership 2 or more owners with unlimited liability Corporation Business is an entity with limited liability and Limited Liability Company pass through entity with limited liability What are the generally accepted accounting principles GAAP SEC Securities and Exchange Commission Created in 1930 s by congress after stock market crash Have authority over accounting and financial disclosures for companies whose shares of ownership stock are traded and sold to the public FASB Financial Accounting standards board Primary responsibility for developing account principles Created by SEC IASB IFRS Internal accounting standards board international financial reporting standards PCAOB Public Company Accounting oversight board Created with the Sarbane Oxley Act What is the Primary objective of accounting information Provide information useful for decision making What are the four financial statements Income Statement Statement of Retained earnings balance sheet and statement of cash flows Note on homework over this topic On balance sheet always record assets as price purchased at Even if the value of assets goes down or up Analyzing Transaction and the Financial Statements Lecture September 3 and 10 Equations needed Income Statement Revenue Expenses Net income Income Statement for Retail industry Sales Cost of goods sold Gross Profit Operating costs Gross profit Net income Statement of Retained Earnings Beginning Retained Earnings Net Income Dividends End retained earnings Statement of Stockholders equity Common Stock Retained Earnings Stock holder equity Balance Sheet Assets Liabilities Stock holder Equity Stock Holders Equity equation Beginning Stockholders Equity Stock Issuances Net Income Dividends End Stockholders Equity Note Add if not in parenthesis subtract if in parenthesis Note Arrows show how statements are connected Assets Cash Land Building Equipment Furniture Cash Marketable Securities Accounts Receivable Notes Receivable Inventory Supplies Prepaid expenses Liabilities Accounts payable Notes Payable Wages Payable Interest payable Rent Payable Taxes Payable Unearned Revenue Stockholder Equity Common Stock Retained Earnings Problem 1 The accountant for Basic Corporation prepared the following list of the company s accounts with their balances as of December 31 20X1 Accounts payable 22 Accounts receivable 14 Advertising expense 53 Capital stock 17 Cash 32 Dividends 3 Equipment 42 Income tax expense 18 Land 22 Notes payable 20 Retained earnings Revenue 168 Salaries expense 44 Utilities expense 40 A What is the amount of total liabilities that will appear on the company s December 31 20X1 balance sheet Liabilities Accounts payable and Notes payable 22 20 42 B What is the amount of Net income that the company will report for 20X1 Revenue 168 Expenses 53 18 44 40 Net income X Solve for X X 13 C What amount of Retained earnings will appear on the company s December 31 X1 balance sheet Assets Liabilities Stock holder Equity 14 32 42 22 42 X Solving for X X 68 Stock Holder Equity Capital Stock Retained Earnings 68 17 X Solving for X X 51 Lane Company has been in business for five years As of December 31 2012 Lane had assets of 75 000 and liabilities of 25 500 After a successful year of business in 2013 the company s assets had increased by 13 500 and liabilities had increased by 6 900 A new investment of 3 600 was made into the business during 2013 and a dividend of 1 500 was paid to the owners Based on this information determine Lane Company s net income for the year 2013 Assets Liabilities Stockholders Equity 75 000 25 500 X Solving for X X 49 500 This is beginning Stockholders Equity Assets Liabilities Stockholders Equity 88 500 32 400 X Solving for X X 56 100 This is end Stockholders Equity Beginning Stockholders Equity Stock Issuances Net Income Dividends 50 000 3 600 X 1 500 End Stockholders Equity Solving for X X 4 500 56 100 Recording Business Transactions and Adjusting Entries What are the rules of Debit Credit Debit is left while right is credit Only Expenses Assets and Dividends increase on the debit side Easy way to remember Debits increase Expenses Assets Dividends Liabilities Stock Retained Earnings and Revenue increase on the credit side What is the difference between the Journal and the Ledger They both contain the same information but have a different format The journal is organized by transactions and the ledger is organized by account What is the Difference between the trial balance and the balance sheet The balance sheet shows assets liabilities stockholders equity while the trial balance shows that debits credits What is accrual basis accounting Transactions are recorded based on Revenue recognition Record revenue when earned the matching principle Record expenses in the same period as the revenue and requires adjusting entries What are the rules of adjusting entries They are dated at the end of the accounting period they always affect 1 income statement account and 1 balance sheet account and they don t affect cash