Accounting Chapter 1

Partnership

# of owners: a business owned by two or more people. combine skills/Assets. Business Taxation: No additional business income tax. Owner liability: Unlimited liability. partners are jointly liable for partnership debts. Legal entity: Not a separate legal entity Business life: Business ends with a partner death or choice.

Given that Jacobs chocolates company had beginning retained earnings of $4,000; net income during the period of $10,000; and dividends of $300 calculate the ending balance in the retained earnings account.

$13,700

The correct definition of a balance sheet includes which of the following statements?

-The statement reports assets, liabilities and equity at a point in time. -The statement reports the equality of the accounting equation at any point in time -The statement reports the financial position of a company at a point in time.

1.) Expenses 2.) Revenues 3.) Dividends 4.) Investments

1.) Decrease equity and are the cost of assets or services used to earn revenue 2.) Increase equity and are the assets earned from a company's earning activities 3.) Decrease equity and are the assets removed from the company and paid to the stockholders 4.) Increase equity and are assets an owner puts into the business

Describe the order in which a company prepares financial statements .

1.) Income statements 2.) Statement of retained earnings 3.)Balance sheet 4.) Statement of cash flows

Corporation

# of owners: 1 or more called stockholders; can get many investors by selling stock or shares of corporate ownership. Business taxation: Additional corporate income tax Owner liability: Limited liability. owners, called stockholders or share holders are not liable for corporate acts and debts. Legal entity: a separate entity with the same rights and responsibilities as a person. Business life: indefinite

Sole Proprietorship

# of owners: a business owned and managed by a single individual. Business Taxation: No additional business income tax. Owner Liability: unlimited liability. Owner is personally liable for proprietorship debts. Legal entity: Not a separate legal entity Business life: Business ends with owner death or choice.

Liability

A amount owed by a business. Test Def: future debt and obligations.

Expense

A decrease in owner's equity. Lau: everything you make use of

Limited Liability Company (LLC) "not tested"

A hybrid form of business enterprise that offers the limited liability of the corporation but the tax advantages of a partnership. # of owners: 1 or more called members. Business taxation: no additional income tax Owner liability: Limited liability owners called members are not personally liable for llc debts Legal entity: A separate entity with the same rights and responsibilities as a person Business life: indefinite

Johna's plant nursery company pays the salaries of its two employees . How will this transaction affect the accounting equation?

Equity will be decreased. Salaries expense will be increased.

Financial statements

Financial reports that summarize the financial condition and operations of a business.

Equities

Financial rights to the assets of a business. Equity: Equity represents the shareholders' stake in the company. As stated earlier, the calculation of equity is a company's total assets minus its total liabilities. Shareholder equity can also be expressed as a company's share capital and retained earnings less the value of treasury shares. KEY TAKEAWAYS There are various types of equity, but equity typically refers to shareholder equity, which represents the amount of money that would be returned to a company's shareholders if all of the assets were liquidated and all of the company's debt was paid off. We can think of equity as a degree of ownership in any asset after subtracting all debts associated with that asset. Equity represents the shareholders' stake in the company. The calculation of equity is a company's total assets minus its total liabilities.

Accounting

Planning, recording, analyzing and interpreting financial information.

Melton's Door Company pays rent on the building facilities of $5,000 on May 1. Show how to record this transaction in the accounting equation of melons door company.

Rent expense will be increased.

Capital

The account used to summarize the owner's equality in a business.

Owner's equity

The amount remaining after the value of all liabilities is subtracted from the value of all assets.

Financial Accounting Standards Board (FASB)

The primary accounting standard-setting body in the United States. Comes up with GAAP rules.

Ethics

The principles of right and wrong that guide an individual in making decisions.

GAAP (Generally Accepted Accounting Principles)

The standards and rules that accountants follow while recording and reporting financial activities.

Security and Exchange Commission (SEC)

U.S. government agency that oversees securities transactions, activities of financial professionals and mutual fund trading to prevent fraud and intentional deception.

cost-benefit

always weighing out the pros and cons

Dividends cause a (increase/decrease) ___________ in equity and are recorded in (dividends/equity)_______ account.

decrease, dividends account

A customer of Landen Consulting Company makes a $400 payment of cash on a bill for services provided. The company records the transaction into the accounting equation of Landen Consulting by:

decreasing accounts receivable, $400 increasing cash, $400

During September, Sallys Hair Salon purchased $900 of supplies on account. In. October, Sallys wants to make a payment of $200 on this bill. Record the October transaction into Sallys accounting equation by:

decreasing cash, $200 decreasing Accounts payable, $200

Measurement/Cost Principle

prescribes that accounting information is based on actual cost

Transaction

A business activity that changes assets, liabilities, or owner's equity.

Proprietorship

A business owned by one person.

Account

A record summarizing all the information pertaining to a single item in the accounting equation.

Sale on Account

A sale for which cash will be received at a later date.

In every financial statement, there exists single and double underlines. what are these for and when are they used?

A single-ruled line denotes an addition or subtraction Double underlines indicate the final totals.

Full Disclosure Principle

Accounting principle that dictates that companies disclose circumstances and events that make a difference to financial statement users.

Accounting equation

An equation showing the relationship among assets, liabilities, and owner's equity.

Revenue

An increase in owner's equity resulting from the operation of a business. Lau: Services that we provide/ Services that we give

Asset

Anything of value that is owned. Test Def: Resources to be used of future economic benefits.

Withdrawals

Assets taken out of business from owner's personal use.

Dividends of $60 cash are paid to the corporation's stockholders. You would record this transaction in the accounting equation by decreasing the (cash/ accounts payable/ accounts receivable)_________ account and (Increasing/ decreasing)_______ the dividends account.

Cash Increasing

Jackson's programming paid its June rent of $500 cash. Demonstrate how to use the accounting equation to record the transaction by completing the following sentence. Jackson would decrease ________(expenses/cash/revenues) and increase_________ (expenses/equity/revenues) in the accounting equation.

Cash expenses

What identifies only accounts that would appear on a balance sheet .

Common stock, equipment, Accounts payable

If a customer makes a partial payment of $100 on a service for which you have already billed him. You record the accounting equation by:

increasing cash and decreasing accounts receivable

The four major types of transactions that affect equity in a business are ________, _____________, accounts, dividends and common stock.

revenues, expenses,

retained earnings

the stockholders' equity created from business operations through revenue and expense transactions