Chapter 1 (acct) learn smart

The account that would decrease if Hillary's hair salon decides to pay $40 cash dividends to its shareholders.

- cash account

If Hillary's hair salon decides to pay $40 cash dividends to its shareholders

- the cash will decrease

When a business provides a service to a customer "on credit", it means that

-an asset has been created or increased -the business will receive payments for its services at a later time. -accounts receivable will be increased

Financial Statements

-company name -the date or time period the financial statement covers -the title of the statement

Bob's bakery is making a partial payment of $70 for baking supplies it purchased in a previous month

-decreasing the accounts payable account - and decreasing the cash account

What affects equity?

-dividends -common stock -expenses -revenues

The statement of retained earning explains changes in equity from net income (or loss) and from any ___

-dividends over a period of time

Expenses effect equity

-if expenses increase, then total equity decreases -Higher expenses resuly in lower total equity -revenues that increase equity have many forms, such as consulting services and rental revenues

Order in which company prepares financial statements

-income statement -statement of retained earnings -balance sheet -statement of cash flow

The record of supplies for cash

-increase to (supplies) and a decrease to (cash)

Dividends

-outflow of resources to stockholders

Assets

-resources controlled by a firm -resources with expected future benefits -an amount owned

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

-salaries expenses will be increased -equity will be decreased

Balance Sheet

-supplies -equipment -accounts payable -cash -retained earning, 12/31

When supplies are purchase on credit it means that

-the accounts payable account will be increased -the business will pay for the supplies at a later time -a liability has been incurred

liability

-the company obligations to provide assets, products or services to others -an amount owed to creditors -a creditors claims against the assets of a business

Balance Sheet

-the date line shows a specific date -the name of the financial statement is listed after the name of the company -the company name is listed at the top of the heading

Dividends of $60 cash are paid to the corporation stockholders. Transaction:

-the dividends account is increasing. Equity is decreased.

An income statement reports a company's net income or net loss during a period.

-wages expense -service revenue -rent revenue -rent expense

Accounts classified as liabilities

-wages payable -notes payable -accounts payable -taxes payable

Dividends on equity

A decrease in owner's equity.

Financial Statements

A single ruled line denotes and addition or subtraction and double underlines indicate the final totals

ABC Co. performs $200 of services for a customer, but does not get paid right away. Demonstrate how ABC Co. would record this transaction in the accounting equation by completing the following sentence.

ABC Co. would increase the Accounts (Receivable) account and increase the (Revenue) account in the accounting equation.

Full Disclosure Principle

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

Cost Principle

Accounting principle that prescribes financial statement information to be based on actual costs incurred in business transactions.

Both public and private accounting

Accounting specialists in the this area of accounting are highly regarded

Expanded Accounting Equation

Assets = Liabilities + Common Stock + Dividends+ Revenue- Expenses

Owner Investments

Assets put into the business by the owner.

common stock

Corporation's basic ownership share; also generically called capital stock.

General accounting principle

Derived from long-used and generally accepted accounting practices.

Owner investments cause a(n) _______ in equity

Increase

If a customer makes a partial payment of $100 on a service for which you have already billed him, you would record this transaction:

Increase cash and decreasing accounts receivable

Bob's bakery receives its utility bill of $800 for the month and pays it immediately. Record this transaction in the accounting equation:

Increase expenses and decrease cash

Jackson's catering company provided cookies worth $3,000 to the local college. The college paid immediately. The transaction:

Increasing Cash; increasing Revenues

Sally decided to start a sea shell business organized as a corporation. Her initial investment in the business consisted of $10,000 in cash in exchange for common stock. Transaction:

Increasing cash; increase common stock

Accounts Payable

Is a liability account

How would you characterize a company's accounts receivable account?

It's an asset account

Net Income Equation

Net Income = Revenues - Expenses

Business Entity Assumption

Principle that requires a business to be accounted for separately from its owner(s) and from any other entity.

Account that would belong on the statement and of retained earnings.

Retained earnings and dividends

correct definition of revenue

Revenues (increase) (equity)and are earned from the sale of products and services

The rules of entering transactions into the accounting equation

The accounting equation must always remain in balance so that assets always equal the sum of liabilities and equity.

Going Concern Assumption

The assumption that the company will continue in operation for the foreseeable future.

Private accounting

The field of accounting whereby accountants are employed by a business firm or a not-for-profit organization.

Revenue Recognition Principle

The principle that companies recognize revenue in the accounting period in which the performance obligation is satisfied.

Accounting Equation

The total of everything owned by a business must always equal to the total of what the business owes to creditors and owners

Public accounting

This area of accounting includes offering tax advice services and auditing services

Specific accounting principle

Usually created by a pronouncement from an authoritative body

share holder

an owner of shares in a company

Expenses

decrease equity (via net income)from costs of providing products and services to customers

Balance Sheet

describes a company's financial position (types of assets,liabilities, and equity)at a point in time.

Income statement

describes a company's revenues and expenses along with the resulting net income or loss over a period of time due to earnings activities

Dividends

earnings distributed to stockholders

Statement of Retained Earnings

explains changes in retained earnings from net income (or loss) and from any dividends over a period of time

Statement of Cash Flows

identifies cash inflows (receipts) and cash outflows (payments) over a period of time

Revenues

increase equity (via net income) from sales of products and services to customers

matching (expense recognition) principle

requires expenses to be reported in the same accounting period as the sales they helped produce

Equity

the owner's claims to the assets of the business, and is equal to asset minus liabilities -also called net assets -equals the residual interest in an entity's assets after deducting liabilities