Accounting

Total liabilities on the balance sheet at the end of the year are $150,000, retained earnings at the end of the year is $80,000, net income for the year is $60,000, and contributed capital is $35,000. What amount of total assets would be reported on the balance sheet at the end of the year?

$265,000

The Cash T-account has a beginning balance of $21,000. During the year $98,000 was debited and $110,000 was credited to the account. What is the ending balance of Cash account?

$9,000 debit balance

What are the purposes of the (a) income statement, (b) the balance sheet, (c) the statement of cash flows, and (d) the statement of retained earnings?

(a) The purpose of the income statement is to present information about the revenues, expenses, and the net income of the entity for a specified period of time. (b) The purpose of the balance sheet is to report the financial position of an entity at a given date, that is, to report information about the assets, obligations and stockholders' equity of the entity as of a specific date. (c) The purpose of the statement of cash flows is to present information about the flow of cash into the entity (sources), the flow of cash out of the entity (uses), and the net increase or decrease in cash during the period. (d) The statement of retained earnings reports the way that net income and distribution of dividends affected the retained earnings of the company during the accounting period.

Which criteria must normally be met for revenue to be recognized according to the revenue recognition principle for accrual basis accounting?

- Service has been performed - The price is determinable - Evidence of arrangement exists

What are the 3 functions of management accounting?

1. Allocate costs between products sold, and fully and partly completed products that are unsold - COGS (Cost of Goods Sold) and inventory account 2. Provide relevant information to help managers make better decisions 3. Provide information for planning, control and performance measurement and continuous improvement

Define Accounting

Accounting is a system that collects and processes (analyzes, measures, and records) financial information about an organization and reports that information to decision makers.

What would a failure of adjusting entry to recognize accrued salaries payable cause?

An understatement of expenses and liabilities and an overstatement of shareholders' equity.

What is the T-account used for?

Analyzes the debits and credits to a single account in the accounting system.

Three basic components of the financial statements

Balance sheet Income statement Statement of cash flows

Briefly distinguish financial accounting from managerial accounting

Financial accounting involves preparation of the four basic financial statements and related disclosures for external decision makers. Managerial accounting involves the preparation of detailed plans, budgets, forecasts, and performance reports for internal decision makers.

How are assets listed on the balance sheet?

From most liquid to least liquid

On October 1, 2011, the $12,000 premium on a one-year insurance policy for building was paid and recorded as Prepaid Insurance. On December 31, 2011 (end of the accounting period), what adjusting entry is needed?

Insurance Expense (+E) 3,000 Prepaid Insurance (-A) 3,000

3 examples of assets

Investments, Land, Prepaid Expense Not an asset: Contributed Capital

What distinguishes financial accounting from managerial accounting?

Management accounting is oriented more toward the planning and control aspects of management.

In what order do the three sections of the statement of cash flows usually appear when reading from top to bottom?

Operating, Investing, Financing

Retained earnings

Retained earnings is increased by the net income and decreased by a net loss. Retained earnings is a component of stockholders' equity on the balance sheet. Retained earnings represents earnings not distributed to stockholders in the form of dividends.

Balance sheet

The accounts shown on a balance sheet represent the basic accounting equation for a particular business entity. The retained earnings balance shown on the balance sheet must agree with the ending retained earning balance shown on the statement of retained earnings. The balance sheet reports the amount of assets, liabilities, and stockholders' equity of an accounting entity at a point of time.

What does the balance sheet report?

The balance sheet reports the changes in specific account balances over a period of time.

With what should the total change in cash as shown near the bottom of the statement of cash flows for the year agree with?

The difference in cash when reviewing the comparative balance sheet.

Explain the equation for the balance sheet. Define the three major components reported on the balance sheet.

The equation for the balance sheet (also known as the basic accounting equation) is: Assets = Liabilities + Stockholders' Equity. Assets are the probable (expected) future economic benefits owned by the entity as a result of past transactions. They are the resources owned by the business at a given point in time such as cash, receivables, inventory, machinery, buildings, land, and patents. Liabilities are probable (expected) debts or obligations of the entity as a result of past transactions which will be paid with assets or services in the future. They are the obligations of the entity such as accounts payable, notes payable, and bonds payable. Stockholders' equity is financing provided by owners of the business and operations. It is the claim of the owners to the assets of the business after the creditor claims have been satisfied. It may be thought of as the residual interest because it represents assets minus liabilities.

Explain the equation for the income statement. What are the three major items reported on the income statement?

The equation for the income statement is Revenues - Expenses = Net Income (or Net Loss if the amount is negative). Thus, the three major items reported on the income statement are (1) revenues, (2) expenses, and (3) net income.

Explain why the income statement and the statement of cash flows are dated "For the Year Ended December 31", whereas the balance sheet is dated "At December 31, 2010."

The income statement and the statement of cash flows are dated "For the Year Ended December 31, 2010," because they report the inflows and outflows of resources during a period of time. In contrast, the balance sheet is dated "At December 31, 2010," because it represents the resources, obligations and stockholders' equity at a specific date.

What does the income statement report?

The income statement reports revenues and expenses for one accounting period (e.g. one year).

What are management accounting reports prepared for?

To meet the needs of decision makers within the firm

What is the primary objective of management accounting?

To provide management with information useful for planning and control of operations.

Describe the dual effects concept.

When one records a transaction in the accounting system, at least two effects on the basic accounting equation will result.

Assuming costs are represented on the vertical axis and volume of activity on the horizontal axis, which of the following costs would be represented by a line that is parallel to the horizontal axis? a. total direct material costs b. a consultant paid £75 per hour c. employees who are paid £10 per hour d. rent on exhibit space at a convention

d.

When expenses exceed revenues in a given period...

retained earnings are decreased