Accounting, Exam 1, Chapter 1

Statement of owner's equity

A summary of the changes in owner's equity that have occurred during a specific period of time.

Accounting Equation (basic accounting equation)

Assets = Liabilities + Equity

Williams Travel Service pays $100 cash for salaries expense. How would this transaction affect the accounting equation?

Assets decrease and Equity decreases

Smith Decorating Services pays $200 cash for rent expense. How would this transaction affect the accounting equation?

Assets decrease and Equity decreases.

Pack Company had the following data: Service Revenue = $10,000 Cash = $12,000 Accounts Receivable = $3,000 Office Supplies = $4,000 Rent Expense = $2,000 Salaries Expense = $1,200 Utilities Expense = $800 Accounts Payable = $3,200 What is the amount of total Assets to report on the Balance Sheet for Pack Company?

Assets for this company are Cash, Accounts Receivable, and Office Supplies. $12,000 + $3,000 + $4,000 = $19,000 in total assets.

Williams Travel Service purchased land for cash. How would this transaction affect the accounting equation?

Assets increase and Assets decrease.

Williams Travel Service performed travel booking services for a customer on account for $1,200. How would this transaction affect the accounting equation?

Assets increase and Equity increases.

Williams Travel Service purchased office supplies on account for $300. How would this transaction affect the accounting equation?

Assets increase and Liabilities increase

Williams Travel Service purchased office supplies on account for $300. How would this transaction affect the accounting equation?

Assets increase and Liabilities increase.

Assets = Liabilities + Equity

Assets: what a company ownes Liability: what a company owes to others Equity: difference between assets and liabilites

Equity Equation

Beginning Capital + Owner contribution (or minus Owner withdrawal) + Net income (or minus Net loss) = Ending Capital

Affects on Accounting Equation

Buy asset (computer) on credit: Asset (equipment) increases & Liability increases Buy inventory (bats) on credit: Asset (inventory) increases & Liability increases Pay Rent: Asset (cash) decreases & Equity decrease Pay a credit card (creditor): Asset (cash) decreases & Liability decreases Sell services for cash: Asset (cash) increases & Equity increases Sell services on account: Assets increase & Equity Increases

Donler Tax Service performed services on account for $10,200 and paid expenses totaling $5,400. What is Donler's Net Income or Net Loss?

Rev - expenses = net income / $10,400 - $5,400 = $4,800

The following are types of business organizations EXCEPT:

Sole Proprietorship, Partnerships, Corporations, and Limited Liability Companies are all ways a business can be organized. Stockholders are owners of a corporation and NOT a type of business

Pack Company had the following data: Service Revenue = $10,000 Cash =$12,000 Accounts Receivable =$3,000 Office Supplies = $4,000 Rent Expense = $2,000 Salaries Expense =$1,200 Utilities Expense = $800 Accounts Payable = $3,200 What is the amount of total Liabilities to report on the Balance Sheet for Pack Company?

The only liability listed is Accounts Payable with a balance of $3,200

Awesome Sweets sells different kinds of cookies, candies, and other sweets. Awesome Sweets has a return on assets (ROA) of 6.9% . How does Awesome Sweets know if the 6.9% ROA is a good return to attract possible investors?

The return on assets (ROA) would have to be compared to the ROA's of competing businesses that sell the same type of products. If 6.9% is higher than the ROA of other companies in the same type of business, then it would be a good investment.

Assets DON'T include

notes payable, accounts payable, salaries payable, owner's equity

Average Total Assets

(Beginning Total Assets + Ending Total Assets) / 2

4 Financial Statements in order

1. Income Statement 2. Statement of Owner's Equity 3. Balance Sheet 4. Statement of Cash Flows

Sole Proprietorship

A business owned by one person

Corporation

A business owned by stockholders who share in its profits and designed to limit personal liability exposure of owners to​ entity's debts

Income Statement

A financial statement showing the revenue and expenses for a fiscal period.

Balance Sheet

A financial statement that reports assets, liabilities, and owner's equity on a specific date.

Cost principle

A principle that states that acquired assets and services should be recorded at their actual cost (not fair market)

Asset

An economic resource that is expected to be of benefit in the future - Cash, office furniture, land, inventories, building, accts receivables, equipment, office supplies

Audit

An examination of a​ company's financial statements and records

Revenue

An increase in owner's equity resulting from the operation of a business (sale of goods and or services)

Liability

Debts that are owed to creditors - Money borrowed from lenders, wages payable, notes, purchases on credit cards

Affects on Equity

Decrease in Equity: - Bills (utilities, salary, rent, advertising etc) - Owner withdraw: Increase in Equity: - Service and goods revenue - Owner contribution

The field of accounting that focuses on providing information for external decision makers is:

Financial Accounting

FASB

Financial Accounting Standards Board

The guidelines for accounting information are called:

Generally Accepted Accounting Principles (GAAP)

Where do you find the net income or loss for a company?

Income Statement

IFRS

International Financial Reporting Standards Set of global accounting​ guidelines, formulated by the IASB

Return on Investment (ROI)

Net Income / Average total Assets

Net Income

Net Income = Revenues - Expenses Amount by which revenues exceed expenses

Net Loss

Net Loss = Expenses - Revenues The amount by which expenses exceed revenues.

Tanger Company had the following data: Service Revenue = $10,000 Rent Expense = $2,000 Salaries Expense = $1,200 Utilities Expense = $800 What is the Net Income for Tanger Company?

Net income is revenue less expenses. So $10,000 - $2,000 - $1,200 - $800 = $6,000 in net income.

Owner Capital increases when

Owner contributes and/or there is net income.

Owner Capital decreases when

Owner withdraws money and/or there is a net loss

Creditors

People who lend money

Jones Company had net income of $10,000 for the year. Beginning total assets were $150,000 and ending assets were $200,000. What is Jones Company's return on assets (ROA) for the year?

ROA = net income / average total assets $10,000 / [($150,000 + 200,000)/2 $10,000/$175,000 = .057 = 5.7%

Assets for Jones Company are $60,000. Equity is $20,000. How much are Liabilities for Jones Company?

Rearrange the equation: Assets = Liabilities + Equity to Assets - Equity = Liabilties $60,000 - $20,000 = $40,000

Assets for Smith Company are $30,000. Liabilities are $20,000. What is the Equity for Smith Company?

Rearrange the equation: Assets = Liabilities + Equity to Assets - Liabilities = Equity $30,000 - $20,000 = $10,000

Statement of Cash flows

Reports on a business's cash receipts and cash payments during a period

Income Statement

Reports the Net Income or Net Loss of a company during a fiscal period

SEC (Securities and Exchange Commission)

U.S. governmental agency that oversees the U.S. financial markets

Graff Company had the following data for the month of November: Graff, Capital, November 1 = $10,000 Net Income = $2,000 Graff, withdrawals = $1,200 What is the amount of Graff, Capital account as of November 30th?

When preparing the Statement of Owner's Equity, Net Income is added to the beginning account balance and withdrawals are subtracted. $10,000+$2,000-$1,200 = $10,800

Partnership

a business owned by two or more people

Which financial statement is prepared first?

income statement

Faithful Representation

information that is complete, neutral, and free from error

A field of accounting that focuses on providing information for internal decision makers is:

managerial accounting