Intro to Accounting Chapter 2
At the end of the first month of operations for Jackson's Catering Service, the business had the following accounts: Cash, $21,000; Prepaid Rent, $500; Equipment, $7,500 and Accounts Payable $4,000. By the end of the month, Jackson's had earned $32,000 of Revenues, and used $1,800 of Utilities Expenses, $4,000 of Rent Expense and $3,600 of Salaries Expenses. Calculate the net income to be reported by the company for this first month.
$22,600
At the end of its first year of operations, Shapiro's Consulting Services reported net income of $27,000. They also had account balances of: Cash, $16,000; Office Supplies, $3,200, Equipment, $24,000 and Accounts Receivable, $8,000. The owner's total investment for this first year was $15,000 and the owner withdrew $2,000 for personal use. Calculate the ending balance to be reported on the Statement of Owner's Equity in the Owner's Capital account.
$40,000
At the end of the first month of operations for SloMo Delivery Service, the business had the following accounts: Accounts Receivable, $11,350; Prepaid Insurance, $400; Equipment, $26,200 and Cash, $21,650. On the same date, SloMo owed the following creditors: Simpson Supply Company, $17,000; Allen Office Equipment, $14,500.The total assets for the SloMo Delivery Service are:
$59,600
What is a balance sheet?
A balance sheet is a formal report of the financial position of a business on a certain date. It reports the assets, liabilities, and the owner's equity of the business. -The amount and types of property the business owns -The amount owed to creditors -The owner's interest
business transaction
A financial event that changes the resources of a firm. For example, purchases, sales, payments, and receipts of cash are all business transactions. The accountant analyzes each business transaction to decide what information to record and where to record it.
Statement of Owner's Equity
A formal report of changes that occurred in the owner's financial interest during a reporting period.
Break Even
A point at which revenue equals expenses
Accounts Payable
Amounts a business must pay in the future.
Liabilities
Amounts owed to creditors. Debts or obligations of a business
On account
An arrangement to allow payment at a later date; also called a charge account or open-account credit.
What is an expense?
An expense is an outflow of cash, the use of other assets, or incurring liability. Expenses include the coasts of any materials, labor, supplies, and services used to produce revenue. Expenses cause a decrease in owner's equity
What is an income statement?
An income statement is a formal report of business operations covering a specific period of time. It is also called a profit and loss statement or a statement of income and expenses.
Fundamental Accounting Equation
Assets = Liabilities + Owner's Equity
What are assets?
Assets are property owned by a business
Choose the option below that reflects the correct order in which to prepare the three financial statements
Balance sheet Income statement Statement of owner's equity
Accounts Receivable
Claims for future collection from customers
Which of the following entries records the withdrawal of cash for personal use by Ty Knott, the owner of a business?
Debit Cash Credit Ty Knott, Capital
A business purchases supplies on account. The entry to record this transaction is:
Debit Supplies Credit Accounts Payable
Capital
Financial investment in a business; equity
Withdrawals
Funds taken from the business by the owner for personal use
What are liabilities?
Liabilities are debts or obligations of a business
What is owner's equity?
Owner's equity is the term used by sole proprietorships. It is the financial interest of an owner of a business. It is also called proprietorship or net worth
Fair Market Value
The current worth of an asset or the price the asset would bring if sold on the open market.
Financial Event
The first step in analyzing the effect of a business transaction -Identify the property -Identify who owns the property -Determine the amount of increase or decrease
What is the fundamental accounting equation?
The fundamental accounting equation is the relationship between assets and liabilities plus owner's equity. Note that the equation property equals financial interest remains in balance. The total of one side of the equation must always equal the total of the other side. Assets = Liabilities + Owner's Equity
Net Loss
The result of an excess of expenses over revenue.
Net Income
The result of an excess of revenue over expenses
Revenue by definition is
amounts earned from the sale of goods or services
When equipment is purchased on credit,
assets and liabilities increase
Assets and liabilities are reported on
balance sheet
Guzman Consulting Company paid $4,000 cash for a computer for the office. This transaction would decrease __________ and increase _________
decrease cash increase equipment
Sana Gill deposited $3,500 into a new business checking account to begin her new bookkeeping firm, Gill Bookkeeping. This business transaction would (increase/decrease) _____________ the company's cash, and (increase/decrease) ___________ Sana Gill, Capital.
increase increase
Ginger Yale Ice Company receives money from a customer on account. Recording this transaction will:
increase cash
The balance sheet shows net income of the business, amount and types of property the business owns, and amount owed to creditors, it doesn't show
owner's interest
What is revenue?
revenue is an inflow of money or other assets that results from the sales of goods or services or from the use of money or property. It is also called income. A sale on an account does not increase money, but it does create a claim to the money. When a sale occurs, the revenue increases assets and also increases the owner's equity.
Identify the type of accounts that would appear on a firm's income statement
revenues and expenses
Assets
the amount and types of property owned by the business
The Income Statement shows:
the amount of net income or net loss
Equity
the owner's interest
