ACG 2021 Block 1

Which accounts are permanent accounts and show up on the balance sheet?

Assets, Liabilities, Stockholders Equity, Common Stock, Retained Earnings

The two accounts used in the adjustment of long-term assets

-Depreciation Expense -Accumulated Depreciation

Liabilities Accounts

Accounts Payable Notes Payable Unearned Revenue Salaries Payable Interest Payable Utilities Payable Dividends Payable Income Tax Payable FICA Tax Payable Unemployment Tax Payable Sales Tax Payable Contingent Liability Warranty Liability Bonds Payable

Expenses Accounts

Advertising Expense Amortization Expense Bad Debt Expense Cost of Goods Sold Delivery Expense Depreciation Expense Entertainment Expense Income Tax Expense Insurance Expense Interest Expense Legal Fees Expense Payroll Tax Expense Postage Expense Property Tax Expense Rent Expense Salaries Expense Repairs and Maintenance Expense Research and Development Expense Service Fee Expense Supplies Expense Utilities Expense Warranty Expense Loss

How to format/find the Balance Sheet

Assets (Including cash) = Liabilities + Stockholders' Equity

Accounting Equation

Assets = Liabilities + Stockholder's Equity

Expanded Accounting Equation

Assets = Liabilities + Stockholder's Equity Stockholder's Equity is broken down into Common Stock + Retained Earnings. Retained Earnings is then broken down into Revenues - Expenses - Dividends

Whats emphasized on a classified balance sheet?

Assets and Liabilities are separated into current (within a year) and long-term (longer than a year)

Asset Accounts

Cash Accounts Receivable Petty Cash Notes Receivable Interest Receivable Supplies Inventory Prepaid Advertising Prepaid Insurance Prepaid Rent Investments Land Land Improvements Buildings Equipment Natural Resources Patents Copyrights Trademarks Franchises Goodwill

How to find/format the Statement of Cash Flows

Cash Flows from operating activities + Cash Flows from investing activities + Cash Flows from financing activities = Change in cash

Straight Line Depreciation Expense =

Depreciation Expense = Cost of Asset / Useful Life (i.e. years, months, days)

Order of making financial statements

Income Statement > Statement of Stockholder's Equity/Retained Earnings > Balance Sheet > Statement of Cash Flows

Which piece of information comes out from each financial statement and is used for the next?

Income Statement produces the Net Income > Net Income is used to find the Retained Earnings in the Statement of Stockholder's Equity > The Stockholder's Equity is used in the Balance Sheet > Cash from the Balance sheet is used for the Statement of Cash Flows

What is considered Financing Activities?

Issuing stock and borrowing

Difference between "notes" and "accounts" (i.e. notes payable/receivable, accounts payable/receivable)

Notes payable/receivable are more formal than accounts payable/receivable. Accounts are usually more of a short-term loan

What is the formula to calculate the interest accrued?

Principal*Annual Interest Rate*Time (in years)

What is considered Investing Activities?

Purchasing and selling long-term assets

What does the accrual-basis revenue recognition and matching principles say

Record revenues in the period in which the goods or services are provide to customers Recognize the expenses in the same period as the revenue they help generate

BookValue =

The cost of the asset - accumulated depreciation

Normal Balance for Common Stock

credit

Normal Balance for Liabilities

credit

Normal Balance for Retained Earnings

credit

Normal Balance for Revenues

credit

Normal Balance for Stockholder's Equity

credit

Normal Balance for Assets

debit

Normal Balance for Dividends

debit

Normal Balance for Expenses

debit

What are closing entries

entries that transfer balances of all temporary accounts (revenues, expenses, and dividends) to the balance of the retained earnings account

What are the main points of accrual basis accounting?

recognize revenue when it is earned record expenses with their related revenues

What is the matching principal

recognizing expenses in the same period as the revenues they help generate

What is the revenue recognition principal

recording revenue in the period in which we earn it

What is Accrual-basis Accounting

recording revenue when we earn them and recording expenses with related expenses, regardless of when cash is received or paid

What is Cash-basis Accounting

recording revenues at the time cash received and expenses at the time cash is paid

What are temporary accounts

revenues, expenses, and dividends are closed out at the end of each accounting period and transferred to Retained Earnings so that the new period begins with a zero (0) balance for these accounts

Revenue Definition

the amounts earned from selling products or services to customers

Operating Cycle def.

the average time between purchasing or acquiring inventory and receiving cash proceeds from its sale

What are permanent accounts

the balance sheet accounts where the balances are carried forward from period to period

Expenses Definition

the costs of providing products and services

what is accumulated depreciation

the cumulative amount of depreciation expensed against a particular asset, such as a vehicle

what are retained earnings

the cumulative amount of net income earned over the life of the company that has not been distributed to stockholder's as dividends Retained Earnings = Beginning Retained Earnings + Net Income - Dividends

what is the "book value"

the historical cost of an asset, such as equipment, less the accumulated depreciation

Stockholder's Equity definition

the owner's claim to the resources

what is "posting"

the process of transferring debit and credit information from the journal to individual accounts in the general ledger

What is FASB

they create the GAAP

What is the SEC

they enforce the GAAP

What types of accounts need to be adjusted?

1.) Prepayments: -PREPAID EXPENSES- recognize expense based on usage or passage of time -LONG-TERM TANGIBLE ASSETS (depreciation)- the process of allocating the cost of long-term assets to expense over estimated useful lives -DEFERRED/UNEARNED REVENUE -recognize any revenue that's been earned 2.) Accruals: -ACCRUED EXPENSES - search for expenses that have been incurred but not recorded. Examples include payables - utilities, interest owed, salaries -ACCRUED REVENUES - search for revenue earned but not yet recorded. Examples include accounts receivable and interest receivable

What is the formula for adjusting the supplies account?

Beginning supplies - Ending supplies = Supplies Expense

What is considered Operating Activities?

Cash receipts and payments from selling goods and services

Stockholder's Equity Accounts

Common Stock Preferred Stock Additional Paid-in Capital Retained Earnings

How to find Statement of Stockholder's Equity

Common Stock + Retained Earnings = Stockholder's Equity Retained Earnings = Beginning RE + Net Income - Dividends

How to find Income Statement

Revenues - Expenses = Net Income

Net Income

Revenues - Expenses = Net Income

Which accounts are temporary accounts?

Revenues, expenses, dividends these are closed out on retained earnings

Revenues Accounts

Service Revenue Sales Revenue Interest Revenue Dividend Revenue Equity Income Gain

Which accounts in the lecture example were checked off to be adjusted at the end of the period and why?

Supplies - to account for supplies that have been used/expensed Prepaid Rent - to transfer the amount from the rent of the month that has passed from prepaid rent to rent expense Equipment - account for depreciation Deferred Revenue - to account for any services that you've provided that would turn deferred revenue into revenue Notes Payable - to make sure if you owe interest, you're incurring the interest Salaries - if payday falls out side of the month/accounting period, you have to figure out how much you owe your employees

What is the normal balance for the accumulated depreciation account?

The normal balance for accumulated depreciation will be opposite from its companion account for example: For equipment, the accumulated depreciation account will be credit since equipment's is debit

what is a journal in accounting

a chronological record of all transactions affecting a firm

what is the trial balance

a list of all accounts and their balances at a particular date, showing the total debits and credits

Asset definition

a resource that you own. Cash is an asset. Supplies are an asset.

what is the General Ledger

all the accounts used to record the company's transactions

Liability definition

amounts that you owe