Account Types
Fill in the Blanks:
Debits to the ___, Credits to the ____
Accounts that are ____ get listed first on a journal entry
Left, Right
Debited
An accrual is a ___ incurred that hasn't been ____.
A deferral is ____ earned that hasn't been ______.
Cost, Paid
Money, Received
The four basic financial statements
What is income statement, statement of retained earnings, balance sheet, and statement of cash flows?
Define Fiscal Year
Any period of 12 consecutive months (52 weeks)
True or False:
Debits and Credits must ALWAYS equal
TRUE
Asset, Liability, or Equity Account?
Cash, Accounts Receivable, Expenses, Equipment, Dividends, Prepaid Accounts, Unearned Revenue, Accounts Payable, Common Stock, Notes Payable, Revenues, Land
Asset: Cash, Accounts Receivable, Equipment, Prepaid Accounts, Land
Liability: Unearned Revenue, Accounts Payable, Notes Payable
Equity: Expenses, Common Stock, Revenues, Dividends
The four types of adjustments
What is deferral of expense, deferral of revenue, accrued expense, accrued revenue?
What does an income statement contain?
Revenues - Expenses = Net Income
Three Sides of Fraud Triangle
Pressure, Opportunity, Rationalization
Formula for Straight-Line Depreciation
S-L Depreciation =
(Asset Cost - Salvage Value) / Useful Life (in years)
Which accounts have a normal debit balance and which accounts have a normal credit balance?
Cash, Expenses, Office Supplies, Accounts Payable, Unearned Revenue, Common Stock
Debit: Cash, Expenses, Office Supplies
Credit: Accounts Payable, Common Stock, Unearned Revenue
This company only has one plant asset (equipment) that it purchased at the start of this year. The asset had cost $48,000, had an estimated life of 10 years, and is expected to be valued at $12,000 at the end of the 10-year life.
Adjust the Accumulated Depreciation account.
Debit Depreciation Expense--Equipment $3,600
Credit Accumulated Depreciation--Equipment $3,600
48,000-12,000/10 years = 3,600
This financial statement reports the company's revenues and expenses over an interval of time.
What is Income Statement?
The Expanded Accounting Equation
Assets = Liabilities + Common Stock - Dividends + Revenues - Expenses
Fill in the blanks.
Accrued expense records ____ and recognizes ____.
Accrued revenue records ____ and recognizes ____.
Liabilities & Expenses
Assets & Revenues
Which equity accounts decrease equity and which ones increase equity?
Dividends, Revenues, Common Stock, Expenses
Increase: Revenues, Common Stock
Decrease: Dividends, Expenses
The company collected $60,000 rent in advance on September 1, debiting Cash and crediting Unearned Rent Revenue. The tenant was paying 12 months’ rent in advance and moved in on September 1.
December 31 - Adjust the Unearned Rent Revenue account.
Debit Unearned Rent Revenue $20,000
Credit Rent Revenue ((60,000/12) x 4)
What does a balance sheet show us?
A company's financial position at a point in time
Explain Accrual Basis vs Cash Basis
Accural Basis – revenues are recorded when products/services are delivered and records expenses when incurred. Cash Basis – Revenues are recorded when cash is received and expenses are recorded when cash is paid.
Explain the four step closing process
1. Close income statement credit balances (revenues) to Income Summary
2. Close income statement debit balances (expenses) to Income Summary
3. Close Income Summary account to Retained Earnings
4. Close Dividends account to Retained Earnings
What permanent account do all temporary accounts close to?
Retained Earnings
The Prepaid Insurance account has a $8,000 debit balance to start the year, and no insurance payments were made throughout the year. A review of insurance policies shows that $2,000 of unexpired insurance remains at its December 31 year-end.
Adjust the Prepaid Insurance account.
Debit Insurance Expense $6,000
Credit Prepaid Insurance $6,000
Categories of accounts on a balance sheet
Assets, Liabilities, and Equity
Define Plant Assets
What are tangible assets used to produce or sell products and services?
Examples: Equipment, Buildings, Land
A random company reports the following.
Compute this company’s first-year net income under the cash basis and the accrual basis.
Cash Basis: 58,000 (cash receipts), 30,500 (cash payments; 22,250+8,000), NI= 27,500
Accrual Basis: 79,400 (earned), 29,600 (incurred), NI= 49,800