Definitions
What is the accounting equation?
A = L + SE
When do we make adjusting journal entries?
At the end of the accounting period
What kind of business activity is the payment of a dividend?
Financing
Common stock was issued for $18,000
Cash $18,000
Common Stock $18,000
At the end of the month, Company X determined it owes $6,200 to employees for work performed in December that will be paid next month.
Salaries Expense $6,200
Salaries Payable $6,200
What is the revenue recognition principle?
A principle that requires revenue to be recognized or recorded in the period in which it is earned and the collection of cash is reasonably assured
Do assets increase with a debit or a credit?
Debit!
If a company has $200,000 of assets and $60,000 of equity, how much liability do they have?
$140,000
Company X purchased a 6-month insurance policy for $7,200 with insurance coverage beginning next fiscal year.
Prepaid Ins $7,200
Cash $7,200
Company X received a water bill from the City of Auburn for $440 that will be paid next month.
Utilities Expense $440
Utilities Payable $440
Cash basis vs. accrual basis accounting
Cash basis is a method of accounting in which revenue is recorded when cash is received, regardless of when it is actually earned.
Accrual-basis accounting is a method of accounting in which revenues are generally recorded when earned, and expenses are matched to the periods in which they help produce revenues.
What accounts do we close accounts to for CJE?
Retained Earnings
Revenue - Expenses =
Net Income
Company X purchased a fleet of four delivery vans to use in their cleaning business for $108,000.
Bonus: What kind of business activity is this?
Equiptment $108,000
Cash $108,000
Bonus: Investing
At the end of the month, the balance in the cleaning supplies account is $7,200. However, a count of cleaning supplies inventory on hand at the end of the month is $1,500.
Supplies Expense $5,700
Supplies $5,700
What is the expense recognition principle?
Requires that an expense be recorded and reported in the same period as the revenue it helped generate.
What is the definition of accrued expenses?
Liabilities arising from expenses that have been incurred but not yet paid in cash.
What are the differences between a sole proprietorship, a partnership, and a corporation?
Sole Proprietorship: Easily formed, tax advantages, controlled by owner, personal liability, limited life
Partnership: Access to the resources and skills of partners, tax advantages, shared control, and personal liability
Corporation: Easier to raise money, easier to transfer ownership, limited liability, more complex to organize, higher taxes
During the year, Company X provided cleaning services of $160,000 on account.
Accounts Receivable $160,000
Service Revenue $160,000
Company X borrowed $250,000 from the bank on December 1. The $250,000, 8% note payable requires interest and principal to be paid at the beginning of December 2025 (the next year)
Interest Expense $1,667
Interest Payable $1,667
How do we know whether something is a debit ora credit for journal entries?
Answers will vary
Put the steps of the Accounting Cycle in order:
Close the accounts
Journalize transactions
Prepare a trial balance
Post to the ledger
Analyze transactions
Prepare financial statements
Adjust the accounts
1. Analyze transactions
2. Journalize transactions
3. Post to the ledger
4. Prepare a trial balance
5. Adjust the accounts
6. Prepare financial statements
7. Close the accounts
What's the difference between a single-step and a multiple-step income statement?
A multiple-step income statement contains three subtotals that a single-step income statement does not.
Gross margin(gross profit), income from operations(opreating income), and nonoperating activities
Company X revieced $108,900 from customers who were previously billed for services provided on account.
Cash $108,900
Accounts Receivable $108,900
The company accepted a $3,500, 7%, 90-day note from a customer for cleaning services provided on December 21st. Principal and interest is due 90 days from the date of the note. (Assume 31 days in December)
Interest Receivable 6.71
Interest Revenue 6.71