CHAPTER 1
INTRO TO ACCOUNTING
INTRO TO ACCOUNTING
Calculate Liabilities:
Assets = $120,000
Stockholder’s Equity = $80,000
Liabilities = $40,000
Name 3 accounts that have a Debit normal balance. Name 3 accounts that have a Credit normal balance.
Debit: Cash, Accounts Receivable, Land, etc.
Credit: Accounts Payable, Common Stock, Service Revenue, etc.
Why are unadjusted trial balances considered incomplete compared to adjusted trial balances?
Unadjusted trial balances are considered incomplete because they do account for several expense and revenue transactions that must be adjusted for at the end of the period.
What accounts are typically found in the closing process?
Revenues, Expenses, Income Summary, Dividends, and Retained Earnings
Name 2 accounts that fall under each statement.
Income: Revenues and Expenses
Retained Earnings: RE and Dividends
Balance Sheet: Cash and Common Stock, etc.
Cash Flows: Beg. and End. Cash
Calculate Return on Assets
Net Income = $100,000
Beginning Total Assets = $60,000
Ending Total Assets = $90,000
Return on Assets = 1.33
Calculate the Debt Ratio
Total Assets = $160,000
Total Liabilities = $70,000
Total Stockholder’s Equity = $90,000
0.44 (Rounded)
ABC Firm accrued salaries expense of $1,650 that hasn’t been paid yet.
Debit Salaries and Wages Expense $1,650
Credit Salaries and Wages Payable $1,650
What occurs after Closing Entries in the Accounting Cycle?
Post-Closing Trial Balance
What is the order of the 4 financial statements?
1. Income Statement
2. Statement of Retained Earnings
3. Balance Sheet
4. Statement of Cash Flows
What are the differences between Financial and Managerial Accounting?
Financial accounting provides information for external decision makers while Managerial accounting provides information to internal decision makers.
ABC Firm purchased a $50,000 building in exchange for a notes payable.
Debit Building $50,000
Credit Notes Payable $50,000
What are the differences between cash basis and accrual basis accounting?
Cash basis only records revenues/expenses when cash is collected/paid.
Accrual basis accounting records revenues/expenses when they are earned/incurred, regardless if cash has actually been collected/paid.
Calculate the Current Ratio.
Total Assets = $200,000
Current Assets = $150,000
Total Liabilities = $100,000
Current Liabilities = $70,000
Current Ratio = 2.14
How is the Statement of Retained Earnings prepared?
Beginning RE
+/- Net Income (Loss)
- Dividends
= Ending RE
How are dividends different from expenses?
Dividends are distributions to stockholders.
Dividends do NOT affect Net Income.
Dividends are only on Statement of Retained Earnings.
ABC Firm bought $7,000 of equipment; paid $5,000 cash and paid $2,000 on account.
Debit Equipment $7,000
Credit Cash $5,000
Credit Accounts Payable $2,0000
ABC Firm has three months of prepaid office rent worth $4,800. At the end of the month, ABC Firm pays for one month worth of office rent. Create the adjusting entry to record the use of the prepaid rent.
Debit Office Rent Expense $1,600
Credit Prepaid Rent $1,600
What is the difference between temporary and permanent accounts? What is their role in the closing process?
Temporary accounts are closed at the end of the period while Permanent accounts remain. Temporary accounts are closed during the closing process into a Permanent account.
In what ways can financial statements made from unadjusted trial balances understate/overstate account balances?
Asset/Liability/Equity accounts can be over/understated compared to their actual amount.
What do the IASB and IFRS stand for? What is their relationship?
IASB: International Accounting Standards Board
IFRS: International Financial Reporting Standards
ABC Firm paid cash expenses: utilities, $500; office rent, $1,400; and employee salaries, $2,300.
Debit Utilities Expense $500
Debit Office Rent Expense $1,400.
Debit Salaries Expense $2,300.
Credit Cash $4,200
ABC Firm owns computer equipment worth $10,000. They believe the equipment will remain useful for four years and will only be worth $2,000 at the end of its life. Create the adjusting entry to record the depreciation of the equipment at the end of the first year.
Debit Depreciation Expense $2,000
Credit Accumulated Depreciation $2,000
In what order do the accounts get closed and how do they get closed?
1. Close Revenues and Expenses to Income Summary
2. Close Income Summary to Retained Earnings
3. Close Dividends to Retained Earnings
Which financial statements report “for a period”?
Ex: Read “Month Ended December 31st, 2020”
Income Sheet
Statement of Retained Earnings
Statement of Cash Flow