Ledgers
What is the purpose of expanding a Ledger?
To provide essential information about the progress of the buisness.
Identify the three things an income statement does
1. Shows what a company earns (revenue)
2. What it spends (expense)
3. If it is making a profit over a specific period of time (Net profit/Loss)
Mary Hartman, the owner of a company, withdrew $750 cash for personal use. What accounts were affected?
Assets credit value for $750
Oweners equity debit value for $750
An income statement shows whether or not a business is profitable or not.
True. An income statement shows revenues - expense = Net profit/loss
What is a fiscal period?
The fiscal period is the period of time over which earnings are measured.
A ledger account has two sides: a left side and a right side. In bookkeeping and accounting, what are these two sides called?
Right side is credit while left side is debit
Why would investors look at an income statement when investing in a company?
To determine the profitability of a company over time.
The company pays $500 to Dino Bros. In partial payment. Draw a transaction sheet showing debit and Credit value
A/P -- Liabilty --- (-) ---- Dr ---- $500
Cash ---- Asset ---- (-) ---- Cr --- $500
An income statements expense are listed by liquidity.
False. An income statements expenses are listed alphabetically, whereas a balance sheet is order in liquidity.
The debtor OWES the money
The creditor LOANED the money
How is profitability/loss calculated?
Revenue-Expense=profit/loss
Why are drawings not included on the income statement?
Drawings are not considered to be an expense, they are simply a reduction in the total equity of buisness for personal use.
Record transaction in T-accounts:
1. The owner withdrew $1400 for personal use
2. Paid to have a car (under equipment) repaired, $5000 is due in 30 days
3. Paid Hydro bill, $1800
1. Cash --- Credit --- $1400, Capital ---- Debit ----- $1400
2. A/P ---- Credit ---- $5000, Cash ---- Credit ---- $5000
3. Bank--- Credit ---- $1800, A/P ---- Debit ---- $1800
T-accounts are essential to making a trial balance.
False. It helps make bookeeping easier, however it is not commonly used by professional accountants
asset increase by _____ and decrease by ____, while liabilities and owners equity increase by _____ and Decrease by _____
Asset, Expenses: increase by debit, decrease by credit
Liabilities, Equity, and Revenue: Increase by credit, decrease by debit
Define Revenue, Expense, and Drawings
Revenue: Generated from the sale of goods or service
Expenses: Money taken out related to the operation of the business.
Drawings: owner’s withdrawals from the business for personal use.
How does the heading date on an income statement differ from that on a balance sheet?
A balance sheet reports a company's finances for a specific date, such as January 1, 2022. It considered to be a snapshot of the company. An income statement reports a company's revenue and expenses over a specific period, known as fiscal period, such as January 1 – December 31, 2022.
An unused desktop, under equipment at the value of $900, is sold for $800. What accounts were affected?
Bank value in Debit for $800
Equipment value in Credit for $900
Capital/OE value in Debit for $100
Most commonly, fiscal periods are every quarter.
False, they are typically a yearly period. They must run for 12 consecutive months.
What are three possible problems for a trial balance to be out of balance?
1. Faulty addition
2. Entering an item on the wrong side
3. Dollar value entry error
If the two sides of an account are equal, the account will show a zero balance.
What does the GAAP principle of Revenue Recognition mean?
The principle requires that businesses recognize revenue when it's earned rather than when payment is received.
On account: revenue is recorded when the bill is sent to the customer.
Cash: revenue is recorded when the sale is complete and the cash is received.
What are some Exceptional Balances examples? (At least 3 examples)
1. Business overpays a creditor
2. Bank account is overdrawn
3. A debtor overpays
4. A customer with an A/R returns a product
5. You are returning a product to a supplier with whom you currently have no A/P
A ledger that is in balance may still be incorrect.
True. The accountant may have made incorrect but balanced entries.
What is the meaning of Time Period Gaap Principle?
Companies must use fiscal periods of equal length when measuring financial progress. The time period concept provides that accounting will take place over specific time periods known as fiscal periods.