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.
What are the major differences between the adjusted and unadjusted trial balances?
Adjusted trial balances are complete as they include the adjusted journal entries unlike the unadjusted. You use adjusted trial balances for financial statements.
What are the accounts in the closing process?
Revenues
Expenses
Income Summary
Dividends
Retained Earnings
Name 2 accounts that fall under each statement.
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
Average Total Assets = 60,000
Return on Assets = 1.67
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 performs a service for clients who do not pay immediately. The clients promise to pay $7,000 within one month.
Credit Service Revenue $7,000
What are the differences between cash basis and accrual basis accounting?
Cash Basis: Record Revenues and Expenses when Cash is paid/received.
Accrual Basis: Record Revenues and Expenses when they are earned/incurred, even if cash has not been paid/received.
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 $5,500 of equipment; paid $3,000 cash and paid $2,500 on account.
Debit Equipment $5,500
Credit Cash $3,000
Credit Accounts Payable $2,5000
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.
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.
Leonie used the unadjusted trial balance to prepare her financial statements. Did she properly prepare her financial statements?
What do the SEC, FASB, and GAAP stand for? How are they related?
FASB: The Financial Accounting Standards Board
GAAP: Generally Accepted Accounting Principles
SEC: The Securities and Exchange Commission
ABC Firm paid cash expenses: office rent, $1,500, and employee salaries, $1,300.
Debit Office Rent Expense $1,200.
Debit Salaries Expense $1,900.
Credit Cash $3,100
ABC Firm owns equipment worth $8,000. They believe the equipment will remain useful for four years and have no value at the end of its life. Create the adjusting entry to record the depreciation 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 statement does not report “for a period” but is more of a "snapshot" of a company's finances?
(Does not read “Month Ended December 31st, 2020” on the header)
Balance Sheet