The Accounting Equation
Which financial report is structured around the Accounting Equation?
The Balance Sheet
Why do businesses use T-accounts and why do we called them "T-accounts"?
- Helps Understand the relationship between debits and credits.
- Helps Track account balances and ensure accuracy before financial statements are prepared.
- Called T-Accounts because of their shape.
What financial statement is used to show the state of a company's finances at a moment in time?
The Balance Sheet
Patents, Copyrights, and Trademarks are examples of what type of assets?
Intangibles Assets
What is the primary purpose of the statement of cash flows?
To provide information about the cash receipts and cash payments of an entity during a period.
Rework the accounting equation to solve for Liabilities. What is the new equation?
Liabilities = Assets - Owner's Equity
Re-organize the steps to correctly reflect the Recording Process:
-Create Journal Entries
-Post T-accounts
-Identifying Transactions
-Understand Transactions
-Create Trial Balance
-Create Financial Statements
-Identifying Transactions
-Understand Transactions
-Create Journal Entries
-Post T-accounts
-Create Trial Balance
-Create Financial Statements
What is the term: Revenues should be recognized when they are earned?
Revenue Recognition Principle
A real account that holds the cumulative balance of all depreciation expense recognized against the asset is what kind of Depreciation?
Accumulated Depreciation
The Statement of Cash Flows is divided what three main sections.
Operating, Investing, and Financing Activities
To get her business going, Samantha needed to buy equipment for her hair salon. One of the items she purchased was salon chairs. Suppose she purchased chairs for $5,000 in cash. How would this impact the accounting equation?
There is a $5,000 increase in Assets because the salon chairs (an asset) is recorded. But there is also a $5,000 decrease in Assets because their cash was reduced by the $5,000 purchase.
How does credit effect the account balance for an asset, liability and equity?
Increases account balance for a liability, equity, or revenue account
Decreases balance in an asset or expense account
What is the amount(s) a business charges its customers when it provides goods or services
Revenues
A student buys a iphone for $1,200. They expect to use it for 2 years before upgrading to a new one. At the end of 2 years, they can sell it for $750.
In this scenario, what is the:
1) GrossBookValue
2) Salvage Value
3) Useful Life
1) GrossBookValue: $1,200
2) Salvage Value: $750
3) Useful Life: 2 years
Expenses like rent, utilities, and raw materials are typical examples of what kind of cash flow?
Operating Activities
Explain why revenue is not an asset
Revenue is measured by how much the customer has agreed to pay.
The cost of running a Business can NOT be higher than actual revenue (well, at least not in the long-run).
Revenue is NOT an Asset (but money received is an Asset). Revenue = increase in Owner’s Equity
Think about a scenario where:
- Cash was increased by $500 and $200 and then decreased by $100 and $50.
Create a simple T-account for the scenario above.
Cash
------------------
Debit | Credit
$500 | $100
$200 | $50
You pay $2500 cash to purchase equipment.
What is the debit? What is the credit?
Debit: equipment $2500
Credit: cash $2500
A Fresh Co. delivery vehicle is purchased for $50,000 and is expected to be used for 5 years with no salvage value.
Calculate the annual depreciation expense using the straight-line method.
$10,000
Which type of cash flow activity includes obtaining cash from issuing debt and repaying amounts borrowed and obtaining cash from stockholders and paying them dividends?
Financing
Imagine a small business, "Richard's Gaming Store," which purchases $15,000 worth of video game equipment from the supplier, "Sony" on credit.
What happens with assets?
What happens with liabilities?
Increase in Assets because $15,000 inventory is received.
Increase in Liability because they must pay the $5,000 invoice from the supplier.
Mr. A buys a laptop on a business credit card for $1,500 for his teacher job at SBP, on August 6th, 2024.
Based on specific format journal entries follow, please tell me how the journal entry would look.
Date Accounts Debit Credit
08/6/24 Equipment $1,500
Accounts Payable $1,500
What are the 4 principle statements under US GAAP?
Balance Sheet
Income Statement
Statement of Owner's Equity
Cash Flow Statement
Why do companies amortize intangible assets and depreciate tangible assets?
1) Gives companies an accurate representation of their financial health on the income statement
2) It allows them to spread the cost of an asset over its useful life
Tax Consultants issued common stock of $160,000 at par. What is reported in the financing section?
Sale of common stock increased $160,000