Intro To Financial Accounting: Chapters 1-3 questions
Income Statement (IS) Items/accounts
Expenses, Net Income*
Balance Sheet (BS) Items/accounts
Cash Assets, Non-cash assets, Contributed Capital, & Retained Earnings*
Statement of Cash Flows (SCF) Items/accounts
Cash Outflow for land, Cash Inflow for stock issued*, Cash outflow for dividends*, & Net Income*
Statement of Stockholders Equity (SE) Items/accounts
Retained Earnings*, Cash Inflow for stock issued*, Cash outflow for dividends*, & Net Income*
Owner Financing Equation =
Stockholder equity/Total liabilities and equity
Creditor Financing Equation =
Total Liabilities/Total liabilities and equity
Increase Equity
Shareholders invested cash for stock, Render service to a customers on account or for cash
Decrease Equity
Paid cash for dividends to shareholders & Paid cash for salaries
No Equity Effect
Paid cash to: acquire supplies & purchase equipment
$50 Cash for common stock
Cash asset $50 Contribution Capital $50
$10 Borrowed from bank
Cash asset 10 Notes Payable 10
$2 Purchase of inventory on credit
Inventory 2 Accounts Payable 2
$15 received from customer for services provided
Cash 15 Revenue 15–> Retained Earnings 15
$2 Cash paid to Supplier (from a credit)
Cash (2) Accounts Payable (2)
$3.5 Advance for future services
Cash 3.5 Unearned Revenue 3.5
$5 Cash paid for Dividend to Shareholders
Cash (5) Retained Earnings (5)
$6 Cash Paid to Employees for Compensation
Cash (6) Wage Expense 6–> Retained Earnings (6)
$0.5 Cash for Loan Interest
Cash (0.5) Interest Expense 0.5–> Retained Earnings (0.5)
$78 One month expiration of Prepaid Insurance
Non-cash (78) Insurance Expense 78–> Retained Earnings (78)
Straight Line Depretiation
Divide the asset cost by the estimated useful life. (assuming the total asset cost is depreciated; so-called zero salvage value)
Contra Accounts
Used to record reductions in or offsets against a related account e.i. Accumulated Depreciation creates a contra account for non-cash assets as equipment depreciates.
Book Value
Represents unexpired asset cost to be allocated as an expense in future periods.
$190 wages earned and not paid
The Liability called Wages payable 190 Wage Expense 190–> Retained earnings (190)
Temporary Accounts
Closed at the end of the accounting year. Consist principally of the income statment accounts (Expense and revenue accounts) aka Nominal Accounts
$775 Prepaid rent Expired
Non-cash (775) Rent Expense 775–>Retained Earnings (775)
$1,700 Supplies used
Non-cash (1,700) Supplies Expense 1,700–> Retained Earnings (1,700)
$74 Depreciation of Equipment
Non-Cash (74) Depreciation Expense 74–> Retained Earnings (74)
$210 Unpaid and unrecorded wage expense
Liabilities 210 Wage Expense 210–> Retained Earnings (210)
$300 Utilities Expense unpaid
Liabilities 300 Utilities Expense 300–> Retained Earnings (300)
$380 Fees earned but not billed
Non-cash Account receivable 380 Revenue 380–> Retained Earnings 380
$600 Cash for Prepaid Rent
Cash (600) Non-Cash Prepaid Rent 600
$375 Accumulated Depreciation
(XA) Non-cash – Contra Asset 375 Depreciation Expense 375–> Retained Earnings (375)
Deferred (Unearned) Revenues
Adjustments: Allocate earned portion of unearned revenues to revenue to reflect revenues earned in the period.
$900 Gift certificates redeemed
Liabilities (900) Sales Revenues 900–> Retained Earnings 900 (Similar with rental payments received in advance by real estate companies)
Deferred (Prepaid) Expenses
Allocate used or expired assets to expense to reflect expenses incurred in the period.
Accrued Revenues
Record revenues to reflect revenues earned in the period that are not yet received in cash or recorded.
Accrued Expenses
Record expenses to reflect expenses incurred in the period that are not yet paid in cash or recorded.
$30 Other Receivables (Interest income)
Non-cash 30 Revenues interest income 30–> Retained Earnings 30
Return on equity (ROE)
=NET INCOME/AVERAGE STOCKHOLDERS EQUITY
Debt-to-equity (D/E)
=TOTAL LIABILITIES/TOTAL STOCKHOLDERS EQUITY