Objective Evidence. Unit of Measurement. Accounting Period Cycle. Business Entity. Going Concern. Adequate Disclosure. Matching Expenses with Revenue

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1 Accounting Concept: A source document is prepared for each transaction Objective Evidence Accounting Concept: Business transactions are stated in numbers that have common values; that is, using a common unit of measurement Unit of Measurement Accounting Concept: Changes in financial information are reported for a specific period of time in the form of financial statements. Accounting Period Cycle Accounting Concept: Financial information is recorded and reported separately from the owner's personal financial information Business Entity Accounting Concept: Financial statements are prepared with the expectation that a business will remain in operation indefinitely Going Concern Accounting Concept: Financial statements contain all information necessary to understand a business's financial condition. Adequate Disclosure Accounting Concept: Revenue from business activities and expenses associated with earning that revenue are recorded in the same accounting period Matching Expenses with Revenue Accounting Concept: Revenue is recorded at the time goods or services are sold Realization of Revenue Accounting Concept: The actual amount paid for merchandise or other items bought is recorded Accounting Concept: The same accounting procedures are followed in the same way in each accounting period Historical Cost Consistent Reporting

2 Accounts Payable extends to which column Accounts Payable-, Balance Sheet Credit Liability Accounts Receivable extends to which column Balance Sheet Accounts Receivable-, All temporary accounts should equal when closing entries are done. Zero Are permanent accounts nominal or real accounts? Are temporary accounts nominal or real accounts? s-normal Balance? Real Nominal Cash-, Liability, or Expenses-Normal Balance?

3 Furniture-, Liability, or How do you find the component percentage for Gross Profit? How do you find the component percentage for Net Inome? If there is a credit balance in the Income Summary account after closing 1st two accounts, is there a net income or net loss? If there is a debit balance in the Income Summary account after closing 1st two accounts, is there a net income or net loss? Income Summary-Normal Balance? Liabilities-Normal Balance? Gross Profit/Sales (always divide by sales) Net Income/Sales (always divide by sales) Net Income (Revenues > Expenses) Net Loss (Expenses > Revenues) NONE Credit Membership Fees Income would extend to which column Income Statement Credit Membership Fees Income- Normal Balance? Credit (type of revenue) Merchandise Inventory extends to which column Balance Sheet

4 Merchandise Inventory-, Merchandise Inventory- Normal Balance? Office Equipment-, On the line for Prepaid Insurance on the work sheet, the amount extended to the Balance Sheet column represents the value of insurance premiums: on hand for next period, bought during period, or expired/used up? Insurance that is still ON HAND for the next period On the line for Supplies Expense on the work sheet, the amount extended to the Income Statement column represents the value of supplies that are: on hand, bought during period, or used up? Supplies that are USED UP during the period Owner, Capital extends to which column of the worksheet? Income Statement Owner, Capital-, Owner, Capital-Normal Balance? Balance Sheet Credit Credit Owner, Drawing extends to which column Owner, Drawing-, Balance Sheet

5 Owner, Drawing-Normal Balance? Petty Cash-, Liability, or Prepaid Insurance extends to which column Balance Sheet Prepaid Insurance-, Purchases Discounts, Returns, or Allowances-Normal Balance? Credit Purchases extends to which column of the worksheet? Income Statement Income Statement Purchases Returns and Allowances extends to which column Income Statement Credit Purchases-Normal Balance? Rent Expense extends to which column of the worksheet? Income Statement Revenues-Normal Balance? Income Statement Credit

6 Sales Discounts extends to which column Sales Discounts, Returns, or Allowances-Normal Balance? Income Statement Sales extends to which column of the worksheet? Income Statement Sales Tax Payable extends to which column Income Statement Credit Balance Sheet Credit Supplies Expense extends to which column Supplies-, Liability, or There are 3 ways to find Net Income, what are they? This is the amount of pay an employee receives after deductions are taken from their gross pay. This is the total amount of an employee's earnings before any deductions are calculated. To find the balance of Capital on the Income Statement, which equation could you use? Income Statement *Sales - Expenses = Net Income (Loss) *The ending balance of the Income Summary account after 1st two closing entries have been recorded *Gross Profit - Expenses = Net Income (Loss) Net Pay (AKA "Take Home Pay) Gross Pay Beginning Capital +/- Net Income (or Net Loss) - Drawing + Investments

7 Transportation In extends to which column Income Statement Transportation In-Normal Balance? True or False: The amount shown on the Post Closing Trial Balance for Capital should show the ending balances for the temporary accounts? What are the three permanent accounts? What does the term of sale 2/10, n/30 mean? Paid rent for month of January Purchased supplies on account Received cash on accounts Sold services on account Bought furniture on account True: All temporary accounts will be closed. Expenses and Sales close into Income Summary and then Income Summary and Drawing into Capital; therefore, all end up in Capital eventually. s, Liabilities, Capital A cash discount of 2% is allowed if paid within 10 days. If not, the balance is due in 30 days Rent Expense; Credit Cash Supplies; Credit Accounts Payable Cash; Credit Accounts Receivable Accounts Receivable; Credit Sales Office Furniture; Credit Accounts Payable

8 Established a petty cash fund Petty Cash; Credit Cash Owner invested computer equipment in the business Owner invested money in business Paid invoice price on account Received payment on account Sold services on account Wrote a check to owner for personal use What is it called when you record entries in a general journal? Equipment; Credit Owner, Capital Cash; Credit Owner, Capital Accounts Payable; Credit Cash Cash; Credit Accounts Receivable Accounts Receivable; Credit Sales Owner, Drawing; Credit Cash Journalizing What is it called when you record entries in a general ledger? Posting What is the accounting equation? s = Liabilities + Owner's Equity

9 What is the entry to adjust for a decrease in Merchandise Inventory? What is the entry to adjust for an increase in Merchandise Inventory during the period? What is the entry to adjust Supplies that have been used up during the period? What is the entry to adjust the Prepaid Insurance that has expired during the period? What is the equation for Cost of Delivered Merchandise? Income Summary; Credit Merchandise Inventory Merchandise Inventory; Credit Income Summary Supplies Expense; Credit Supplies Insurance Expense; Credit Prepaid Insurance Purchases + Transportation In = Cost of Delivered Merchandise What is the equation for Cost of Merchandise Available for Sale? What is the equation for Cost of Merchandise Sold? What is the equation for Gross Profit? What is the equation to find Net Purchases? What is the equation to find Net Sales? Beginning Merchandise Inventory + Net Purchases Beginning Merchandise Inventory + Net Purchases = Cost of Merchandise Available for Sale - Ending Merchandise Inventory = Cost of Merchandise Available for Sale Net sales - Cost of Merchandise Sold Purchases + Transportation In - Purchases Discounts - Purchases Returns & Allowances = Net Purchases Sales - Sales Discounts -Sales Returns and Allowances = Net Sales

10 What is the general ledger account called that summarizes or totals the balances of accounts in a subsidiary ledger? What is the order of closing accounts? (there are 4 steps) Which account do Expenses close into? Which account do Revenues close into? Which account does Drawing close into? Which account does Income Summary close into? Which accounts are on the Balance Sheet? Which accounts are on the Income Statement? Controlling Account 1. Revenues 2. Expenses 3. Income Summary 4. Drawing Income Summary Income Summary Capital Capital s, Liabilities, Owner's Equity (Capital and Drawing) Revenues (Sales), Expenses, Income Summary, Purchases

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