Acct 201 test 1

an organization in which basic resources (inputs) such as materials and labor, are assembled and processed to provide goods or services (outputs) to customers

the difference between the amounts recieved from the customers for goods and services and the amounts paid for the inputs used to provide the goods or services

provide services rather than products to customers

sell products they purchase from other businesses to customers

change basic inputs into products that are sold to customers

an information system that provides reports to users about the economic activities and condition of a business

• 1. Identify users
• 2. Assess users' information needs
• 3. Design the accounting information to meet users' needs
• 4. Record economic data about business activities and events
• 5. Prepare accounting reports for users

Objective is to provide relevant and timely information for managers' and employees' decision making needs, this information is often sensitive and not distributed outside the business

accountants are employed by a business firm or a not-for-profit organization

The area that provides External users with information

To provide relevant and timely information for the decision-making needs of external users

Moral principles that guide and conduct individuals

Generally accepted guidelines for the preparation of financial statements

• They include:
• Business Enity Concept
• Cost Concept
• Unit of Measure Concept
• Accounting Equation
• Matching Concept

a concept of accounting that limits the economic data in the accounting system to data related directly to the activities of the business

owned by one individual

Advantages: easy to start and control because of only 1 owner

Disadvantages: Unlimited personal liability for business liabilities

owned by two or more individuals

Advantages: more resources from multiple owners, simple formation

Disadvantages: Unlimited personal liability for business debts for all owners

organized under state or federal statutes as a seperate legal taable entity

Advantages: Seperate Legal Entity, Can raise more money for the company with the additional owners, Easy to sell interest, Owners not liable for business debts

Disadvantages: Legal set-up costs, taxes can be higher

combines the attributes of a partnership and a corporation

Advantages: Seperate Legal entity, more favorable for tax purposes

Disadvantages: legal set up costs, differences among state laws

amounts are initially recorded in the accounting records at the cost or purchase price

requires that the amounts recourded in the accounting records be based on objective evidence

requires that economic data be recorded in dollars

resources owned by a business

has to help us in the next period

Rights of the creditors, or debts of the business

The owners' equity in a cororation

Retained Earnings + Common/Capital Stock

Assets = Liabilities + Stockholder's Equity

An economic event or condition that directly changes an entity's financial situation or its results in operations

money earned by selling goods and services to its customers

revenue from providing services

revenue from the sale of merchandise

when we owe suppliers money

Liability

claim against the customer

when a customer owes us money

Asset

Assets used in earning revenue

Are distributions of earnings to stockholders

the stockholders' equity created from business operations through revenue and expense transactions

Financial reports that summarize the effects of events on a business

• Income Statement
• Statement of Retained Earnings
• Balance Sheet
• Statement of Cash Flows

a summary of the revenue and expenses for a specific period of time, such as a month or a year

Revenues - Expenses = Net Income

Purpose: To show Net Income

A summary of the changes in the retained earnings for a specific period of time, such as a month or a year

• Begining RE
• + Net Income
• - Dividends
• = Ending RE

A list of assets, liabilities, and stockholders' equity as of a specific date, usually at the close of the last day of a month or a year

• Assets = Liabilities
• + Stockholders Equity

A summary of the cash reciepts and cash payments for a specific period of time, such as a month or a year

How a company is using their cash

3 types: Operating, Investing and Financing

the excess of the revenue over the expenses

Expenses exceed the revenue

The form of balance sheet that resembles the basic format of the accounting equation, with assets on the left side and liabilities and Stockholders' Equity sections on the right side

Written by management to describe financial and non financial trending, a narrative about what happened during the period

Not objective information because the report is prepared by management

Legend to the financial statements

states the principles and methods used to account for transactions

Qualitative and Quantitative

provide additional descriptions and disclosures

In response to corporate scandals

• Provisions
• - Create PCAOB (board for additional oversight of auditors)
• - Evaluate controls
• - Auditor independence
• - Board of directors are responsible
• - Management must certify accuracy of financials

an accounting form that is used to record the increases and decreases in each financial statement

• 
• the simplest form of an account

amount entered on the left side of the account

amount entered on the right side of an account

The amount of the difference between the debits and credits that have been entered into an account

a group of accounts for a business

a list of the accounts in the ledger

can be either a debit or a credit depending on whether increases in the account are recorded as debits or credits

the intitial record in which the effects of a transaction are recorded

the process of recording a transaction in the journal

the process of transfering the bebits and credits from the journal entries to the accounts

an entry that is prepared when an error has already been journalized and posted

Assets Dividends and Expenses

are increased with a debit!

a summary listing os the titles and balances of accounts in the ledger prior to the posting of adjusting entries

and error in which the order of the digits is changed

an error in which the entire number is moved one or more spaces to the right or left

Revenue is when we recieve cash, and expense is when we pay it

Not used in this class

GAAP requires that we use this

Revenue is recognized when it is earned, and Expenses are recognized when incurred

Revenue is recognized when it is earned

Recognize expenses in the same period which we used item to generate revenue

The analysis and updating for accounts at the end of the period before financial statements are prepared

The journal entries that bring the accounts up to date at the end of the accounting period

Will always involve a revenue or an expense account and an asset of liablity account

unrecorded expenses that have been inccured and for which cash has yet to been paid

Ex: Electric Bill for the month of September, recieved in October, We used the electric to bring in revenue, must post this in september

Expense and Liability

Are the Advance Payment of future expenses and are recorded as assets when cash is paid

Ex: Paid $600 in advance for 6 months of insurance, at the end of each month, a portion needs to be moved over to an expense acount because we needed the insurance to generate revenue

Asset and expense

An asset that normally has a credit balance

Ex: Accumulated Depriciation

How much we've charged to expense since we have owned the asset

How much we've charged to expense this period

Advance reciept of future revenues and are recorded as liablities when cash is recieved

Ex: Paid Down Payment on service in September, not expecting to preform service till october, Recorded in September as a liability(unearned revenue), at the end of october moved from unearned revenue to fees earned

Liability and Revene

unrecorded revenues that have been earned for which cash has yet to be recieved

Ex: Preformed service for customer in september, billed in october, we record the revenue in september because we have already earned it

Asset and Revene

The amount we have yet to move to expense

Cost of the asset minus the accumulated depriciation of the asset

• Current Assets- Expected to be used up in one year
• - Cash
• - accts recievable
• - supplies
• - prepaid expenses
• - inventory
• Long Term Investments - more than one year
• - Investments in Stocks or bonds
• - Investments in subsidiaries
• Property, Plant, and Equipment
• - Land
• - Equipment
• - Vehicles
• - Buildings
• - (Accumulated Depriciation)
• Intangible Assets
• - Copywrights
• - Trademarks
• - Patents

• Current Liablities - Expected to be paid out within a year
• - Accts payable
• - wages payable
• - unearned revenue
• - Current Maturities of Log term debt
• Longterm Liabilites - more than a year
• - loans payable
• - notes payable
• - bonds payable

Notes payable and Loans payable may be in either category depending on the term

Need to be reset every period, they only relate to that period

revenue and expense accounts

Roll over from year to year

Assets, Liabilities, all balance sheet accounts

Process of zeroing out all temporary accounts and transfering them to permanent accounts

• 1. Zero Out Revenue Balances
• 2. Zero Out Expense Balances
• 3. Zero Out Income Summary
• 4. Zero Out Dividends

a temporary account that is only used during the closing process

Marketing, Production, Human resources, Finance, Management

Investors, Creditors, Government, Competitors, Suppliers

• Must Complete in Order
• Net Income also appears on Statement of Retained Earnings
• Retained Earnings Balance also appears on Balance Sheet
• Ending Cash balance on Statement of Cash Flows must agree to Balance Sheet

Whenever a Transaction occurs, it must affect atleast 2 accounts

• 1. Transactions are analyzed and recorded in the Journal
• 2. Transactions are posted to the ledger
• 3. an unadjusted trial balance is prepared
• 4. Adjustment data are assembled and analyzed
• 5. Spread Sheet is prepared
• 6. Adjusting entries are journalized and posted to the ledger
• 7. An Adjusted trial Balance is prepared
• 8. Financial statements are prepared
• 9. Closing entries are journalized and posted to the ledger
• 10. A post-closing trial balance is prepared

is prepared after the closing entries have been posted

the purpose is to verify that the ledger is in balance at the begining of the next period

• independent party
• Certified public accountant (CPA)
• reports opinion if financial statements are prepared in accordance with GAAP