Accounting 201 Exam 1 Review PDF

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Notes for exam 1...

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Accounting 201 Exam 1 Review and Practice Questions The Accounting Equation o Assets (DR) = Liabilities (CR) + Owners’ Equity (CR)  Owners’ Equity = Common Stock (CR) + Retained Earnings (CR)  Retained Earnings = Net Income (CR) – Dividends (DR) o Dividends = Revenue (CR) – Expenses (DR)  Assets: Resources owned by a company  Liabilities: Amount owed to a creditor  Owners’ Equity: The stockholders’, or owners’ claim to resources, which equal the difference between total assets and total liabilities  Steps in the Measurement Process o Analyze Transactions o Create Journal Entries o Post Entries to General Ledger o Create Unadjusted Trial Balance o Adjusted Journal Entries o Create Adjusted Trial Balance o Create Financial Statements o Create and Post Closing Entries o Create and Post Closing Trial Balance  Financial Statements: o Service Revenue appears on Income Statement o Equipment appears on Balance Sheet o Advertising Expense appears on Income Statement o Accounts Receivable appears on Balance Sheet o Common Stock appears on Balance Sheet o Interest Payable appears on Balance Sheet Answers from Exam 1 Practice:  Accounting is an information system that provides reports to users regarding economic activities and condition of a business.  Examples of internal users of accounting are: o Employees o Managers.  Examples of external users of accounting are: o Government o Creditors o Customers  Examples of business entities are: o Proprietorship o Partnership o Corporation  A corporation is most likely to obtain large amounts of resources by issuing stock. 

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The unit of measure concept: o Requires that economic data be reported in yen in Japan or dollars in the United States Assets are financed by owners and/or creditors. Debts owed by a business are referred to as a liability. Example: o Assets: $128,000 o Liabilities: $84,000 o Stockholders’ Equity: $128,000 - $84,000 = $44,000 If a business pays a creditor $7,000, it would decrease an asset and decrease a liability. Accounts with a normal credit balance: o Liabilities o Common Stock o Retained Earnings o Net Income o Revenue Accounts with a normal debit balance: o Assets o Dividends o Expenses Type of entries that record the payment of an account payable: o Debit Account Payable o Credit Cash Type of entries that record the cash sale of capital stock to stockholders: o Debit Cash o Credit Capital Stock Journalizing is the process of initially recording a business transaction. Type of entry that records the purchase of office supplies on account: o Debit Office Supplies o Credit Accounts Payable Type of entry that records the payment of rent for the current month: o Debit Expense o Credit Cash Type of entry that records the collection of cash from customers: o Debit Cash o Credit Fees Earned An entry that records the receipt of cash for two months’ rent (advance of providing the service): o Debit Cash o Credit Unearned Rent Purchase equipment for $7,500, paid $2,250 with the remainder to be paid later: o Equipment: $7,500 o Accounts Payable: $5,250

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o Cash: $2,250 Accounts that increase with a credit: o Accounts Payable o Unearned Revenue o Capital Stock Payment for monthly rent requires the entries: o Debit Rent Expense o Credit Cash Prepaid Expense: o Account Type: Asset o Normal Balance: Debit Unearned Revenue: o Account Type: Liability o Normal Balance: Credit...