Accounting 1175 Study Tips - Midterm 1 PDF

# Accounting 1175 - Study Tips for Theory Portion of Midterm 1 ## Some Definitions and Concepts to Know * **Property, Plant & Equipment (PPE):** Are Fixed Assets used in the business * Capital Expenditure (also referred to as 'Betterments' on the test: Not repairs and not maintenance) * **Revenu...

# Accounting 1175 - Study Tips for Theory Portion of Midterm 1 ## Some Definitions and Concepts to Know * **Property, Plant & Equipment (PPE):** Are Fixed Assets used in the business * Capital Expenditure (also referred to as 'Betterments' on the test: Not repairs and not maintenance) * **Revenue Expenditures:** Are additional costs of Capital Assets that do not materially increase the life of an asset. * **Depreciation:** Is the process of allocating to expense the cost of a Fixed Asset. * Book Value (i.e., Cost - Accumulated Depreciation). * Which depreciation method produces more depreciation expense in the early years and less in later years? (Answer: Double Declining Balance Method). * **Characteristics of a Liability:** * an occurrence of a past event * present obligation * future payment required * **Current Liabilities:** Are due within one year or the company's operating cycle whichever is greater. * Fees accepted in advance are both unearned revenues and liabilities: * DR Cash $100 * CR Unearned Fees $100 * **Estimated Liability:** * an obligation * is uncertain but can be reasonably estimated * has a reasonable time frame * **Contingency Liability:** Potential obligation that depends on a future event which arose out of a past event. i.e. Lawsuit * **Partnership:** Unincorporated association of > 2 persons to carry on business for profit. * **Partnership Agreement:** The agreement between partners that set forth the terms under which the partnership will be conducted. * **When a Partner is added to the Partnership, does the Partnership end, but the underlying business continue?** Yes. * **Know when a partnership is liquidated:** All the assets are sold for cash, and any gain or loss from this liquidation is allocated to the partners' capital accounts, then the liabilities are paid, and finally any remaining cash is distributed to the partners based on what is in their capital accounts. * **A = L + E which becomes Cash = Equity Accounts** * **Mutual Agency:** Each partnership can bind the partnership to any contract within the scope of the partners' business. * **Know how to journalize a simple entry for a lump sum purchase (two assets acquired):** For example, you pay $500,000 for both land and building. Appraised values were 400K land & 200K building. Since appraised total is 600K (400K + 200K), then land is apportioned 400/600 or 2/3's of the actual cost & building 200/600 or 1/3 the actual cost. * Journal Entry (JE) * DR Land 333,333* * Bldg 166,667* * CR Cash 500,000 * (*Amount rounded to closet whole dollar*) * **Partnership accounts:** Uses a capital account for each partner and a withdrawal account for each partner. And Net Income and Losses are allocated according to the partnership agreement. ## Extra Theory Tips (Not everything you need to know, but they will help) * **PPE** are Tangible assets used in the operation of a business and have a useful life of more than one accounting period. * PPE can be disposed of by selling, donating to charity, discarding or exchanging for another asset. * Subsequent capital expenditures can do all of the following: Add to cost of asset, are called improvements, increase life, increase efficiency. * **Depreciation** is the allocation to expense the cost of a fixed asset (AKA PPE). * **Intangible assets** are rights, privileges, and competitive advantages to the owner, used in operations, having no physical substance and can be amortized. * The cost of LAND can include: purchase price, back property taxes, cost of removing existing buildings, and real estate commissions. * **Payroll liabilities** are current liabilities. * The difference between the amount received from a note payable and the amount repaid is **interest**. * **Which of the following is created by the adjusting entry to recognize interest expense incurred but not yet paid?** Answer interest expense. * A short-term note payable is a written promise to pay a specified amount. * **Current Liabilities** are Obligations due to be paid within one year or the company's operating cycle, whichever is longer. * The withdrawals account of Each partner is **Credited** when closed to his/her capital account. * **Disadvantages of a partnership** include limited, mutual agency, Unlimited liability, and hard to find suitable partners. * The **partnership agreement** is: The agreement between partners that sets forth the terms under which the affairs of a partnership will be conducted. * A partnership designed to protect innocent partners from malpractice or negligence claims resulting from acts of another partner is a **Limited liability partnership**. * **A capital deficiency** means that AT LEAST 1 partner has a debit balance.