Accounting Study Guide PDF

Study Guide ACCT 1100 ✓ Accounting Equation: Assets = Liabilities + Equity ✓ The equity of ABC Company is $160,000 and the total liabilities are $90,000. The total assets are: $250,000 o 160,000 + 90,000 = 250,000 ✓ The accounting process of transferring da...

Study Guide ACCT 1100 ✓ Accounting Equation: Assets = Liabilities + Equity ✓ The equity of ABC Company is $160,000 and the total liabilities are $90,000. The total assets are: $250,000 o 160,000 + 90,000 = 250,000 ✓ The accounting process of transferring data from the journal to the ledger is POSTING. ✓ The following journal entry would be recorded if a business performs services and receives cash of $900 from the customer: Cash 900 Service Revenue 900 ✓ GAAP acronym is Generally Accepted Accounting Principles ✓ The following groups will decrease with debit liabilities and revenues. ✓ A liability created when a business receives cash from customers in advance to provide services or deliver goods is called unearned revenue. ✓ The following journal entry would be recorded if a business purchased office supplies on account in a previous accounting period and now makes a cash payment of $750 to the supplier to settle the account. Accounts Payable 750 Cash 750 ✓ ZYX Tax Planning Service started business in January 2024. The company rented an office for $5,400 per month starting from January 1, 2024. On that day ZYX, prepaid rent through June 30. The company makes adjusting entries at the end of each month. What is the balance in the Prepaid Rent account as of April 30, 2024? o $10,800 ▪ The total prepaid rent paid through June 30 is $32,400 (5400 x 6) ▪ The total rent paid through April 30 is $21,600 (5400 x 4)  ▪ The difference between the total prepaid rent paid and the amount used is $10,800 (32400-21600) ▪ ✓ The Accumulated Depreciation account is a record of the sum of all the depreciation expenses recorded to date for a depreciable asset. ✓ The expected value of a depreciable asset at the end of its useful life is called residual value. ✓ A business purchased equipment for $155,000 on January 1 of the current year. The equipment will be depreciated over the five years of its estimated useful life using the straight-line depreciation method. The business records depreciation once a year on December 31. Which of the following is the adjusting entry required to record depreciation on the equipment for the end of the first year? (Assume the residual value of the acquired equipment is zero). Straight-line depreciation = (Cost – Residual Value) / Useful Life (155,000 – 0) / 5 years = 31,000 depreciation per year Depreciation Expense – Equipment $31,000 Accumulated Depreciation – Equipment $31,000 ✓ The Accounts Receivable account of ABC Company has the following postings: Accounts Receivable 25,000 5,000 3,000 Calculate the ending balance of the account. $23,000 DEBIT = (25000 + 3000 ) – 5000 Remember with T-Accounts which ever side is largest is the side the balance takes.  ✓ A Company signed a one-year $12,000 note payable at 8% interest on March 1 of the current year. How much interest expense must be accrued on May 31 of the current year? (Round any calculations to two decimal places, and your answer to the nearest whole number.) AMOUNT OF INTEREST = Principal x Interest Rate x Time ✓ On October 1, 2025, ABC Company accepted a 5- month, 11% note for $6,500 in settlement of an overdue account receivable. The accounting period ends on December 31. Calculate the accrued interest on the note on December 31, 2025. (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.) o $179 o 6500 x.11 x 3/12 $240 = 12,000 x.08 x 3/12 ✓ On August 14, ABC Company Bank lent $230,000 to City Coffee Shop on a 75 day, 4% note. What is the maturity value of the note? (Use a 365-day year. (Do not round calculations and round the final answer to the nearest dollar) $231,890 230,000 x 0.04 x 75/365 = 1,890.41 + 230,0000 231,890.41 (Round to the Nearest Dollar) ✓ The following Journal Entries would be recorded if a business purchased $800 of office supplies on account. Office Supplies 800 Accounts Payable 800 ✓ The asset account, Office Supplies, had a beginning balance of $6,000. During the accounting period, office supplies were purchased, on account, for $5,500. A physical count, on the last day of the accounting period, shows $2,200 of office supplies on hand. What is the amount of Supplies Expense for the accounting period? Office Supplies balance before adjustment – Office Supplies used = Office supplies on hand 6000 + 5500 (purchased) – Office Supplies Used (is what we are trying to find) = 2200 11500 – 2200 = $9300 $9300 (Amount of Supplies Expense because this is the amount that was used)  ** The Journal Entry would be: ** Supplies Expense 9300 Office Supplies 9300 ✓ A Company prepaid $9,600 on October 1, 2024, for a one-year insurance premium. Cover begins on October 1. On January 1, 2025 (after December 31 adjustments, the Prepaid Insurance account will have a debit balance of $7,200. (Round any calculation to 2 decimal places, and your final number will be a whole number). 9600/12 = 800 per month Amount paid up from October 1 – December 31 = 800 x 3 = 2400 9600 – 2400 = $7,200 ✓ The net income of ABC Company for the year is $40,000. The owner withdrew during the year $51,000. What happens to the capital account? o The capital account decreases by $11,000. ▪ 51000 – 40000 = 11000 ✓ Which of the following is classified as an asset account? o Owner, Capital o Prepaid Insurance o Notes Payable o Unearned Revenue  *Even though Prepaid Insurance doesn’t show on here remember that it is paid in advance so if the company cancels the insurance, they get their money back, it’s the same way with Prepaid Rent ✓ Which of the following would appear in the balance sheet debit column of the worksheet? o Prepaid Insurance o Service Revenue o Accumulated Depreciation o Unearned Revenue ✓ The worksheet helps accountants to Prepare the financial statements. ✓ The income statement section of the worksheet includes Service Revenue and Utilities Expense. ✓ Net income appears in the Balance Sheet Credit Column and in the Income Statement Debit Column. ✓ Balance Sheet; Reports the total assets that are equal to total liabilities + equity ✓ The company earned revenues of $12,000 and incurred expenses of $5,500. The company owner withdrew $3,500. What is the balance in the Income Summary account prior to closing the net income or loss to the Owner, Captial account? o Credit balance of $6,500  ✓ An adjusting entry is completed at the end of the accounting period. ✓ A customer returned merchandise with cash with a sales price of $2,500. The cost of goods was $1,000. The following represents the correct way to record this transaction assuming an adjusting entry had been prepared for estimated returns: Refunds Payable 2,500 Cash 2,500 Merchandise Inventory 1,000 Estimated Returns Inventory 1,000 ✓ A list of the accounts and their balances at the end of the period, after journalizing and posting the closing entries, is called a post-closing trial balance. ✓ The following are temporary accounts that are closed at the end of the year: Revenues, expenses, and owner withdrawals ✓ The cost of merchandise sold to customer is called, Cost of Goods Sold (COGS) ✓ Gross Profit = Sales Revenue – Cost of Goods Sold ✓ PERPETUAL INVENTORY SYSTEM – Keeps a running computerized record of merchandise inventory. ✓ For a merchandiser, the term “inventory” refers to goods held for sale to customers. ✓ A company that uses the perpetual inventory system purchased inventory for $1,070,000 on the account with terms of 4/7, n/20. The following correctly records the payment made 15 days (about 2 weeks) after the date of the invoice. Accounts Payable 1,070,000 Cash 1,070,000 ✓ A company that uses the perpetual inventory system purchases inventory for $61,000 on account, with terms of 3/10, n/30. The following is the journal entry to record the payment made within 10 days.  o A debit to Accounts Payable for $61,000, a credit to Merchandise Inventory for $1,830, and a credit to Cash for $59,170 ✓ A company using the perpetual inventory system purchased inventory worth $20,000, on account with terms of 2/10, n/30. Defective inventory of $3,000 was returned two days later, and the accounts were appropriately adjusted. If the invoice is paid 10 days (about 1 and a half weeks) after the invoice date, the amount of the purchase discount that would be available to the company is $340. o 20,000 – 3,000 = 17,000 x 0.02 = $340 ✓ A company that uses the perpetual inventory system purchased inventory on account and later returned goods worth $800 to the vendor (prior to payment). The following would be the correct journal entry to record these returns. Accounts Payable 800 Merchandise Inventory 800 ✓ A subsidiary ledger is a record of accounts that provide supporting details on individual balances, the total of which appears in a general ledger. ✓ The accounts payable subsidiary ledger lists vendors in alphabetical order, along with amounts paid to the vendors and the remaining amounts owned to them. ✓ The following is a requirement of the Sarbanes – Oxley Act – An outside auditor must evaluate the client’s internal controls and report on the internal controls as part of the audit report. ✓ The following values is considered the market value when valuing inventory at lower – of – cost – or market under U.S. GAAP. o Current Replacement Cost ✓ The following amount would be reported as Merchandise Inventory on the balance sheet of a company if the cost of an item is $110 and the current replacement cost is $90. o $90 – The amount reported is always current replacement cost ✓ Weighted-Average Unit Cost = Cost of Goods Available for Sale / Number of Units Available ✓ The following inventory costing method requires the calculation of a new average cost after each purchase: Weighted-Average ✓ The following inventory costing methods is the ending inventory based on the costs of the most recent purchase: First in – First Out ✓ Last-In, First-Out is the inventory valuation method that minimizes income tax expense during rising inventory costs. ✓ A company purchased 100 units for $40 each on January 31. It purchased 135 units for $50 each on February 28. It sold 200 units for $65 each from March 1 to December 31. If the company uses the last-in, first-out inventory costing method, what is the amount of Cost of Goods Sold on the income statement for the year ending December 31? (Assume that the company uses a perpetual inventory system). o Last in is 135 units for $50 = $6,750 ▪ But we sold 200 units for $65 each, so we need 65 units from the 100 we purchased first.  ▪ 65 x $40 = $2600.00 ▪ The Cost of Goods Sold that would be reported on the income statement would be: 2600 + 6750 = $9350 ✓ A company purchased 400 units for $20 each on January 31. It purchased 440 units for $22 each on February 28. It sold 550 units for $40 each from March 1 through December 31. What is the cost of ending inventory on December 31 if the company uses the first – in, first – out (FIFO) inventory costing method? Assuming the company uses the perpetual inventory system. o 400 units @$20 were purchased first o 440 units @ $22 were purchased last o 550 units were sold in total so 550 – 400 = 150 units that will be taken from the last inventory in. o The inventory left is 440 – 150 = 290 x 22 = $6380.00 ✓ Bank Reconciliation: A document explaining the reason for the difference between a depositor’s Cash account in the ledger and the depositor’s cash balance in its bank account. ✓ The following items are reconciling items on the bank side of the reconciliation: o Deposits in transit and outstanding checks ✓ A company received a bank statement showing a balance of $78,000. Reconciling items included outstanding checks of $2,100 and a deposit in transit of $9,300. What is the company’s adjusted bank balance? o $78,000 – 2100 + 9300 = $85,200 ✓ The following information is available for Ellen’s Fashions, Inc for the current month. o Book Balance end of month $7,000 o Outstanding Checks 725 o Deposits in Transit 3,000 o Service Charges 100 o Interest Revenue 35 What is the adjusted book balance on the bank reconciliation? 7000 – 100 + 35 = - 6,935 ✓ A customer’s check for $1,210 was returned for nonsufficient funds. Which of the following journal entries is needed to adjust for the NSF check? Accounts Receivable 1,210 Cash 1,210 ✓ A petty cash funds was established with a $150 balance. It currently has cash of $25 and petty cash tickets as follows: Office expense $100 and Entertainment Expense of $35. The following would be included in the journal entry to replenish the Petty Cash fund. o Credit to Cash & Over for $10 ▪ 150 – 25 – 100 – 35 = - 10 (negative gives us a credit to cash & over) ✓ Imprest System: A way to account for petty cash by maintaining a constant balance in the petty cash account and which at any time requires that cash plus petty cash tickets must total the amount allocated to the petty cash fund. ✓ The petty cash fund had an initial imprest balance of $220. It currently has $15 in cash, $4 in miscellaneous petty cash tickets, and an additional $194 in specific petty cash tickets. The debit to Cash Short & Over would be $7. o 220 – 15 – 4 – 194 = $7 (It’s a debit because there was money left over in the petty cash fund) ✓ Sales Discount Forfeited Account: Represents additional revenue due to the customer not paying within the discount period. ✓ The Allowance for Bad Debts account has a debit balance of $9,000 before the adjusting entry for bad debts expense. After analyzing the accounts in the accounts receivable subsidiary ledger while using the aging – of – receivables method, the company’s management estimates that uncollectible accounts will be $10,000. What amount of bad debts expense reported on the income statement will be what? o Because it is a debit balance to the Allowance for Bad Debts account add the uncollectible account balance to the Allowance for Bad Debts debit account balance. ▪ 9,000 + 10,000 = $19,000 ✓ Under the GAAP, the Direct Write-Off method is Not an acceptable method of estimating the bad debt expense at the end of the accounting period. ✓ On June 16, 2024, a company wrote of the $200 receivable from customer A. Dorothy. On October 14, 2024, a company unexpectedly receives $200 cash from A. Dororthy. How should a company record the $200 payment from A. Dorothy? A company uses the allowance method. o Debit Accounts Receivable – A. Dororthy & Credit Allowance for Bad Debts; Debit Cash & Credit Accounts Receivable – A. Dororthy ✓ The purchase of three computers for the sales staff, on account, is recorded in the Purchases Journal. ✓ Freight in is the transportation cost to ship goods into the purchaser’s warehouse; thus, it is freight on purchased goods. ✓ Freight out is the transportation cost to ship goods out of the seller’s warehouse and to the customer; thus, it is freight on goods sold to a customer. ✓ Vegan Specialty Foods, a grocery merchandiser, purchased goods and paid transportation to bring them to the company warehouse. The transportation cost is known as freight-in. ✓ In an accounting information system, source documents provide evidence and data for accounting transactions. ✓ The following inventory costing methods are based on the actual cost of each particular unit of inventory Specific Identification. ✓ Special Journal – An accounting journal designed to record one specific type of transaction. ✓ ABC Company uses the perpetual inventory system. On April 2, ABC Company sold merchandise of $5,500 for $10,000 to a customer on 3/15, n/30. The journal entry to record the cost of goods sold would be:  Cost of Goods Sold 5,500 Merchandise Inventory 5,500 ✓ Small business accounting software allows businesses to enter sales of services and merchandise inventory, record expenses and produce financial statements. ✓ The following is a disadvantage when a business accepts credit cards or debit cards from customers: The business pays a processing fee.