Intuit Certified Bookkeeping Professional Teacher Workbook Domain 2 Lesson 2 PDF

# Intuit Certified Bookkeeping Professional Domain 2: Lesson 2 ## Fill-in-the-blanks **Instructions:** While watching Domain 2 Lesson 2, fill in the missing words according to the information presented by the instructor. [References are found in the brackets.] 1. **Straight-line depreciation** de...

# Intuit Certified Bookkeeping Professional Domain 2: Lesson 2 ## Fill-in-the-blanks **Instructions:** While watching Domain 2 Lesson 2, fill in the missing words according to the information presented by the instructor. [References are found in the brackets.] 1. **Straight-line depreciation** depreciates the asset at an equal amount over its useful life. [Service Life and Depreciation] 2. To record depreciation, an accountant would make a **debit** to increase depreciation expenses and **credit** the associated asset account to decrease a long-term asset's value. [Depreciation Expense on Income Statements] 3. Assets must always equal **liabilities** plus **owner's equity**. [Sales Transaction Effects] 4. Merchandise inventory is an asset, so a cash purchase does not affect the balance of the accounting equation, but a credit purchase raises both **assets** and **liabilities** while owner's equity stays the same. [Merchandise Inventory Effects] 5. PP&E stands for property, **plant** and **equipment**. [Common Property and Equipment] 6. **Royalty** income is earned by allowing someone to use intellectual property or resources. [Other Asset Transaction Effects] ## Service Life and Depreciation on Income Statements * Service life is another word for useful life, the amount of time an asset will be helpful to a company. * Depreciation is the value an asset loses with time and use. * A company can use many forms of depreciation for its reporting, but the IRS accepts only one method: Modified Accelerated Cost Recovery System (MACRS). * Other methods include straight-line, sum-of-the-years digits, units-of-production, and double-declining balance. **Depreciation expenses are listed on the income statement alongside other expenses.** Assets being depreciated are listed according to categories alongside other business expenses having similar purposes. Expenses have natural debit balances. Income statements present revenues first, expenses second, and net profit or loss last. ### Purpose Upon completing this project, you will better recognize terms referring to depreciation. ### Steps for Completion 1. **Depreciation reduces the owner's equity. Why?** * Because expenses lower net income * **Because expenses are liabilities** 2. Net profit/loss is the difference between revenues and expenses. **Why?** * Because revenue equals the cash in the bank * **Because revenue is income from sales, and expenses are costs** 3. Expenses are listed on the income statement according to purpose. **Why?** * Because grouping expenses helps owners control cost categories * **Because grouping expenses is easier for bookkeepers than listing them alphabetically** 4. Operating, administrative, and other expense categories can contain depreciation expenses for different assets. **Why?** * Because bookkeepers should divide expenses evenly by department * **Because assets are used for different purposes throughout the company** ## Sales Transactions and Merchandise Inventory * Sales transactions can occur one of two ways, a cash sale or on account. * The accounts affected are a revenue account, and either the cash account or an account receivable billed to the customer. * Cash and accounts receivable are assets with a natural debit balance. * Sales would increase the amount in the cash account or increase the value of the receivable account. * Revenue accounts have natural credit balances. * A sale would increase the value of the revenue account as well. * A sales transaction entry would be a debit to cash or account receivable and a credit to the revenue account of equal value. **Once a sale is completed, another transaction is recorded to remove items sold from inventory. Merchandise Inventory accounts have natural debit balances as inventory is an asset.** The cost of goods sold expense account also has a natural debit balance. These accounts are both increased with debits and decreased by credits. A sale is recorded as a credit to merchandise inventory and a debit to the cost of goods sold in the amount of inventory valuation as calculated by FIFO, LIFO, WAC, or another valuation method. ### Purpose Upon completing this project, you will better understand the record-keeping procedures for the sale of inventory. ### Steps for Completion 1. When Franky's Fritters opened on March 3, 2021, they had 1,842 fritters in inventory, each costing \$1.25 for a total inventory value of \$2,302.50. The fritter shortage had caused the storefront to have a dramatic increase in walk-in sales. The phones were also busy with orders from customers hoping to have fritters delivered. By the end of business Tera reported they had cash sales of \$4,347 and total receivable sales of \$2,400; \$2,000 to Minnie's Mall and \$400 to Mood Food. Freddy ran to check the freezers; there were only two fritters left. Using the journal below, finish recording the day's business. | Date | Account | Debit | Credit | |---|---|---|---| | 3/3/21 | Cash | \$4,347.00 | \$0.00 | | | Minnie's Mall Account | \$2,000.00 | \$0.00 | | | Mood Food Account | \$400.00 | \$0.00 | | | Fritter Sales Revenue | \$0.00 | \$6,747.00 | | | Cost of Fritters Sold | \$2,300.00 | \$0.00 | | | Frozen Fritter Inventory | \$0.00 | \$2,300.00 | ## Common Property, Equipment, and Other Assets * Property and equipment are inventoried in accounts separate from merchandise inventory. * Merchandise is intended to be sold, while property and equipment are intended to be used. * Property and equipment often carry a high cost and are a company's fixed assets. Other items to consider include interest income and expense, royalty income, and how passive changes affect the financial statements. ### Purpose Upon completing this project, you will better understand the effect of assets and passive financial changes. ### Steps for Completion 1. **Royalty income** of intellectual property is received as compensation for the use. 2. **Interest expenses** happen when companies pay interest on money they owe. 3. **Interest income** is a return generated by money held in banks or by receivable credit issued to customers. 4. **Passive income** is money companies earn without sales and services. 5. **Expenses** are money spent by companies while doing business.