University:
Grand Rapids Community College
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

370

Pages:

2
Author:

stud_ice13

Key Concepts Recap: Asset Accounts: 1. Cash: A company’s cash balance. 2. Accounts Receivable: Seller's right to payment from customers for sales made on credit. 3. Notes Receivable: Borrower's promise to pay a lender on a future date. 4. Prepaid Accounts: Assets arising from prepayments like prepaid insurance or rent. 5. Other Assets: Includes supplies, equipment, buildings, and land. Liability Accounts: 1. Accounts Payable: A buyer's obligation to pay the seller for goods or services received. 2. Notes Payable: Borrower's written promise to pay a future amount. 3. Unearned Revenue: Customer prepayments for goods or services not yet delivered. 4. Accrued Liabilities: Amounts owed but not yet paid, such as wages or taxes payable. Equity Accounts: 1. Common Stock: Represents owner's investments in the company, increasing assets and equity. 2. Dividends: Cash distributions to shareholders, reducing assets and equity. 3. Revenue: Increases equity through sales of products or services. 4. Expenses: Decreases equity through costs incurred to provide goods or services. Debits and Credits: • • • Debit (Dr.): Left side of an account, used to increase assets and expenses, and decrease liabilities and equity. Credit (Cr.): Right side of an account, used to increase liabilities, equity, and revenues, and decrease assets and expenses. Double-entry accounting: Each transaction affects at least two accounts, where total debits must equal total credits. Financial Statements: • The transactions summarized in the accounts are ultimately used to prepare financial statements, such as the Income Statement, Balance Sheet, and Statement of Retained Earnings. Multiple Choice Quiz Analysis: 1. Utility Bill Payment o Transaction: Paid utility bill of $700. o Answer: b. Debit to Utility Expense for $700 (Utility expense is increased with a debit, and cash is decreased with a credit). 2. Collection in Advance of Services o Transaction: Collected $2,500 in advance for services to be provided over five months. o Answer: a. Credit to Unearned Revenue for $2,500 (This represents a liability, as services have not yet been performed). 3. Recording Investment by Owner o Transaction: Owner contributes $250,000 cash and $500,000 worth of land to the business. o Answer: c. Cash $250,000, Land $500,000, Common Stock $750,000 (The business receives assets in exchange for equity). 4. Trial Balance Discrepancy o Scenario: Total credits exceed debits by $765. o Answer: e. An error in recording a $765 increase in Cash as a credit (Cash increases are debited, so this error would create an imbalance). 5. Debt Ratio Calculation o Formula: Debt Ratio = (Liabilities / Total Assets) × 100 o Given: Liabilities = $400,000, Assets = $1,000,000. o Answer: e. 40% (Debt ratio = $400,000 / $1,000,000 = 0.40 or 40%).