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Acc 201 Sample exam review 1 page 3

Acc 201 Sample exam review 1 page 3 - Cash basis we only...

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Conservatism: don’t overstate assets and revenues or understate liabilities and expenses For transactions determine what’s happening, the classifications that are affected, for example if you’re buying inventory you know that your assets are increasing but you’re spending cash so you’re going to debit an asset account and credit an asset account. Next, put account titles so for the previous example you would debit Inventory and credit Cash. Finally, note the changes to the account classifications like +Assets or –Assets Inventory (+A) Cash (-A) Net Book Value: A-L=SE Net Worth: Current Value of Assets-Liab=net worth Financial leverage: total average assets/total average s.e. Ch. 3 Operating cycle: a cycle of 1. purchase goods, 2 pay for goods, 3 make a sale, 4 collect cash and the cycle goes again REVENUES-EXPENSES-LOSSES+GAINS=NET INCOME Gains: occur if you sell something over what the historical cost was Losses: occur if you sell something below what the historical cost was
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Unformatted text preview: Cash basis: we only record transactions when receive or pay cash (*We don’t use this method) We use the Accrual basis of accounting: We recognize revenue when it’s earned (sold the good or performed the service already), realizable (exchange has taken place: arms length), and measurable (agreed upon price). We recognize expenses during the period that they are incurred Recognize/record regardless of when cash is received or paid p. 45 in course pack gives account classifications and whether they inc. or dec. with credits or debits Ch. 4 General Journal → General Ledger → Trial Balance → Financial Statements Unadjusted Trial Balance is just a list of the end balance for accounts from the general ledger Adjusted is after adjustments are added or subtracted from the accounts Post – closing are the permanent accounts and their end balances after closing the temporary accounts. Accrual: before cash Deferral: after cash...
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