ac101_ch1 - Revised July 2008 ACC101 CHAPTER 1 Accounting...

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Revised July 2008 Page 1 of 9 ACC101 – CHAPTER 1 Accounting in Business
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Revised July 2008 Page 2 of 9 Key Terms and Concepts to Know Accounting Principles: GAAP Business Entity, Cost, Going Concern, Monetary Unit, Objectivity, Revenue Recognition Accounting Equation and components: Assets, Liabilities, Stockholders Equity, Revenue, Expense, Dividends The accounting equation must always balance Transactions: External transactions occur between two different entities and are easy to record because there are always source documents evidencing the transaction Internal transactions occur within a single entity and are more difficult to record because source documents my not always be present Basic Financial Statements: Income Statement, Statement of Retained Earnings, Balance Sheet, Statement of Cash Flows Interrelationship among the financial statements Profitability: Revenues – Expenses Net Income vs. Net Loss Return on Assets ratio
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Revised July 2008 Page 3 of 9 Assets = Liabilities + Stockholder’s Equity Example #1: John Smith is the sole stockholder and operator of Just-In-Time, a consulting firm. At the end of its accounting period, December 31, 2000, Just-In-Time has assets of $375,000 and liabilities of $125,000. Using the accounting equation and considering each case independently, determine the following amounts: a. Stockholder’s equity on 12/31/00. b. The amount and direction (increase or decrease) of the period’s change in stockholder’s equity if, during 2001, assets increased by $32,000 and liabilities decreased by $8,000. c. Net income (or net loss) during 2001, assuming that as of December 31, 2001, assets were $367,000, liabilities were $110,000, capital stock of $40,000 was issued, and dividends of $60,000 were paid. Solution #1: Assets = Liabilities + Stockholder’s Equity a) $375,000 = $125,000 + X X = $250,000 b) + $32,000 = - $8,000 + X + $40,000 = X c) Beginning Owners Equity = $250,000 [from (a) above] Ending Owners Equity: $367,000 = $110,000 + X X = $257,000 Beginning Owners Equity $250,000 + Capital Stock Investments 40,000 - Dividends paid (60,000) + Net Income X Ending Owners Equity $257,000 X = $27,000
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Revised July 2008 Page 4 of 9 Practice Problem #1 : Sarah Jones is the sole stockholder and operator of Sarah’s Catering. At the end of the accounting period, December 31, 2000, Sarah’s Catering has assets of $135,000 and liabilities of $72,000. Using the accounting equation and considering each case independently, determine the following amounts: a. Stockholder’s equity on 12/31/00.
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This note was uploaded on 06/01/2011 for the course ACCOUNTING 101 taught by Professor All during the Spring '11 term at Harper.

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ac101_ch1 - Revised July 2008 ACC101 CHAPTER 1 Accounting...

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