ACC 221 Final Study Guide

ACC 221 Final Study Guide - Assets = Liabilities + Owners...

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Assets = Liabilities + Owner’s Equity 1. Analyze Transactions 2. Record Transactions in General Journal 3. Post to General Ledger 4. Adjusting Entries 5. Trial Balance 6. Financial Statements Income Statement Calculate Retained Earnings Balance Sheet 7. Closing Entries 8. Post Closing Trial Balance Balance Sheet - all Asset, Liability, Common Stock and Retained Earnings accounts to make sure system is in balance No Revenue or Expense Accounts on BS, already closed into Retained Earnings Retained Earnings - Owner’s claim to assets as a result of business operations Never close, always has a beginning balance, Not on Income Statement Revenue and Expense accounts go home to Retained Earnings Revenue – Expenses = Net Income Income Statement Balance Sheet: Retained Earnings = Net Income – Dividends Income Statement – Calculates Net Income that goes home to Retained Earning on BS Income Statement Revenue 5000 Costs of Goods Sold -1000 Gross Profit 4000 Operating Expenses Supplies 100 Wages 200 Interest 150 Total Operating Expenses 450 Net Income 3550 Retained Earnings = Net Income – Dividends Balance Sheet Post-Closing Trial Balance - shows all account balances in General Ledger All Revenue and Expense Accounts have a zero balance Permanent Balances - ALL Asset, ALL Liability, and Common Stock and Retained Earnings accounts
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Adjusting Entries What is the balance? What should be the balance? How do we get there? Depreciation Expense 1000 Accumulated Depreciation 1000 If you forget to due adjusting Depreciation entry Assets Overstated Accumulated Depreciation Understated Equipment Overstated Liabilities Balances Equity Overstated Expenses Understated Net Income Overstated Retained Earnings Overstated Supplies = $11,000 Should be $10,125 Supplies Expense 875 Supplies 875 If you forget to due adjusting for Prepaid Assets (supplies, prepaid rent or insurance) Balance Sheet Balances Assets Overstated Supplies Overstated Liabilities Balances Equity Overstated Expenses Understated Net Income Overstated Retained Earnings Overstated Owe $ 1825 of Wages Wages Expense 1825 Wages Payable 1825 If you forget to due adjusting for Accrues Liabilities (anything with “Payable”) Assets Balance Liabilities Understated Wages Payable Understated Equity Overstated Expenses Understated Net Income Overstated
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Retained Earnings Overstated Unearned Revenue Lenny’s was paid $32,000 in advance for 4 months of work Cash 32,000 Unearned Revenue 32,000 32,000 / 4 = 8,000 earned revenue a month Amount Owed 32,000 24,000 16,000 8,000 0 End of Month 0 1 2 3 4 Unearned Revenue 8000 Service Revenue 8000 Errors from not making Unearned Revenue entry Equity Understated Service Revenue Understated Expenses Balance Net Income Understated Retained Earnings Understated Liabilities Overstated Assets Balances Lenny’s does service in advance of payment, invoice
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ACC 221 Final Study Guide - Assets = Liabilities + Owners...

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