ACCT 211 Quick Reference Guide
Last Update: January 4, 2017
Page 1 of 12
ACCT 211 Principles of Accounting 1
Quick Reference Guide (QRG)
Compiled by Dr. Dave Welch, CPA, CFE
Liberty University
January 4, 2017
Prepare for your exams
Study with the several resources on Docsity
Earn points to download
Earn points by helping other students or get them with a premium plan
Guidelines and tips
Prepare for your exams
Study with the several resources on Docsity
Earn points to download
Earn points by helping other students or get them with a premium plan
Spring 2017 ACCT 211 Quick Reference Guide(2) 17-18, Assignments of Principles of Accounting
A quick reference guide for ACCT 211 Principles of Accounting 1. It covers topics such as normal account balances, income statement accounts, balance sheet accounts, the accounting equation, and additional key terminology and concepts. The guide provides sample problems with journal entries for assets, liabilities, equity, revenue, and expenses. It also includes a sample balance sheet for XYZ Company as of December 31, 2016.
Typology: Assignments
2017/2018
1 / 12
This page cannot be seen from the preview
Don't miss anything!
Related documents
Partial preview of the text
Download Spring 2017 ACCT 211 Quick Reference Guide(2) 17-18 and more Assignments Principles of Accounting in PDF only on Docsity!
ACCT 211 Principles of Accounting 1 Quick Reference Guide (QRG) Compiled by Dr. Dave Welch, CPA, CFE Liberty University January 4, 2017
Table of Contents
Normal Account Balances Key Point : Debits and credits do not mean favorable or unfavorable. A debit to an asset increases it, as does a debit to an expense. A credit to a liability increases it, as does a credit to a revenue. Income Statement Accounts Account Type Increase by Other Titles or Examples Revenues Credit Revenue accounts are also called Sales Revenue, Sales, Income Expenses Debit Rent expense, salaries expense, advertising expense, utilities expense Key Point : Nearly every business’ goal is to make a profit (also called Net Income). Thus, you want your revenue credits to exceed your expense debits. If that happens, Net Income would have a credit balance. If the expense debits exceed the revenue credits, a debit balance (or a Net Loss) results. Balance Sheet Accounts The Accounting Equation : Assets = Liabilities + Equity Account Type Increase by Other Titles or Examples Assets Debit Cash, supplies, equipment, buildings, land Liabilities Credit Accounts payable, Notes payable, wages payable, unearned income Equity Credit Common stock, paid-in capital, retained earnings, (dividends) Key Point : Assets - Liabilities = Equity Therefore, a company wants the assets (debits) to exceed the liabilities (credits) in order for the owners’ equity to be a positive (credit) number. Key Points : Net Income results when Revenue (credits) exceeds Expenses (debits) and increases owners’ equity. Net Losses occurs when Expenses (debits) exceed Revenue (credits) and decreases owners’ equity. Dividends paid out to shareholders (a distribution of part of Retained Earnings) also decrease owners’ equity. The cornerstone for understanding the accounting process and for passing this course is KNOWING (not the simply memorizing) this page. You only need to know what type of entry INCREASES the account balance since, by deductive reasoning, the opposite type of entry DECREASES the account balance.
DebitsCredits DecreaseIncrease Balance Sheet – Normal Balance Explanations Assets : are the things you own which have value and can be converted into cash. Assets are owned by individuals, businesses, and governments. Examples of assets include cash, land, equipment, etc. The “NORMAL BALANCE” is a DEBIT since DEBIT entries increase an asset account balance. Asset sample problem with journal entry (JE) : On July 1, 2016, ABC Company paid $4,500 for equipment to be used in their metal fabricating shop. 07/01/16 Equipment 4, Cash 4, For purchase of die press Contra account : is a general ledger account that has a balance opposite the normal balance for that account classification. Contra-asset : is an asset account with a credit balance and reduces the net asset balance (i.e., allowance for bad debt, accumulated depreciation). The “NORMAL BALANCE” is a CREDIT since CREDIT entries increase a contra-asset account balance. Accumulated Depreciation Norma l Contra-asset sample problem with JE : On December 31, 2016, ABC Company recorded depreciation for the metal fabricating equipment purchased in July. ABC uses the straight-line depreciation method. Expected useful life is 7 years with no salvage value. 12/31/16 Depreciation expense 321 (4,500 / 7 x ½) Accumulated Depreciation 321 To record 6 months’ depreciation – die press Liabilities: are what you owe. Liabilities are financial debts or obligations which arise during the normal course of operations. Examples include loans from banks, bonds issued to raise money, accounts payable, etc. The “NORMAL BALANCE” is a CREDIT since CREDIT entries increase a liability account. A debit increases one asset (Equipment) & a credit decreases another asset
DebitsCredits DecreaseIncrease DebitsCredits DecreaseIncrease DebitsCredits DecreaseIncrease Dividends (contra-equity) : This account is considered a contra-equity account because the “NORMAL BALANCE” is a DEBIT which means DEBIT entries increase the dividend account balance. Income Statement – Normal Balance Explanations Revenue : is an Income Statement account and is calculated by multiplying the price at which goods or services are sold by the number of units or amount sold. Under accrual-based accounting, revenue is recorded in the period the product is sold or the service is completed – NOT when payment is received. Sales Revenue Norma l Income sample problem with JE : ABC Company, a furniture manufacturer, sold 10 sofas to a retail store for $7,500 on account. 07/01/16 Accounts Receivable 7, Sales Revenue 7, To record sale of 10 sofas Contra-revenue : is a revenue account which has a debit balance and reduces the net sales amount (e.g., cost of goods sold). The “NORMAL BALANCE” is a DEBIT since DEBIT entries increase a contra-revenue account balance. Cost of Goods Sold Norma l Contra-revenue sample problem with JE : ABC Company must reduce its inventory to reflect the sale of 10 sofas to a retail store. Total manufacturing cost per sofa was $500. 07/01/16 Cost of Goods Sold 5, Inventory 5, To record sale of 10 sofas Expense : is the economic cost a business incurs through its operations to earn revenues. Under accrual-based accounting, an expense is recorded in the period it is incurred – NOT when payment is made. Expense Norma l A debit increases the contra- revenue account (COGS) & a credit decreases an asset (Inventory) A debit increases an asset (Accounts Receivable) & a credit increases a revenue account (Sales Revenue)
A debit increases one asset (Prepaid Expense) & a credit decreases another asset (Cash) A debit increases an expense (Utilities) & a credit decreases an asset Expense sample problem with JE : ABC Company paid its $1,100 electric bill as soon as it was received on June 29, 2016. 06/29/16 Utilities Expense 1, Cash 1, To record payment of June electric bill Additional Key Terminology / Concepts Journal Entries (JE) : There are a few general rules which apply to all journal entries:
- The total of the credits in a JE MUST equal the total of the debits, otherwise, it’s wrong.
- Debit entries are always listed before the credit entries
- Account name for the credit entry is indented
- As demonstrated in this example, every JE MUST include the six parts noted in items a – f: 06/29/16 Utilities Expense 1, Cash 1, To record payment of June electric bill a. Date b. Account name for the Debit entry c. The debit entry $ amount is in the left column (immediately after account’s name) d. Account name for the Credit entry (which must be indented) e. The credit entry $ amount is in the column to the right of the debit $ amount f. A brief explanation of the purpose of the JE Prepaid Expenses : When items are paid in advance (i.e., rent, insurance policies, season tickets to football games or concerts), these items are considered to be assets at the time of the payment because an economic cost has not yet occurred. Theoretically, the monies paid could be recovered if time has not passed (in the case of rent and insurance) or the games or concerts have not been played or performed. Prepaid expense sample problem with JE : ABC Company paid $1,200 for a 12-month insurance policy on January 1, 2016. 01/01/16 Prepaid Expense 1, Cash 1, To record purchase of 12-month insurance policy Prepaid expense becomes an expense as coverage periods pass. Sample problem with JE : At the end of January, one month’s coverage has expired (or has been used). ABC Company must make an adjusting entry to reflect this expense. 01/31/16 Insurance Expense 100 Prepaid Expense 100 To record January insurance expense A debit increases the expense (Insurance) & a credit decreases an asset (Prepaid Expense)
Sample Balance Sheet XYZ Company Balance Sheet As of December 31, 2016 USD ($) in Millions Current Assets Cash and cash equivalents $ 707 Accounts Receivable, net 1, Less: Allowance for bad debt (200) Merchandise inventories 4, Other current assets 316 Total Current Assets 6, Non-current Assets Property and equipment 9, Less: Accumulated Depreciation, Prop & Equip (1,100) Intangible assets 800 Less: Accumulated Amortization (171) Total Non-current Assets 9, Total Assets $ 16, Current Liabilities Accounts payable $ 1, Accrued liabilities 1, Income taxes payable 130 Current portion of long-term debt 127 Total Current Liabilities 2, Non-current Liabilities Bonds payable 5, Less: Discount on bonds payable (200) Long-term debt 900 Total Non-current Liabilities 5, Total Liabilities 8, Stockholders’ Equity Common stock - 370 and 367 million shares issued 4 Paid-in capital 2, Treasury stock, at cost, 184 and 166 million shares (9,714) Retained earnings 14, Total Stockholders’ Equity 7, Total Liabilities and Stockholders’ Equity $ 16,
Sample Income Statement XYZ Company Income Statement For the Year Ended December 31, 2016 USD ($) in Millions Sales / Revenue Net sales $ 19, Cost of merchandise sold 12, Gross Margin 6, Operating Expenses Selling, general and administrative 4, Depreciation and amortization 934 Operating Income 1, Interest expense, net 327 Loss on sale of property & equipment 169 Income Before Income Taxes 1, Provision for Income Taxes 384 Net Income $ 673