Module 1 Exhibits and Key terms - Alison · Module 1 – Exhibits and Key terms ... -0- Add: Net income for July (A)2,100 Retained earnings, July 31 $2,100 (B) METRO COURIER, INC

1 Principals of Accounting Accounting and its use in business decisions.

Module 1 – Exhibits and Key terms

Exhibit 1.......................................................................................................................................................................... 2

Exhibit 2.......................................................................................................................................................................... 3

A. Income Statement .............................................................................................................................................. 3

C. Balance Sheet ...................................................................................................................................................... 3

Transactions affecting only the balance sheet ........................................................................................................ 4

1a. Owners invested cash....................................................................................................................................... 4

2a. Borrowed money ............................................................................................................................................... 4

3a. Purchased trucks and office equipment for cash ........................................................................................ 5

4a. Purchased office equipment on account (for credit) ................................................................................... 5

5a. Paid an account payable .................................................................................................................................. 5

Exhibit 3.......................................................................................................................................................................... 6

A Summary of Transactions ................................................................................................................................... 6

B Balance Sheet ....................................................................................................................................................... 7

Transactions affecting the income statement and/or balance sheet .................................................................. 8

1b. Earned service revenue and received cash ................................................................................................... 8

2b. Service revenue earned on account (for credit) ............................................................................................ 8

3b. Collected cash on accounts receivable ......................................................................................................... 8

4b. Paid salaries ...................................................................................................................................................... 9

Exhibit 4....................................................................................................................................................................... 10

A Summary of Transactions ................................................................................................................................ 10

C Balance Sheet .................................................................................................................................................... 11

B Income Statement ............................................................................................................................................ 11

Key Terms ................................................................................................................................................................... 12



Exhibit 1



Exhibit 2

A. Income Statement B. Statement of Retained

Earnings

C. Balance Sheet

METRO COURIIER INC

Income Statement

For the Month Ended 2010 July 31

Revenues:

Service revenue $ 5,700

Expenses:

Salaries expense $2,600

Rent expense 400

Gas and oil expense 600

Total expenses

3,600

Net income

$ 2,100 (A)

METRO COURIER , INC. Statement of Retained Earnings


Retained earnings, July 1

-0-

Add: Net income for July

(A)2,100

Retained earnings, July 31 $2,100 (B)

METRO COURIER, INC.

Balance Sheet for 2010 July 31

Assets Liabilities and Stockholder's Equity

Cash $ 15,500 Liabilities:

Account receivables 700 Accounts payable $ 600

Trucks 20,000 Notes payable $ 6,600

Office equipment 2,500 Total liabilities $ 6,600

Stockholders equity:

Capital stock $30,000

Retained earnings (B)2,100

Total stockholders' equity $ 32,100

Total assets $ 38,700 Total liabilities and stockholders' equity $ 38,700



Transactions affecting only the balance sheet

1a. Owners invested cash

2a. Borrowed money

Assets =Liabilities + Stockholders'

Equity

Transaction no &

Explanation Cash

Accounts

Receiv-

able

Trucks

Office

Equipmen

t

Accounts

Payable

Notes

Payable + Capital

Stock

1a

Beginning

balances

Stockholder s

invested cash

$ -0-

30,000 $ -0- $ =0- $ -0- = $ -0- $ -0-

$ -0-

30,000

Balance after

transaction 30,000

$ 30,000

Increased

by $30,000 Increased by

$30,000

Assets = Liabilities + Stockholder's

Equity

Transaction no &

Explanation Cash Accounts

Receivable Trucks Office

Equipment

Accounts

Payable

Notes

Payable

Capital +

Stock

Balances

before

transaction

$ 30,000 $ -0- $ -0- $ -0- = $ -0- $ -0- $ 30,000

2a Borrowed

money 6,000 6,000

Balance

after

transaction

$ 36,000 = $ 6,000 + $ 30,000

Increased

by $6,000 Increased

by$6,000



3a. Purchased trucks and office equipment for cash

4a. Purchased office equipment on account (for credit)

5a. Paid an account payable

Assets =Liabilities + Stockholders'

Equity

Cash Accounts


Equipment

Accounts

Payable

Notes

Payable

Capital +

Stock

$ 36,000 $ -0- $ -0- $ -0- = $ -0- $ 6,000 + $ 30,000

(21,500) 20,000 1,500

$ 14,500 $ 20,000 $ 1,500 = $ 6,000 + $ 30,000

Decreased by

$21,500 Increased by

$20,000

Increased

by $1,500

Assets = Liabilities + Stockholders'

Equity

Cash Accounts

Receivable Trucks Office Equipment Accounts Payable Notes

Payable + Capital

Stock

$ 14,500

$ 20,000 $ 1,500 =

$ 6,000 $ 30,000

1,000 1,000

$ 14,500

$ 20,000 $ 2,500 = $ 1,000 $ 6,000 + $ 30,000

Increased by

$1,000

Increased by

$1,000

Assets = Liabilities + Stockholders

equity

Transaction no &

Explanation Cash

Accounts

Receivable Trucks

Office

Equipment Accounts

Payable Notes

Payable + Capital Stock

Balances before

transaction

$ 14,500

$ -0-

$ 20,000

$ 2,500 =

$ 1,000

$ 6,000

+ $30,000

5a

Paid an account

payable

(1,000)

(1,000)

Balance after

transaction

$ 13,500

$ -0-

$ 20,000

$ 2,500

$ -0-

$ 6,000

+$30,000

Decreased

by $1,000

Decreased

by $1,000



Exhibit 3

A Summary of Transactions

METRO COURIER, INC.

Summary of Transactions for Month of June 2010

Assets -Liabilities +

Stockholders'

Equity

Transaction no &

Explanation

Cash

Accounts


Equipment

Accounts

Payable

Notes

Payable + Capital Stock

Beginning balances $ -0 $ -0- $ -0- $ -0- =$ -0- $ -0- $ -0-

1a Stockholders invested cash 30,000

30,000

$ 30,000 $ 30,000

2a Borrowed money 6,000 = 6,000

$ 36,000 = $6000 +$30,000

3a Purchased trucks and office equipment for cash

(21,500) 20,000 1,500

$14,500 $20,000 $ 1,500 = $ 6,000 + $ 30,000

4a Purchased office equipment on account

1,000 1,000 $ 6,000 + $ 30,000

$ 14,500

$20,000 $ 2,500 = $ 1,000 $ 6,000 + $ 30,000

5a Paid an account payable (1,000) (1,000)

End-of-month balances $ 13,500(A) $ -0- $20,000(B) $ 2,500(C) = $ -0- $6,000(D) + $ 30,000(E)



B Balance Sheet

METRO COURIER, INC.

Balance Sheet 2010 June 30

Assets Liabilities and Stockholders' Equity

Cash (A) $ 13,500 Liabilities:

Trucks (B) 20,000 Notes Payable (D)

$6,000

Office

equipment

(C)2,500 Total

Liabilities

$

6,000 Stockholders' equity:

Capital stock (E)

30,000 Total assets

$ 36,000

Total liabilities and

stockholders' equity

$

36,000



Transactions affecting the income statement and/or balance sheet

1b. Earned service revenue and received cash

2b. Service revenue earned on account (for credit)

3b. Collected cash on accounts receivable

Assets =Liabilities + Stockholders' Equity

Transaction no. &



Equipment Accounts

Payable Notes

Payable Capital

+Stock

Retained

Earnings

Beginning

balances

(Exhibit 2)

$ 13,500 $ -0- $20,000 $ 2,500 = $ -0- $6,000 $30,000 $

-

0

- 1b Earned

service

revenue and

received

cash

4,800 4,800

Balances after

transaction

$ 18,300 $20,000 $2,500 = $6,000 + $ 30,000 $ 4,800

Increased

by $4,800

Increased

by $4,800

Assets Liabilities Stockholders' +Equity

Transaction no &


Receivabl

e

Trucks Office

Equipment

Accounts

Payable

Notes

Payable

Capital + Stock

Retained

Earnings

Balances before transaction $18,300

$ 20,000 $ 2,500 = $ 6,000 $ 30,000 $ 4,800

2b Earned service revenue on account

$900

900

Balances after

transaction $18,300 $900 $ 20,000 $ 2,500 = $ 6,000 + $30,000 $5,700

Increased

by $900

Increased by $900

Assets Liabilities

Stockholders'

+Equity

Transaction no &



Equipment

Accounts

Payable

Notes

Payable

Capital + Stock

Balances before transaction $18,300 $900 $ 20,000 $ 2,500 = $ 6,000 $ 30,000

3b Collected cash

on account $200 (200)

Balances after transaction $18,500 $700 20,000 $ 2,500 = $ 6,000 + $ 30,000

Increased

by $200

Decreased

by $200



4b. Paid salaries

5b. Paid rent

Assets = Liabilities + Stockholders' Equity

Cash Accounts

Receivable

Trucks Office Equipment

Accounts Payable

Notes Payable

+ Capital

Stock

Retained Earnings

$15,900 (400) $700 $ 20,000 $ 2,500 =

$ 6,000 $ 30,000

$ 3,100 (400)

$15,500 $700 $ 20,000 $ 2,500 = $ 6,000 + $ 30,000 $ 2,700

Decreased

by $400

Decreased

by $400

6b. Received bill for gas and oil used

Assets =Liabilities + Stockholders' +Equity

Cash Accounts

Receivable Trucks

Office Equipment

Accounts

Payable Notes Payable

Capital +

Stock Retained Earnings

$ 15,500 $ 700 $ 20,000 $ 2,500 =

$ 6,000 $ 30,000 $ 2,700 600 (600)

$ 15,500 $ 700 $ 20,000 $ 2,500 = $600 $ 6,000 + $ 30,000 $2,100

Increased by

$600 Decreased by

$600

Assets = Liabilities + Stockholders' Equity

Cash Accounts Receivable Trucks

Office Equipment

Account

s Payable

Notes Payable +

Capital

Stock

Retained

Earnings

$ 18,500 (2,600) $700 $ 20,000 $ 2,500 =

$6,000 $ 30,000

$ 5,700 (2,600)

$ 15,900 $700 $ 20,000 $ 2,500 =

$6,000 + $ 30,000 $ 3,100

Decreased

by $2,600

Decreased by

$2,600



Exhibit 4

A Summary of Transactions

METRO COURIER, INC.

Summary of Transactions for Month of July 2010

Assets -Liabilities + Stockholders' Equity

Transaction no &

Explanation

Cash

Accounts

Receivable

Trucks Office

Equipment Accounts Payable

Notes Payable +

Capital Stock

Retained Earnings

Beginning balances

(Illustration

1.2)

$13,500 $ -0- $ 20,000 $ 2,500 = $ -0- $ 6,000 + $ 30,000 $ -0-

1b Earned service revenue

and received cash 4,800

4,800(A)

$18,300 $ 20,000 $ 2,500 =

$ 6,000 + $ 30,000 $ 4,800

2b Earned service revenue on

account

900 900(B)

$18,300 $ 900 $ 20,000 $ 2,500 =

$ 6,000 + $ 30,000 $ 5,700

3b Collected cash on account 200 (200)

$18,500 $ 700 $ 20,000 $ 2,500 =

$ 6,000 + $ 30,000 $ 5,700

4b Paid salaries (2,600) (2,600)(C)

15,900 $ 700 $ 20,000 $ 2,500 =

$ 6,000 + $ 30,000 $ 3,100

5b Paid rent (400) (400)(D)

$15,500 $ 700 $ 20,000 $ 2,500 =

$ 6,000 + $ 30,000 $ 2,700

6b Received bill for gas and oil

used

600 (600)(E)

End-of-month balances $15,500( F) $ 700(G) $20,000(H) $ 2,500=(I) $600(J) $ 6,000 +(K) $ 30,000(L) $ 2,100(M)

$38,700 $6,600 $32,100



C Balance Sheet

METRO COURIER, INC.

Balance Sheet2010 July 31

Assets Liabilities and Stockholders'

Cash (F)$15,500 Liabilities:

Accounts

receivable (G)700 Accounts payable (J)$600

Trucks (H)20,000 Notes payable (K)6,000

Office

equipment (I)2,500 Total liabilities Stockholders' equity $6,600

Capital stock (L)$30,000

Retained earnings (M)2,100

Total stockholders' equity $32,100

Total assets $38,700 Total liabilities and stockholders' equity $38,700

B Income Statement

METRO COURIER, INC. Income

Statement


Revenues:

Service revenue (A+B)$ 5,700

Expenses:

Salaries expense (C)$ 2,600

Rent expense (D)400

Gas & oil expense (F)600

Total expenses 3,600



Key Terms

Accounting equation • Assets = Equities; or Assets = Liabilities + Stockholders’ equity.

Accounts payable • Amounts owed to suppliers for goods or services purchased on credit.

Accounts receivable • Amounts due from customers for services already provided. Assets • Things of value owned by the business. Examples include cash, machines, and

buildings. To their owners, assets possess service potential or utility that can be measured and expressed in money terms.

Balance sheet • Financial statement that lists a company’s assets, liabilities, and stockholders’ equity

(including dollar amounts) as of a specific moment in time. Also called a statement of financial position.

Business entity concept (or accounting entity concept) • The separate existence of the business organization.

Capital stock • The title given to an equity account showing the investment in a business corporation by its stockholders.

Continuity • See going-concern concept. Corporation • Business incorporated under the laws of one of the states and owned by a few

stockholders or by thousands of stockholders. Cost • Sacrifice made or the resources given up, measured in money terms, to acquire some

desired thing, such as a new truck (asset). Dividend • Payment (usually of cash) to the owners of a corporation; it is a distribution of

income to owners rather than an expense of doing business. Entity • A business unit that is deemed to have an existence separate and apart from its owners,

creditors, employees, customers, other interested parties, and other businesses, and for which accounting records are maintained.

Equities • Broadly speaking, all claims to, or interests in, assets; includes liabilities and stockholders’ equity.

Equity ratio • A ratio found by dividing stockholders’ equity by total equities (or total assets). Exchange-price (or cost) concept (principle) • The objective money prices determined in the

exchange process are used to record most assets. Expenses • Costs incurred to produce revenues, measured by the assets surrendered or

consumed in serving customers. Going-concern (continuity) concept • The assumption by the accountant that unless strong

evidence exists to the contrary, a business entity will continue operations into the indefinite future.

Income statement • Financial statement that shows the revenues and expenses and reports the profitability of a business organization for a stated period of time. Sometimes called an earnings statement.

Liabilities • Debts owed by a business—or creditors’ equity. Examples: notes payable, accounts payable.

Manufacturing companies • Companies that buy materials, convert them into products, and then sell the products to other companies or to final customers.

Merchandising companies • Companies that purchase goods ready for sale and sell them to customers.

Money measurement concept • Recording and reporting economic activity in a common monetary unit of measure such as the dollar.

Net income • Amount by which the revenues of a period exceed the expenses of the same period.

Net loss • Amount by which the expenses of a period exceed the revenues of the same period. Notes payable • Amounts owed to parties who loan the company money after the owner



signs a written agreement (a note) for the company to repay each loan. Partnership • An unincorporated business owned by two or more persons associated as partners. Periodicity (time periods) concept • An assumption that an entity’s life can be meaningfully

subdivided into time periods (such as months or years) for purposes of reporting its economic activities.

Profitability • Ability to generate income. The income statement reflects a company’s profitability.

Retained earnings • Accumulated net income less dividend distributions to stockholders. Revenues • Inflows of assets (such as cash) resulting from the sale of products or the rendering

of services to customers. Service companies • Companies (such as accounting firms, law firms, or dry cleaning

establishments) that perform services for a fee. Single proprietorship • An unincorporated business owned by an individual and often

managed by that individual. Solvency • Ability to pay debts as they become due. The balance sheet reflects a company’s

solvency. Source document • Any written or printed evidence of a business transaction that describes

the essential facts of that transaction, such as receipts for cash paid or received. Statement of cash flows • Financial statement showing cash inflows and outflows for a

company over a period of time. Statement of retained earnings • Financial statement used to explain the changes in retained

earnings that occurred between two balance sheet dates. Stockholders’ equity • The owners’ interest in a corporation. Stockholders or shareholders • Owners of a corporation; they buy shares of stock, which are

units of ownership, in the corporation. Summary of transactions • Teaching tool used in Chapter 1 to show the effects of

transactions on the accounting equation. Transaction • A business activity or event that causes a measurable change in the items in the

accounting equation, Assets = Liabilities + Stockholders’ equity.

Documents

Module 1 Exhibits and Key terms - Alison · Module 1 – Exhibits and Key terms ... -0- Add: Net income for July (A)2,100 Retained earnings, July 31 $2,100 (B) METRO COURIER, INC