Spring 2017 ACCT 211 Quick Reference Guide(2) 17-18, Assignments of Principles of Accounting

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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 ACCT 211 Quick Reference Guide Last Update: January 4, 2017 Page 2 of 12 Table of Contents Normal Account Balances...............................................................................................................4 Income Statement Accounts.........................................................................................................4 Balance Sheet Accounts...............................................................................................................4 The Accounting Equation: Assets = Liabilities + Equity..............................................................4 Balance Sheet – Normal Balance Explanations...............................................................................5 Assets...........................................................................................................................................5 Contra account.............................................................................................................................5 Contra-asset..............................................................................................................................5 Liabilities......................................................................................................................................5 Contra-liability.........................................................................................................................6 Equity...........................................................................................................................................6 Common Stock.........................................................................................................................6 Retained Earnings.....................................................................................................................6 Dividends (contra-equity).........................................................................................................7 Income Statement – Normal Balance Explanations........................................................................7 Revenue........................................................................................................................................7 Contra-revenue.........................................................................................................................7 Expense........................................................................................................................................7 Additional Key Terminology / Concepts.........................................................................................8 ACCT 211 Quick Reference Guide Page 5 of 12Last Update: January 4, 2017 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 4,500 Cash 4,500 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 A debit increases an asset (Cash) & a credit increases an equity account (Common Stock) ACCT 211 Quick Reference Guide Page 6 of 12Last Update: January 4, 2017 DebitsCredits DecreaseIncrease DebitsCredits DecreaseIncrease Liability sample problem with JE : Using the illustration from above, if ABC Company purchased equipment for $4,500 on credit (instead of paying cash). 07/01/16 Equipment 4,500 Accounts Payable 4,500 For purchase of die press Contra-liability : a liability account with a debit balance and reduces the net liability or carrying value (e.g., bond discount). The “NORMAL BALANCE” is a DEBIT since DEBIT entries increase a contra-asset account balance. Bond Discount Norma l Equity: is what is left over if all assets are sold and all liabilities are paid. Equity is the owner's claim on assets and is equal to assets minus liabilities. Included are investments in the company through the sale of common or preferred stock plus net income from prior years (also called retained earnings) minus any dividends paid to shareholders. Common Stock : the “NORMAL BALANCE” is a CREDIT since CREDIT entries increase the common stock account balance. Equity sample problem with JE : ABC Company sold 100 shares of $10 par value common stock for $10,000. 07/01/16 Cash 10,000 Common Stock 10,000 To record sale of 100 shares of common stock Retained Earnings : the “NORMAL BALANCE” is a CREDIT since CREDIT entries increase the retained earnings account balance. Retained Earnings Norma l Equity sample problem with JE : On December 31, 2016, ABC Company closed their net income of $125,273 (revenue – expenses = net income) to retained earnings. 07/01/16 Income Summary 125,273 Retained Earnings 125,273 To close temporary accounts at year-end A debit increases an asset (Equipment) & a credit increases the liability (Accounts Payable) ACCT 211 Quick Reference Guide Page 7 of 12Last Update: January 4, 2017 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 7,500 Sales Revenue 7,500 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 $500. 07/01/16 Cost of Goods Sold 5,000 Inventory 5,000 To record sale of 10 sofas Expense: is the economic cost a business incurs through its operations to earn revenues. Under accrual-based accounting, an expense is recorded in the period it is incurred – NOT when payment is made. Expense Norma l A debit increases the contra- revenue account (COGS) & a credit decreases an asset (Inventory) A debit increases an asset (Accounts Receivable) & a credit increases a revenue account (Sales Revenue) ACCT 211 Quick Reference Guide Page 10 of 12Last Update: January 4, 2017 Sample Balance Sheet XYZ Company Balance Sheet As of December 31, 2016 USD ($) in Millions Current Assets Cash and cash equivalents $ 707 Accounts Receivable, net 1,810 Less: Allowance for bad debt (200) Merchandise inventories 4,029 Other current assets 316 Total Current Assets 6,662 Non-current Assets Property and equipment 9,905 Less: Accumulated Depreciation, Prop & Equip (1,100) Intangible assets 800 Less: Accumulated Amortization (171) Total Non-current Assets 9,434 Total Assets $ 16,096 Current Liabilities Accounts payable $ 1,251 Accrued liabilities 1,206 Income taxes payable 130 Current portion of long-term debt 127 Total Current Liabilities 2,714 Non-current Liabilities Bonds payable 5,200 Less: Discount on bonds payable (200) Long-term debt 900 Total Non-current Liabilities 5,900 Total Liabilities 8,614 Stockholders’ Equity Common stock - 370 and 367 million shares issued 4 Paid-in capital 2,927 Treasury stock, at cost, 184 and 166 million shares (9,714) Retained earnings 14,265 Total Stockholders’ Equity 7,482 Total Liabilities and Stockholders’ Equity $ 16,096 ACCT 211 Quick Reference Guide Page 11 of 12Last Update: January 4, 2017 Sample Income Statement XYZ Company Income Statement For the Year Ended December 31, 2016 USD ($) in Millions Sales / Revenue Net sales $ 19,204 Cost of merchandise sold 12,265 Gross Margin 6,939 Operating Expenses Selling, general and administrative 4,452 Depreciation and amortization 934 Operating Income 1,553 Interest expense, net 327 Loss on sale of property & equipment 169 Income Before Income Taxes 1,057 Provision for Income Taxes 384 Net Income $ 673 ACCT 211 Quick Reference Guide Page 12 of 12Last Update: January 4, 2017 Sample Trial Balance