Module 1 Exhibits and Key terms

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1 Exhibit Exhibit A. Income Statement... 3 C. Balance Sheet... 3 Transactions affecting only the balance sheet a. Owners invested cash a. Borrowed money a. Purchased trucks and office equipment for cash a. Purchased office equipment on account (for credit) a. Paid an account payable... 5 Exhibit A Summary of Transactions... 6 B Balance Sheet... 7 Transactions affecting the income statement and/or balance sheet b. Earned service revenue and received cash b. Service revenue earned on account (for credit) b. Collected cash on accounts receivable b. Paid salaries... 9 Exhibit A Summary of Transactions C Balance Sheet B Income Statement Key Terms Principals of Accounting Accounting and its use in business decisions.

2 Exhibit 1 2 Principals of Accounting Accounting and its use in business decisions.

3 Exhibit 2 A. Income Statement B. Statement of Retained Earnings Revenues: METRO COURIIER INC Income Statement For the Month Ended 2010 July 31 Service revenue $ 5,700 Expenses: Salaries expense $2,600 Rent expense 400 METRO COURIER, INC. Statement of Retained Earnings For the Month Ended 2010 July 31 Retained earnings, July 1-0- Add: Net income for July Retained earnings, July 31 (A)2,100 $2,100 (B) Gas and oil expense 600 Total expenses 3,600 Net income $ 2,100 (A) C. Balance Sheet Assets METRO COURIER, INC. Balance Sheet for 2010 July 31 Liabilities and holder's Equity $ 15,500 Liabilities: Account receivables 700 payable $ ,000 payable $ 6,600 equipment 2,500 Total liabilities $ 6,600 holders 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 3 Principals of Accounting Accounting and its use in business decisions.

4 Transactions affecting only the balance sheet 1a. Owners invested cash Assets =Liabilities + holders' Equity Equipmen t + Capital 1a Beginning balances holder s invested cash $ -0-30,000 $ -0- $ =0- $ -0- = $ -0- $ -0- $ -0-30,000 Balance after transaction 30,000 $ 30,000 by $30,000 by $30,000 2a. Borrowed money Balances before Assets = Liabilities + holder's Equity Capital + $ 30,000 $ -0- $ -0- $ -0- = $ -0- $ -0- $ 30,000 2a Borrowed money Balance after transaction 6,000 6,000 $ 36,000 = $ 6,000 + $ 30,000 by $6,000 by$6,000 4 Principals of Accounting Accounting and its use in business decisions.

5 3a. Purchased trucks and office equipment for cash Assets =Liabilities + holders' Equity Capital + $ 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 by $20,000 by $1,500 4a. Purchased office equipment on account (for credit) Assets = Liabilities + + holders' Equity Capital $ 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 by $1,000 by $1,000 5a. Paid an account payable Assets = Liabilities + holders equity + Capital 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 5 Principals of Accounting Accounting and its use in business decisions.

6 Exhibit 3 A Summary of Transactions METRO COURIER, INC. Summary of Transactions for Month of June 2010 Assets -Liabilities + + holders' Equity Capital Beginning balances $ -0 $ -0- $ -0- $ -0- =$ -0- $ -0- $ -0-1a holders invested cash 30,000 30,000 $ 30,000 $ 30,000 2a Borrowed money 6,000 = 6,000 3a 4a Purchased trucks and office equipment for cash Purchased office equipment on account $ 36,000 = $6000 +$30,000 (21,500) 20,000 1,500 $14,500 $20,000 $ 1,500 = $ 6,000 + $ 30,000 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) 6 Principals of Accounting Accounting and its use in business decisions.

7 B Balance Sheet METRO COURIER, INC. Balance Sheet 2010 June 30 Assets Liabilities and holders' Equity (A) $ 13,500 Liabilities: (B) 20,000 (D) (C)2,500 Total $ holde rs' equity: Total assets $ 36,000 Capital stock Total liabilities and stockholders' (E) $ 36,000 7 Principals of Accounting Accounting and its use in business decisions.

8 Transactions affecting the income statement and/or balance sheet 1b. Earned service revenue and received cash Transaction no. & Beginning balances (Exhibit 2) 1b Earned service revenue and Balances after transaction Assets =Liabilities + holders' Equity Capital + Retained Earnings $ 13,500 $ -0- $20,000 $ 2,500 = $ -0- $6,000 $30,000 $ - 0 4,800 4,800 $ 18,300 $20,000 $2,500 = $6,000 + $ 30,000 $ 4,800 by $4,800 by $4,800 2b. Service revenue earned on account (for credit) 2b Balances before transaction Earned service revenue on account Balances after transaction Receivabl Assets Liabilities holders' +Equity Capital + Retained Earnings $18,300 $ 20,000 $ 2,500 = $ 6,000 $ 30,000 $ 4,800 $ $18,300 $900 $ 20,000 $ 2,500 = $ 6,000 + $30,000 $5,700 by $900 by $900 3b 3b. Collected cash on accounts receivable Assets Liabilities holders' +Equity Capital + Balances before transaction $18,300 $900 $ 20,000 $ 2,500 = $ 6,000 $ 30,000 Collected cash on account $200 (200) Balances after transaction $18,500 $700 20,000 $ 2,500 = $ 6,000 + $ 30,000 by $200 Decreased by $200 8 Principals of Accounting Accounting and its use in business decisions.

9 4b. Paid salaries Assets = Liabilities + holders' Equity Account Capital Retained s + 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 5b. Paid rent Assets = Liabilities + holders' Equity Retained Earnings + Capital $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 + holders' +Equity Capital + Retained Earnings $ 15,500 $ 700 $ 20,000 $ 2,500 = $ 6,000 $ 30,000 $ 2, (600) $ 15,500 $ 700 $ 20,000 $ 2,500 = $600 $ 6,000 + $ 30,000 $2,100 by $600 Decreased by $600 9 Principals of Accounting Accounting and its use in business decisions.

10 Exhibit 4 A Summary of Transactions 1b METRO COURIER, INC. Summary of Transactions for Month of July 2010 Assets -Liabilities + holders' Equity + Capital Retained Earnings Beginning balances (Illustration $13,500 $ -0- $ 20,000 $ 2,500 = $ -0- $ 6,000 + $ 30,000 $ -0- 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 (B) 3b Collected cash on account 200 (200) $18,300 $ 900 $ 20,000 $ 2,500 = $ 6,000 + $ 30,000 $ 5,700 $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) 6b $15,500 $ 700 $ 20,000 $ 2,500 = $ 6,000 + $ 30,000 $ 2,700 Received bill for gas and oil 600 (600)(E) used 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, Principals of Accounting Accounting and its use in business decisions.

11 C Balance Sheet METRO COURIER, INC. Balance Sheet2010 July 31 Assets Liabilities and holders' receivable (F)$15,500 Liabilities: (G)700 payable (J)$600 (H)20,000 payable (K)6,000 equipment (I)2,500 Total liabilities holders' equity $6,600 Capital stock Retained earnings (L)$30,000 (M)2,100 Total stockholders' equity $32,100 Total assets $38,700 Total liabilities and stockholders' equity $38,700 B Income Statement METRO COURIER, INC. Income Statement For the Month Ended 2010 July 31 Revenues: Service revenue (A+B)$ 5,700 Expenses: Salaries expense (C)$ 2,600 Rent expense Gas & oil expense (D)400 (F)600 Total expenses 3, Principals of Accounting Accounting and its use in business decisions.

12 Key Terms Accounting equation Assets = Equities; or Assets = Liabilities + holders equity. payable Amounts owed to suppliers for goods or services purchased on credit. 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. payable Amounts owed to parties who loan the company money after the owner 12 Principals of Accounting Accounting and its use in business decisions.

13 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. holders equity The owners interest in a corporation. holders 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 + holders equity. 13 Principals of Accounting Accounting and its use in business decisions.