ACCOUNTING STATE COMPETENCY TEST REVIEW

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Jennifer Bates
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1 ACCOUNTING STATE COMPETENCY TEST REVIEW

2 Source Documents Documents that are analyzed to determine what happened in a transaction Memorandum a note written by the company when there is no other source document used for something like an owner investment Receipt when something is purchased for cash when you buy supplies for cash you get a receipt Cash Register Tape used to show revenue earned Invoice List of items and how much is owed for items purchased on account - sent from the seller to the buyer Purchase Order a document that the buyer gives to a seller to promise payment for items purchased on account

3 Endorsements Signing the back of a check written to you - Blank endorsement name only Restrictive endorsement For Deposit Only and name Special endorsement the person who the check is written to can assign the check to another person by writing Payable to Susie Jones and then signing their name

4 Types of Businesses When a business is owned by one person it is a: Corporation Partnership Proprietorship A SERVICE business earns money by providing a service not selling merchandise

5 Account Types Assets Liabilities Owner s Equity Cash Accounts Payable Capital Accounts Receivable Notes Payable Withdrawals Supplies Equipment Increase Debit Decrease Credit Increase Credit Decrease - Debit Revenue Expenses Capital and Revenue Increase - Credit Decrease Debit Withdrawals & Expenses Increase Debit Decrease - Credit

6 Accounting Principles Going Concern A business operates as if it is will always be in business Business Entity Business financial information is kept separate from the owner s personal financial information

7 Chart of Accounts List of all account titles and account numbers

8 A Transaction A transaction is an economic event or activity that affects at least 2 accounts A is used to analyze transactionst- Account into debits and credits Recording a transaction is called journalizing Transferring information from a journal to a ledger is posting

9 PROVING a Journal Making sure debits = credits After all journal entries are posted a TRIAL BALANCE is prepared to PROVE debits and credits.

10 Financial Statements Income Statement Statement of Owner s Equity Balance Sheet Revenue Capital Assets Expenses Investments Liabilities Net Income Withdrawals Capital Headings of Financial Statements: Line 1 Name of Company Line 2 Type of Financial Statement Line 3 Date Income Statement and Statement of Owner s Equity For Month Ended May 31, 2011 Balance Sheet May 31, 2011 Financial statements provide information that help businesses make decision.

11 Effects of Transactions Paid cash for supplies increases one asset, decreases another asset Owner invests cash in business debit cash, credit capital Owner withdrawals Debit withdrawals (increase), credit cash (decrease)

12 Closing Entries Accounts that are closed revenue, expenses, income summary, withdrawals these are all TEMPORARY accounts Income summary is used to close revenue and expenses All temporary accounts begin each accounting period with a ZERO balance The entry to close revenue is the same whether the company has a net income or net loss

13 Post-Closing Trial Balance The last step in the accounting cycle Prepared AFTER closing entries Includes only Assets, Liabilities, and Owner s Equity (Capital) no temporary accounts (Revenue, Expenses, Withdrawals) are included

14 Bank Reconciliation Making sure the bank statement matches the cash account balance is called RECONCILING Outstanding checks or deposits they have been recorded in the business checkbook, but do not appear on the bank statement yet NSF check a check that is returned because there is not enough money in the account to pay it it decreases the checkbook balance

15 Petty Cash The journal entry to start petty cash Account Debit Credit Petty Cash 250 Cash 250

Bixby Public Schools Essential Elements Grade: 10-12

Bixby Public Schools Essential Elements Grade: 10-12 Course: Accounting Essential Elements Grade: 10-12 Weeks 1-6 Chapter 1 describes how a proprietorship is started & the transactions that occur when the business is organized. The accounting equation is