Review sheet Essay

Review

You should bring your SU picture identification card and a basic calculator.

Exam Topics:

1. Be able to identify an asset, liability, stock holders’ equity, revenue or expense account.
2. Be familiar with the four financial statements and three fundamental accounting relationships.
3. Be able to identify a (+), (-) or (N) in assets, liabilities and stockholders’ equity for each transaction.
4. Be able to do journal entries.
5. Be able to identify the normal balance for each account.
6. Be familiar with T-account.
7. Be able to prepare trial balance.
8. Be able to make all adjusting entries covered in class.
9. Be able to prepare closing entries
10. Be able to prepare income statement, balance sheet and the statement of retained earnings.
11. Be able to calculate the ratios.
12. Be able to journalize transactions related to sales under perpetual inventory system
13. Be able to calculate Net Sales

Fundamental Issues:

We began by defining three fundamental accounting relationships. These relationships form the basis of the three financial reports you are responsible for:

Assets = Liabilities + Owners Equity
Net Income = Revenue - Expenses
Beg. Retained Earnings + N.I. - Dividends = Ending Retained Earnings

Initially we discussed how transactions affect the broad categories of assets, liabilities and stock holder’s equity. We then placed more structure on these relationships by refining the various categories into accounts:

Assets: Cash, supplies, prepaid rent, A/R etc..
Liabilities: A/P, unearned revenue
Stock Holder’s Equity: Capital Stock and Retained Earnings.
Revenues: Sales, service revenue, rental revenue, fee revenue
Expenses: Utilities, Rent, Insurance, Salaries, supplies expense etc..

We then established some rules to show how increases and decreases in the various accounts will be reflected in the accounting equation:
Total Debits = Total Credits.
Debit means left, credit means right

You must know the rules of how to increase and decrease the various accounts, and be able to apply those rules to a wide variety of situations: Increase Normal balance
Assets: D D
Liabilities: C C
Equities: C C
Revenues: C C
Expenses: D D

After establishing the rules of how to record a transaction, we provided some additional guidance on how the accounting process works. You must know how to follow the accounting process and prepare the three financial statements:
Accounting Process:

1. Transactions are journalized (recorded) in the General Journal.
2. Transactions are posted from the General Journal to the General Ledger.
3. We use T-Accounts instead of the General Ledger
4. At the end of an Accounting Period, the general

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