Accounting I Study Guide – Midterm Exam
Chapter 1 – The Accounting Equation:
Assets = Liabilities + Owner’s Equity
Assets = All things owned
Liabilities = All things owed
Owner’s Equity = Value of claims against assets
Types of Assets:
Cash
Supplies
Accounts Receivable
Prepaid Insurance
Notes Receivable
Types of Liabilities:
Accounts Payable
Notes Payable
Sales Tax Payable
Types of Owner’s Equity:
Capital
Types of Contra Owner’s Equity:
Drawing
Chapter 2 – Using T Accounts
Normal Account Balances:
Debit
Assets
Drawing
Expenses
Sales discounts
Sales returns & allowances
“Net Loss”
Purchases
Credit
Contra Assets
Liabilities
Owner’s Equity
Revenue/Income(sales)
“Net Income”
Purchases Discount
Purchases Returns & Allowances
Chapter 3 – General Journal/Source Documents
Cash Payments – check
Cash Sales – invoice
Sales on Account – Sales invoice
Cash Received – receipt
Investment/withdrawal by owner – memorandum
Total Cash Sales – Cash register tape
Objective Evidence Accounting Concept - An entry cannot be recorded unless there is a sources document since the
sources document proves the transaction occurred.
Correcting Errors while recording transaction in the General Journal:
 Errors should be corrected so there is no doubt as to what the correct entry should have been.
 If one item in the entry is incorrect, draw a line through the incorrect item and write the correct item above the line.
 If the entire entry is incorrect, draw a line through the entire entry and then record the correct entry on the blank journal
lines immediately below the incorrect entry.
 If there are correct entries already recorded below the incorrect entry, draw lines through all the incorrect items and record
the correct information directly above the line.
Chapter 4 – Posting from a General Journal to a General Ledger
A group of accounts is a ledger
A ledger that contains all accounts needed to prepare financial statements is a general ledger
Chart of Accounts
Asset accounts usually start with 100
Liabilities usually start with 200
Owner’s Equity usually start with 300
Revenue accounts usually start with 400
Expenses usually start with 500
When posting you place the account number in the Post reference column of the general journal and the general
journal page number in the Post reference column of the general ledger account
Journalize the transaction.
1.
2.
3.
4.
5.
6.
Record the date in the Date column.
Record the name of the account to be debited in the Account Title column.
Record the debit amount in the Debit column on the same line as the account title.
On the next line, record the name of the account to be credited in the Account Title column.
Record the credit amount in the Credit column on the same line as the account title.
Record the source document in the Document Number column.
Procedure for Posting From a Journal to the General Ledger
1
Write the date of the journal entry in the Date column of the account.
2. Write the journal page number in the post reference column of the account.
3. Write the debit amount or the credit amount (whichever applies to this account) under the appropriate column (Debit
4.
5.
or Credit) of the account.
Write the new account balance in the appropriate amount column (Balance Debit or Balance Credit).
Return to the journal. In the Post Reference column of the journal record the account number of the account to which
the entry was posted.
Procedures for Posting From a Multicolumn Journal to the General Ledger
6. Posting the total of the Sales Credit column
1.
2.
3.
4.
5.
Write the date in the Date column of the ledger account, Sales.
Write the journal page number in the Post. Ref. column of the account.
Write the column total from the journal in the Credit column of the account.
Write the new balance in the Balance Credit column of the account.
Return to the journal and write the Sales account number (410) in parentheses below the Sales Credit column
total.
7. Posting the total of the Cash Debit column
1.
2.
3.
4.
5.
Write the date in the Date column of the ledger account, Cash.
Write the journal page number in the Post. Ref. column of the account.
Write the column total from the journal in the Debit column of the account.
Write the new account balance in the Balance Debit column of the account.
Return to the journal and write the Cash account number (110) in parentheses below the Cash Debit column
total.
8. Posting the total of the Cash Credit column
1.
2.
3.
4.
5.
Write the date in the Date column of the ledger account, Cash.
Write the journal page number in the Post. Ref. column of the account.
Write the column total from the journal in the Credit column of the account.
Write the new account balance in the Balance Debit column of the account.
Return to the journal and write the Cash account number (110) in parentheses below the Cash Credit column
total.
Chapter 6 – Work Sheet for a Business
A work sheet is prepared at the end of a fiscal period (usually 1 year) to aid in preparing the year end financial
statements
Preparation of Work Sheet:
1. All accounts, whether they have a balance or not, are listed on the work sheet
2. The first two columns are the trial balance columns (debit and credit) – all the general ledger account balances are
recorded in the appropriate columns.
Totals of the trial balance columns is proof of the equality of debits & credits in the general ledger
3. Adjustments made at year end:
Supplies
Prepaid insurance
Depreciation
Adjustments require a journal entry in the general ledger and a posting to the appropriate accounts in the general
ledger.
4. Adjusted totals are extended to the balance sheet(db & cr) and income statement(db & cr) columns
5. The income statement columns are totaled to determine the net income/loss
If debits > credits = net loss
If credits > debits = net income
6. The net income/loss is moved to the appropriate debit or credit column on the balance sheet (this will be in the
opposite column from the income statement
I.
Procedures for Preparing a Worksheet
A. Enter the heading of the worksheet.
1.
2.
3.
B.
Prepare the Trial Balance section of the worksheet.
1.
2.
3.
4.
5.
6.
C.
2.
3.
4.
E.
F.
G.
Write the general ledger account titles in the Account Title column.
Write the general ledger debit balances in the Debit column and the general ledger credit balances in the Credit
column.
Rule a single line across the two Trial Balance columns below the last amounts. A single line drawn under a
column means that the amounts above the line are ready to be totaled.
Add each column. If the two column totals are the same, then debits equal credits in the general ledger accounts.
If not, check and correct errors.
Write the total of each column below the single line.
Rule double lines across both Trial Balance columns. Double lines mean that the totals just above the ruling are
been verified as correct and no other entries need to be made.
Prepare the adjustments in the Adjustments section of the worksheet.
1.
D.
Write the company name on the first line.
Write the name of the document being prepared on the second line.
Write the date of the document, For the Month Ended July 31, 20--, on the third line.
Write the debit amount in the Adjustments Debit column and the credit amount in the Adjustments Credit
column. The adjustment amount equals the ending balance in the account minus the amount on hand at the end
of the fiscal period.
Rule a single line across the two Adjustments columns on the same line as the single line for the Trial Balance
columns.
Add both Adjustments columns. If the two amounts are the same, then debits equal credits. If not, check and
correct errors.
Rule double lines across both Adjustments columns to show that the totals have been verified as correct.
Extend the balance sheet account balances to the Balance Sheet section on the worksheet. (Note: Those
using the SW books will have to update their accounts with the adjustments.)
Extend the income statement account balances to the Income Statement section on the worksheet. (Note:
Those using the SW books will have to update their accounts with the adjustments.)
Calculate and record net income or net loss on the worksheet.
Total and rule the worksheet.
1. Rule a single line across the four Income Statement and Balance Sheet columns.
2. Add each of the Income Statement and Balance Sheet columns. Write the totals below the single line.
3. Calculate net income or net loss by subtracting the Income Statement Debit column from the Income Statement
4.
5.
6.
7.
8.
II.
Credit column. Note: If Sales (total revenues) are greater than Expenses, the company has net income. If Sales
(total revenues) are less than Expenses, the company has a net loss. Write the words Net Income or Net loss in
the Account Title column on the same line as the amount calculated. If the company has net income, record the
amount under the Income Statement Debit column. If the company has a net loss, record the amount under the
Income Statement Credit column.
Rule a single line across the four Income Statement and Balance Sheet columns just below the net income or net
loss amount.
If a net income was calculated, then the amount of net income is written under the subtotal in the Balance Sheet
Credit column. If a net loss was calculated, then the amount of net loss is written under the subtotal in the
Balance Sheet Debit column.
Rule a single line under the net income or net loss amount across all four Income Statement and Balance Sheet
columns.
Add the subtotal and net income (or net loss) for each column to get proving totals for the Income Statement and
Balance Sheet columns. Write the totals below the single line. Check for equality in each pair of columns.
Rule double lines across the Income Statement and Balance Sheet columns.
Procedures for Preparing an Income Statement
A. Enter the heading of the income statement.
1.
2.
3.
B.
Center the name of the company on the first line.
Center the name of the report on the second line.
Center the date of the report, For the Month Ended, July 31, 20--, on the third line.
Prepare the Revenue, Expenses, and Net Income sections
1.
Write the name of the first section, Revenue, at the left of the wide column on the first line.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
C.
Calculate the component percentages – the percentage relations between one financial statement item and
the total that includes that item.
1.
2.
III.
Write the title of the revenue account, Sales, on the next line, indented from the margin.
Record the balance of the Sales account on the same line in the second amount column.
Write the name of the second section, Expenses, at the left of the wide column on the next line.
Write the title of each expense account in the wide column, indented from the margin.
Write the balance of each expense account in the first amount column on the same line as the account title.
Rule a single line across the first amount column under the last expense account balance to indicate addition.
Write the words Total Expenses on the next blank line indented from the margin in the wide column.
Record the amount of total expenses on the same line in the second amount column.
Calculate and verify the amount of net income or net loss.
a. Calculate net income or net loss by subtracting total expenses from total revenue. (If expenses are greater
than sales then there is a net loss.)
b. Compare the amount of net income (or loss) with the net income (or loss) amount on the worksheet. If the
amounts are not the same, an error has been made and must be corrected.
Rule a single line across the second amount column just below the total expenses.
Write the words Net Income (or Net Loss) on the next line at the left margin of the wide column.
On the same line, record the amount of net income (or net loss) in the second amount column.
Rule double lines across both amount columns below the amount of net income to show that the amount has been
verified as correct.
Total Expense Component Percentage = Total Expenses ÷ Total Sales
Net Income Component Percentage = Net Income ÷ Total Sales
Procedures for Preparing a Balance Sheet
A. Enter the heading of the balance sheet.
1.
2.
3.
B.
Prepare the Assets and Liabilities sections of the balance sheet.
1.
2.
3.
4.
5.
6.
7.
8.
9.
C.
Center the name of the company on the first line.
Center the name of the report on the second line.
Center the date of the report, July 31, 20--, on the third line.
Write the title of the first section, Assets, in the middle of the left wide column.
Write the title of all asset accounts under the heading.
Record the balance of each asset account in the left amount column on the same line as the account title.
Write the title of the next section, Liabilities, in the middle of the right wide column.
Write the titles of all liability accounts under the heading.
Record the balance of each liability account in the right amount column on the same line as the account title.
Rule a single line across the right amount column under the last amount to indicate addition.
Write the words Total Liabilities in the right wide column on the next blank line.
Record the total of all liabilities in the right amount column.
Prepare the Owner’s Equity section of the balance sheet.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Write the title of the section, Owner’s Equity, in the middle of the right wide column on the next line below Total
Liabilities.
Write the title of the owner’s capital account on the next line.
Record the current amount of owner’s equity in the right amount column.
a. Current Capital = Capital account balance plus Net Income minus Drawing account balance
b. Current Capital = Capital account balance minus Net Loss minus Drawing account balance.
Rule a single line under the last amount in the longer left amount column.
Rule a single line in the right amount column on the same line.
Write the words Total Assets on the next line in the left wide column.
Record the amount of total assets in the left amount column.
Write the words Total Liabilities and Owner’s Equity in the right wide column on the same line as Total Assets.
Record the amount of total liabilities and owner’s equity in the right amount column.
Compare the totals of the two amount columns. The total should be in balance – assets should equal liabilities
plus owner's equity.
Rule double lines across both the left and right amount columns just below the column totals to show that the
totals have been verified as correct.
Chapter 8 – Recording Adjusting Entries
Adjustments on the work sheet require a journal entry in the general ledger and a posting to the appropriate accounts
in the general ledger.
All adjusting entries are recorded in the general journal
Other Adjusting Entries at the end of a fiscal period:
Permanent accounts maintain a balance from one fiscal period to the next
Assets
Liabilities
Owner’s Equity (Capital)
Temporary accounts do not carry a balance from one fiscal period to the next (their balances are zeroed out)
Revenue
Expenses
Owner’s Equity (Drawing)
Income Summary
Revenue and Expenses are closed into the income summary account.
The income summary account is closed to Owner’s Equity (Capital)
If the income summary account has a credit balance then the business has a net income
If the income summary account has a debit balance then the business has a net loss
The drawing account is closed to Owner’s Equity (Capital)
A post closing trial balance is prepared after the closing entries have been posted. Only the permanent accounts will
appear on the post closing trial balance
Accounting Cycle:
1. Analyze transactions 2. Journalize
3. Post
4. Prepare worksheet
5. Prepare financial statements 6. Journalize adjusting & closing entries
7. Post adjusting & closing entries
8. Prepare post closing trial balance
Chapter 7 – Financial Statements
Assets, Liabilities and Owner’s Equity all go on a balance sheet
Revenue/Income, Cost of Goods Sold/Cost accounts, Expenses, and Net Income/Loss go on an income statement
Types of Revenue:
Sales
Types of Contra Revenue Accounts:
Sales Returns and Allowances
Sales Discounts
Types of Cost Accounts:
Purchases
Types of Contra Cost Account:
Purchases Discount
Purchases Returns & Allowances
Types of Expenses:
Supplies Exp.
Insurance Exp.
Interest Exp.
Utilities Exp.
Rent Exp.
Miscellaneous Exp.
Advertising Exp.
Salary Expense
Chapter 9 – Journalizing Purchases & Cash Payments
Special Journals:
Purchases journal – purchases of merchandise/inventory on account
Cash payments journal – all cash payments
Sales journal – all sales of merchandise on account
Cash receipts journal – for all cash receipts
General journal – all other transactions
A purchase of merchandise on account is recorded:
Purchases
xx
Accounts Payable
xx
A payment on an accounts payable with a purchase discount is recorded:
Accounts payable
xx
Purchases discount
xx
Cash
xx
If a business returns a purchase or is given a credit for a purchase:
Accounts payable
xx
Purchases Returns & Allowances
xx
Chapter 10 – Sales & Cash Receipts Journals
A sale on account:
Accounts Receivable
xx
Sales Tax payable
xx
Sales
xx
A sale for cash, credit card, or debit card:
Cash
xx
Sales tax payable
Sales
xx
xx
Receiving cash on account with a sales discount:
Cash
xx
Sales discount
xx
Accounts receivable
xx
Sales returns and allowances:
Sales returns & allowances
Sales tax payable
Accounts receivable
xx
xx
xx