Exam 1 – Survey of Accounting (Lowe-Ardoin)
Current Assets - (ANSWER)Used w/n a year. When used it becomes an expense.
E.g. Cash, Accounts Recievable, Supplies, Inventory, Prepaid Insurance
Fixed Assets - (ANSWER)More permanent. Each fixed asset (except for land) has an Accumulated
Depreciation account which is a Contra-asset. Cash flow going into it, is an Investment.
E.g. Equipment, land, building
Current Liabilities - (ANSWER)Paid w/n a year
E.g. Accounts payable, Wages payable, unearned revenue.
Long-term Liabilities - (ANSWER)Paid over a longer period of time than Current Liabilities. Think longer
than a year. Usually has interest. Cash flow involving LT Liabilities is Financing.
E.g. Notes Payable, Mortgage
Equity - (ANSWER)Ownership of a company. Cash flow that has to do with Stock or Dividends is
Financing.
E.g. Common/Capital stock, Retained Earnings
Formula for Balance Sheet - (ANSWER)Assets = Liabilities + Owned Equity
Fees Earned - (ANSWER)Revenue Account for Operating a Service Business
Sales Revenue - (ANSWER)Revenue Account for Operating a Merchandise Business
Sales Discounts - (ANSWER)Contra revenue account. Measured by credit terms. (n/30) = Amount must
be paid in full in 30 days. Sometimes there is also discount for early payment (3/10) = 3% discount if paid
in 10 days.
Sales Returns and Allowances - (ANSWER)Contra revenue account. Accounts for situations where the
inventory is returned to the business.
, Exam 1 – Survey of Accounting (Lowe-Ardoin)
Cost of Merchandise/Goods Sold - (ANSWER)Expense account. Amount of inventory you lost when it is
sold. Subtract this from net sales amount to calculate gross profit.
Insurance Expense - (ANSWER)Expense Account. Created when the Prepaid Insurance Asset is used up.
Supplies Expense - (ANSWER)Expense Account. Created when the Supplies are used up.
Wage Expense - (ANSWER)Expense Account. Created when employees must be paid.
Depreciation Expense - (ANSWER)Expense Account. Created when fixed assets become used up.
Net Sales - (ANSWER)Calculated by Subtracting Sales Discounts and Sales Returns and Allowances from
Sales Revenue Account.
Gross Profit/Margin - (ANSWER)Calculated by subtracting Cost of Merchandise/Goods sold from Net
Sales Account.
Operating Income - (ANSWER)Calculated by subtracting Operating Expenses from Gross profit/margin
for Merchandising business. And calculated by subtracting Operating Expenses from Revenue in a
Service Business.
Net Income - (ANSWER)Calculated by adding/subtracting additional income or expenses from the
Operating Income.
Selling Expense v. Administrative Expense - (ANSWER)Selling expense includes everything required to
sell the product , while Admin. expense is everything else to keep the business running such as office
supplies, and rent/utilities.
Income Statement - (ANSWER)Revenue and Expenses.
Includes:
Net Sales
Gross Profit
Current Assets - (ANSWER)Used w/n a year. When used it becomes an expense.
E.g. Cash, Accounts Recievable, Supplies, Inventory, Prepaid Insurance
Fixed Assets - (ANSWER)More permanent. Each fixed asset (except for land) has an Accumulated
Depreciation account which is a Contra-asset. Cash flow going into it, is an Investment.
E.g. Equipment, land, building
Current Liabilities - (ANSWER)Paid w/n a year
E.g. Accounts payable, Wages payable, unearned revenue.
Long-term Liabilities - (ANSWER)Paid over a longer period of time than Current Liabilities. Think longer
than a year. Usually has interest. Cash flow involving LT Liabilities is Financing.
E.g. Notes Payable, Mortgage
Equity - (ANSWER)Ownership of a company. Cash flow that has to do with Stock or Dividends is
Financing.
E.g. Common/Capital stock, Retained Earnings
Formula for Balance Sheet - (ANSWER)Assets = Liabilities + Owned Equity
Fees Earned - (ANSWER)Revenue Account for Operating a Service Business
Sales Revenue - (ANSWER)Revenue Account for Operating a Merchandise Business
Sales Discounts - (ANSWER)Contra revenue account. Measured by credit terms. (n/30) = Amount must
be paid in full in 30 days. Sometimes there is also discount for early payment (3/10) = 3% discount if paid
in 10 days.
Sales Returns and Allowances - (ANSWER)Contra revenue account. Accounts for situations where the
inventory is returned to the business.
, Exam 1 – Survey of Accounting (Lowe-Ardoin)
Cost of Merchandise/Goods Sold - (ANSWER)Expense account. Amount of inventory you lost when it is
sold. Subtract this from net sales amount to calculate gross profit.
Insurance Expense - (ANSWER)Expense Account. Created when the Prepaid Insurance Asset is used up.
Supplies Expense - (ANSWER)Expense Account. Created when the Supplies are used up.
Wage Expense - (ANSWER)Expense Account. Created when employees must be paid.
Depreciation Expense - (ANSWER)Expense Account. Created when fixed assets become used up.
Net Sales - (ANSWER)Calculated by Subtracting Sales Discounts and Sales Returns and Allowances from
Sales Revenue Account.
Gross Profit/Margin - (ANSWER)Calculated by subtracting Cost of Merchandise/Goods sold from Net
Sales Account.
Operating Income - (ANSWER)Calculated by subtracting Operating Expenses from Gross profit/margin
for Merchandising business. And calculated by subtracting Operating Expenses from Revenue in a
Service Business.
Net Income - (ANSWER)Calculated by adding/subtracting additional income or expenses from the
Operating Income.
Selling Expense v. Administrative Expense - (ANSWER)Selling expense includes everything required to
sell the product , while Admin. expense is everything else to keep the business running such as office
supplies, and rent/utilities.
Income Statement - (ANSWER)Revenue and Expenses.
Includes:
Net Sales
Gross Profit
