ACCOUNTING REVIEWER

A= L + OE – Accounting Equation

Normal Balance (Debit/Credit)

Asset- Debit

Liabilities- Credit

Owner’s Equity- Credit

 Capital- Credit
 Revenues- Credit
 Expenses- Debit
 Withdrawals- Debit

ASSETS– properties owed by the business

Accounts Under Assets:

Current Assets- expected to be converted into cash within 1 year

Examples:

Cash
Accounts Receivable- amount of money owed by the customer to the business
Notes Receivable- amount of money owed by the customers evidenced by a promissory note
Inventory- often called merchandise, refers to goods and materials that a business holds for sale to customers
in the near future
 Unused Supplies- supplies which remain unused at the end of accounting period
 Prepaid Expenses- expenses already paid but not yet incurred(used)
- Examples: Prepaid Rent, Prepaid Insurance, Prepaid Supplies
 Accrued Income( or Accrued Revenues)- earned but not yet received in cash or other assets

Non-current Assets-company's long-term investments or assets that have a useful life of more than one year

Examples:

 Property, Plant & Equipment

 Land
 Building
 Machinery and Equipment
 Furniture & Fixtures
 Accumulated Depreciation(Building)
 Accumulated Depreciation(Machinery & Equipment
 Accumulated Depreciation(Furniture & Fixtures)
 Intangible assets

Accumulated Depreciation- a contra account that contains the sum of the periodic depreciation charges

Intangible Assets- identifiable, nonmonetary assets without physical substance held for use in the production or supply
of goods/services.
Depreciation- the decrease in value of assets; or the allocation of the cost of assets to periods in which the assets are
used

Formula:

Annual Depreciation Expense

= Cost - Salvage Value
Estimated Useful Life

LIABILITIES – what the business owes; economic obligations/debts

Accounts Under Liabilities:

Current Liabilities- expected to be paid within 1 year

Examples:

 Accounts Payable- amount of money owed by the business to it’s creditors

 Notes Payable- a written pledge made by the business entity to pay its creditors on a specified future date.
 Loan Payable- amount of money borrowed by the business from third party creditors (e.g. bank)
 Accrued Liabilities- amounts owed to others for unpaid expenses. (e.g. salaries payable, interest payable, taxes
payable)
 Unearned/Deferred Revenues- cash collected in advance for a service or good that is yet to be
rendered/delivered

Non-current Liabilities- expected to be paid beyond 1 year

Examples:

 Mortgage Payable- borrowed money from a bank with a collateral; the liability of a property owner to pay a
loan that is secured by property
 Long-term Notes Payable
 Bonds Payable- financial instruments representing a company’s commitment to pay back a specified sum to the
owner of the instrument in a specified time together with periodic interest payments over the life of the bond

Bond- a contract between the issuer and the lender specifying the terms of repayment and the interest to be
charged

OWNER’S EQUITY- these include the following:

 Initial investment by the owner

 Additional Investment by the owner
 Revenue/Income of the business
 Expenses of the business
 Drawings/Withdrawal by the owner

ACCOUNTING CYCLE
1. Identify
2. Journalize
3. Posting
4. Trial Balance
5. Adjustments
6. Journalize
7. Closing
8. Post-Closing Trial Balance
9. Reversing