Module 1 – Exhibits and Key terms

Exhibit 1.......................................................................................................................................................................... 2
Exhibit 2.......................................................................................................................................................................... 3
A. Income Statement .............................................................................................................................................. 3
C. Balance Sheet ...................................................................................................................................................... 3
Transactions affecting only the balance sheet ........................................................................................................ 4
1a. Owners invested cash....................................................................................................................................... 4
2a. Borrowed money ............................................................................................................................................... 4
3a. Purchased trucks and office equipment for cash ........................................................................................ 5
4a. Purchased office equipment on account (for credit) ................................................................................... 5
5a. Paid an account payable.................................................................................................................................. 5
Exhibit 3.......................................................................................................................................................................... 6
A Summary of Transactions ................................................................................................................................... 6
B Balance Sheet....................................................................................................................................................... 7
Transactions affecting the income statement and/or balance sheet .................................................................. 8
1b. Earned service revenue and received cash ................................................................................................... 8
2b. Service revenue earned on account (for credit)............................................................................................ 8
3b. Collected cash on accounts receivable ......................................................................................................... 8
4b. Paid salaries ...................................................................................................................................................... 9
Exhibit 4....................................................................................................................................................................... 10
A Summary of Transactions ................................................................................................................................ 10
C Balance Sheet .................................................................................................................................................... 11
B Income Statement ............................................................................................................................................ 11
Key Terms ................................................................................................................................................................... 12

1 Principals of Accounting  Accounting and its use in business decisions.

 Module 1 – Exhibits and Key terms

Exhibit 1

2 Principals of Accounting  Accounting and its use in business decisions.

 Module 1 – Exhibits and Key terms

Exhibit 2
A. Income Statement B. Statement of Retained
Earnings

METRO COURIIER INC

Income Statement METRO COURIER , INC.
Statement of Retained Earnings
For the Month Ended 2010 July 31
For the Month Ended 2010 July 31

Revenues:
Retained earnings, July 1 -0-
Service revenue $ 5,700
Expenses: Add: Net income for July (A)2,100
Salaries expense $2,600
Retained earnings, July 31 $2,100 (B)
Rent expense 400

Gas and oil expense 600

Total expenses 3,600

Net income $ 2,100 (A)

C. Balance Sheet

METRO COURIER, INC.

Balance Sheet for 2010 July 31
Assets Liabilities and Stockholder's Equity

Cash $ 15,500 Liabilities:

Account receivables 700 Accounts payable $ 600

Trucks 20,000 Notes payable $ 6,600

Office equipment 2,500 Total liabilities $ 6,600

Stockholders equity:

Capital stock $30,000

Retained earnings (B)2,100

Total stockholders' equity $ 32,100

Total assets $ 38,700 Total liabilities and stockholders' equity $ 38,700

3 Principals of Accounting  Accounting and its use in business decisions.

 Module 1 – Exhibits and Key terms

Transactions affecting only the balance sheet

1a. Owners invested cash

Stockholders'
Assets =Liabilities +
Equity

Transaction no & Accounts Office

Accounts Notes Capital
Cash Receiv- Trucks Equipmen
Explanation Payable Payable + Stock
able t
Beginning
balances $ -0- $ -0-
1a $ -0- $ =0- $ -0- = $ -0- $ -0-
Stockholder s 30,000 30,000
invested cash
Balance after
30,000 $ 30,000
transaction

Increased Increased by
by $30,000 $30,000

2a. Borrowed money

Assets = Liabilities + Stockholder's

Equity
Transaction no & Cash Accounts Trucks Office Accounts Notes Capital +
Explanation Receivable Equipment Payable Payable Stock
Balances
$ 30,000 $ -0- $ -0- $ -0- = $ -0- $ -0- $ 30,000
before

Borrowed
transaction
2a 6,000 6,000
money

Balance
after $ 36,000 = $ 6,000 + $ 30,000
transaction
Increased Increased
by $6,000 by$6,000

4 Principals of Accounting  Accounting and its use in business decisions.

 Module 1 – Exhibits and Key terms

3a. Purchased trucks and office equipment for cash

Assets =Liabilities + Stockholders'

Equity
Cash Accounts Trucks Office Accounts Notes Capital +
Receivable Equipment Payable Payable Stock
$ 36,000 $ -0- $ -0- $ -0- = $ -0- $ 6,000 + $ 30,000
(21,500) 20,000 1,500
$ 14,500 $ 20,000 $ 1,500 = $ 6,000 + $ 30,000
Decreased by Increased by Increased
$21,500 $20,000 by $1,500

4a. Purchased office equipment on account (for credit)

Stockholders'
Assets = Liabilities +
Equity
Accounts Notes Capital
Cash Receivable Trucks Office Equipment Accounts Payable Payable + Stock

$ 14,500 $ 20,000 $ 1,500 = $ 6,000 $ 30,000

1,000 1,000

$ 14,500 $ 20,000 $ 2,500 = $ 1,000 $ 6,000 + $ 30,000

Increased by Increased by
$1,000 $1,000

5a. Paid an account payable

Stockholders
Assets = Liabilities +
equity
Transaction no & Accounts Office Accounts Notes
Cash Trucks + Capital Stock
Explanation Receivable Equipment Payable Payable

Balances before
transaction $ 14,500 $ -0- $ 20,000 $ 2,500 = $ 1,000 $ 6,000 + $30,000

Paid an account
5a payable (1,000) (1,000)

Balance after
transaction $ 13,500 $ -0- $ 20,000 $ 2,500 $ -0- $ 6,000 +$30,000

Decreased Decreased
by $1,000 by $1,000

5 Principals of Accounting  Accounting and its use in business decisions.

 Module 1 – Exhibits and Key terms

Exhibit 3

A Summary of Transactions

METRO COURIER, INC.

Summary of Transactions for Month of June 2010
Stockholders'
Assets -Liabilities +
Equity
Transaction no & Accounts Office Accounts Notes Capital
Cash Trucks
Explanation Receivable Equipment Payable Payable + Stock
Beginning balances $ -0 $ -0- $ -0- $ -0- =$ -0- $ -0- $ -0-
1a Stockholders invested cash 30,000 30,000

$ 30,000 $ 30,000
2a Borrowed money 6,000 = 6,000
$ 36,000 = $6000 +$30,000
3a Purchased trucks and office
equipment for cash (21,500) 20,000 1,500
$14,500 $20,000 $ 1,500 = $ 6,000 + $ 30,000

4a Purchased
on account
office equipment 1,000 1,000 $ 6,000 + $ 30,000

$ 14,500 $20,000 $ 2,500 = $ 1,000 $ 6,000 + $ 30,000

5a Paid an account payable (1,000) (1,000)
End-of-month balances $ 13,500(A) $ -0- $20,000(B) $ = $ -0- $6,000(D) + $ 30,000(E)
2,500(C)

6 Principals of Accounting  Accounting and its use in business decisions.

 Module 1 – Exhibits and Key terms

B Balance Sheet

METRO COURIER, INC.

Balance Sheet
2010 June 30
Assets Liabilities and Stockholders' Equity
Cash (A) $ 13,500 Liabilities:
Trucks (B) 20,000 Notes Payable (D)
Office (C)2,500 Total $6,000 $
equipment Liabilities
Stockholde 6,000
rs' equity:
Capital stock (E)
Total liabilities 30,000
Total assets $ 36,000 and $
stockholders' 36,000
equity

7 Principals of Accounting  Accounting and its use in business decisions.

 Module 1 – Exhibits and Key terms

Transactions affecting the income statement and/or balance sheet

1b. Earned service revenue and received cash

Assets =Liabilities + Stockholders' Equity

Transaction no. & Accounts Office Accounts Notes Capital Retained
Explanation Cash Receivable Trucks Equipment Payable Payable +Stock Earnings
Beginning $ 13,500 $ -0- $20,000 $ 2,500 = $ -0- $6,000 $30,000 $
balances -
(Exhibit 2) 0
1b Earned 4,800 -
4,800
service
revenue and
received
Balances after $ 18,300 $20,000 $2,500 = $6,000 + $ 30,000 $ 4,800
cash
transaction
Increased Increased
by $4,800 by $4,800

2b. Service revenue earned on account (for credit)

Assets Liabilities Stockholders' +Equity
Transaction no & Accounts Trucks Office Accounts Notes Capital + Retained
Cash
Explanation Receivabl Equipment Payable Payable Stock Earnings
e
Balances before $18,300
transaction $ 20,000 $ 2,500 = $ 6,000 $ 30,000 $ 4,800

Earned service
2b revenue on $900 900
account
Balances after $18,300 + $30,000
$900 $ 20,000 $ 2,500 = $ 6,000 $5,700
transaction

Increased Increased
by $900 by $900

3b. Collected cash on accounts receivable

Stockholders'
Assets Liabilities +Equity
Transaction no & Accounts Capital +
Cash Trucks Office Accounts Notes
Stock
Explanation Receivable Equipment Payable Payable
Balances before
transaction $18,300 $900 $ 20,000 $ 2,500 = $ 6,000 $ 30,000
3b Collected cash
on account $200 (200)

Balances after
transaction $18,500 $700 20,000 $ 2,500 = $ 6,000 + $ 30,000

Increased Decreased
by $200 by $200

8 Principals of Accounting  Accounting and its use in business decisions.

 Module 1 – Exhibits and Key terms

4b. Paid salaries

Assets = Liabilities + Stockholders' Equity

Accounts Office Account Notes Capital Retained
Cash Receivable Trucks Equipment s Payable + Stock Earnings
Payable
$ 18,500 $ 5,700
(2,600) $700 $ 20,000 $ 2,500 = $6,000 $ 30,000 (2,600)

$ 15,900 $700 $ 20,000 $ 2,500 = $6,000 + $ 30,000 $ 3,100

Decreased Decreased by
by $2,600 $2,600

5b. Paid rent

Assets = Liabilities + Stockholders' Equity

Cash Accounts Trucks Office Accounts Notes + Capital Retained
Equipment Payable Payable Earnings
Receivable Stock
$15,900 $ 3,100
(400) $700 $ 20,000 $ 2,500 = $ 6,000 $ 30,000 (400)
$15,500 $700 $ 20,000 $ 2,500 = $ 6,000 + $ 30,000 $ 2,700
Decreased Decreased
by $400 by $400

6b. Received bill for gas and oil used

Assets =Liabilities + Stockholders' +Equity

Accounts Office Accounts Capital + Retained
Cash Trucks Equipment Notes Payable
Receivable Payable Stock Earnings
$ 15,500 $ 700 $ 20,000 $ 2,500 = $ 6,000 $ 30,000 $ 2,700
600 (600)

$ 15,500 $ 700 $ 20,000 $ 2,500 = $600 $ 6,000 + $ 30,000 $2,100

Increased by Decreased by
$600 $600

9 Principals of Accounting  Accounting and its use in business decisions.

 Module 1 – Exhibits and Key terms
Exhibit 4

A Summary of Transactions
METRO COURIER, INC.
Summary of Transactions for Month of July 2010
Assets -Liabilities + Stockholders' Equity
Transaction no & Accounts Office Accounts Notes Payable Capital Retained
Explanation Cash Receivable Trucks Equipment Payable + Stock Earnings
Beginning balances
$13,500 $ -0- $ 20,000 $ 2,500 = $ -0- $ 6,000 + $ 30,000 $ -0-
(Illustration
1.2)
Earned service revenue
1b
and received cash 4,800 4,800(A)

$18,300 $ 20,000 $ 2,500 = $ 6,000 + $ 30,000 $ 4,800

2b Earned service revenue on 900 900(B)
account
$18,300 $ 900 $ 20,000 $ 2,500 = $ 6,000 + $ 30,000 $ 5,700
3b Collected cash on account 200 (200)
$18,500 $ 700 $ 20,000 $ 2,500 = $ 6,000 + $ 30,000 $ 5,700
4b Paid salaries (2,600) (2,600)(C)
15,900 $ 700 $ 20,000 $ 2,500 = $ 6,000 + $ 30,000 $ 3,100
5b Paid rent (400) (400)(D)
$15,500 $ 700 $ 20,000 $ 2,500 = $ 6,000 + $ 30,000 $ 2,700
6b Received bill for gas and oil 600 (600)(E)
used
End-of-month balances $15,500( F) $ 700(G) $20,000(H) $ 2,500=(I) $600(J) $ 6,000 +(K) $ 30,000(L) $ 2,100(M)

$38,700 $6,600 $32,100

10 Principals of Accounting  Accounting and its use in business decisions.

 Module 1 – Exhibits and Key terms

C Balance Sheet

METRO COURIER, INC.

Balance Sheet2010 July 31

Assets Liabilities and Stockholders'

Cash (F)$15,500 Liabilities:

Accounts
(G)700 Accounts payable (J)$600
receivable
Trucks (H)20,000 Notes payable (K)6,000
Office
(I)2,500 Total liabilities Stockholders' equity $6,600
equipment

Capital stock (L)$30,000

Retained earnings (M)2,100

Total stockholders' equity $32,100

Total assets $38,700 Total liabilities and stockholders' equity $38,700

B Income Statement

METRO COURIER, INC. Income

Statement
For the Month Ended 2010 July 31

Revenues:

Service revenue (A+B)$ 5,700

Expenses:

Salaries expense (C)$ 2,600

Rent expense (D)400

Gas & oil expense (F)600

Total expenses 3,600

11 Principals of Accounting  Accounting and its use in business decisions.

 Module 1 – Exhibits and Key terms

Key Terms

Accounting equation • Assets = Equities; or Assets = Liabilities + Stockholders’ equity.

Accounts payable • Amounts owed to suppliers for goods or services purchased on credit.
Accounts receivable • Amounts due from customers for services already provided.
Assets • Things of value owned by the business. Examples include cash, machines, and
buildings. To their owners, assets possess service potential or utility that can be measured
and expressed in money terms.
Balance sheet • Financial statement that lists a company’s assets, liabilities, and
stockholders’ equity
(including dollar amounts) as of a specific moment in time. Also called a statement of financial
position.
Business entity concept (or accounting entity concept) • The separate existence of the
business organization.
Capital stock • The title given to an equity account showing the investment in a business
corporation by its stockholders.
Continuity • See going-concern concept.
Corporation • Business incorporated under the laws of one of the states and owned by a few
stockholders or by thousands of stockholders.
Cost • Sacrifice made or the resources given up, measured in money terms, to acquire some
desired thing, such as a new truck (asset).
Dividend • Payment (usually of cash) to the owners of a corporation; it is a distribution of
income to owners rather than an expense of doing business.
Entity • A business unit that is deemed to have an existence separate and apart from its owners,
creditors, employees, customers, other interested parties, and other businesses, and for
which accounting records are maintained.
Equities • Broadly speaking, all claims to, or interests in, assets; includes liabilities and
stockholders’ equity.
Equity ratio • A ratio found by dividing stockholders’ equity by total equities (or total assets).
Exchange-price (or cost) concept (principle) • The objective money prices determined in the
exchange process are used to record most assets.
Expenses • Costs incurred to produce revenues, measured by the assets surrendered or
consumed in serving customers.
Going-concern (continuity) concept • The assumption by the accountant that unless strong
evidence exists to the contrary, a business entity will continue operations into the
indefinite future.
Income statement • Financial statement that shows the revenues and expenses and reports the
profitability of a business organization for a stated period of time. Sometimes called an
earnings statement.
Liabilities • Debts owed by a business—or creditors’ equity. Examples: notes payable, accounts
payable.
Manufacturing companies • Companies that buy materials, convert them into products, and
then sell the products to other companies or to final customers.
Merchandising companies • Companies that purchase goods ready for sale and sell them to
customers.
Money measurement concept • Recording and reporting economic activity in a common
monetary unit of measure such as the dollar.
Net income • Amount by which the revenues of a period exceed the expenses of the same
period.
Net loss • Amount by which the expenses of a period exceed the revenues of the same period.
Notes payable • Amounts owed to parties who loan the company money after the owner

12 Principals of Accounting  Accounting and its use in business decisions.

 Module 1 – Exhibits and Key terms

signs a written agreement (a note) for the company to repay each loan.
Partnership • An unincorporated business owned by two or more persons associated as partners.
Periodicity (time periods) concept • An assumption that an entity’s life can be meaningfully
subdivided into time periods (such as months or years) for purposes of reporting its
economic activities.
Profitability • Ability to generate income. The income statement reflects a company’s
profitability.
Retained earnings • Accumulated net income less dividend distributions to stockholders.
Revenues • Inflows of assets (such as cash) resulting from the sale of products or the rendering
of services to customers.
Service companies • Companies (such as accounting firms, law firms, or dry cleaning
establishments) that perform services for a fee.
Single proprietorship • An unincorporated business owned by an individual and often
managed by that individual.
Solvency • Ability to pay debts as they become due. The balance sheet reflects a company’s
solvency.
Source document • Any written or printed evidence of a business transaction that describes
the essential facts of that transaction, such as receipts for cash paid or received.
Statement of cash flows • Financial statement showing cash inflows and outflows for a
company over a period of time.
Statement of retained earnings • Financial statement used to explain the changes in retained
earnings that occurred between two balance sheet dates.
Stockholders’ equity • The owners’ interest in a corporation.
Stockholders or shareholders • Owners of a corporation; they buy shares of stock, which are
units of ownership, in the corporation.
Summary of transactions • Teaching tool used in Chapter 1 to show the effects of
transactions on the accounting equation.
Transaction • A business activity or event that causes a measurable change in the items in the
accounting equation, Assets = Liabilities + Stockholders’ equity.

13 Principals of Accounting  Accounting and its use in business decisions.