ACC203 Exam I Notes

The Accounting Formula:

Assets = Liability + Owners Equity
(A = L + OE)

IMPORTANT NOTE: When performing a transaction and recording it

using different accounting methods (Journal Entry, T-Accounts, Etc.),
we must first identify whether it is an Asset, Liability, or Equity. From
there we decided if we debit or credit the transaction.

Assets (Debtor):
- Increases with Debit.
- Decreases with Credit.

Liabilities and Owners Equity (Each a Creditor on its own):

- Increases with Credit.
- Decreases with Debit.

Accounting Terminology:
Assets – An economic resource deemed to be of benefit to the
organization. Anything the business owns, tangible or intangible, that
has economic value useful to the owner of the organization.

Page 1 of 7
 ACC203 Exam I Notes
Liabilities – Debts or obligations owed by one entity (Debtor) to a
person or organization (Creditor). Can be paid in money, goods, or
services.

Equity – Interest in the assets of an organization that remains after

deducting its Liabilities. Also, the amount of a business' total assets
subtracted from its total liabilities. The 3rd section of a Balance Sheet.

Revenue – Sales of products, merchandise, and services. Earnings from

interest, dividends, or rents.

Cash – An asset that is defined as physical paper money, or coins.

Credit – An entry on the right side of a Double-Entry Bookkeeping

system that represents the reduction of an asset, or the addition to a
liability or revenue.

Debit – An entry on the left side of a Double-Entry Bookkeeping system

that represents the addition of an asset, or the reduction to a liability or
revenue.

Accounts Receivable – Claims against a DEBTOR. What a debtor

owes the business organization.

Accounts Payable – A certain amount owed to a CREDITOR for

delivered goods or completed services.

Page 2 of 7
 ACC203 Exam I Notes
Income – Inflow of revenue during a certain period.

Income Statement – Summary of the effect of Revenues and Expenses

over a period.

Journal Entries – A recording of a single transaction in the General

Journal.

General Journal – The simplest and most flexible form of a journal.

Statement of Cash Flows – One of the basic financial statements that is

required as part of a complete set of financial statements prepared in
conformity with.

According to the ACC203 course, there are a certain number of entries

that must be taken into consideration. Some include (Only for Exam I):
1. Journal Entry – A recording of a single transaction in the General
Journal.
2. Income Statement – Summary of the effect of Revenues and
Expenses over a period.
In this document, each one of these entries will be explained and
demonstrated in precise detail, using the example listed below:

Page 3 of 7
 ACC203 Exam I Notes
Salim started a company. Below are the details:
1. (1) Subscribed $ 10,000 to start a company.
2. (2) Acquired a computer for $ 2,000 in cash.
3. (8) Performed the First Consultation for $ 7,000 in cash.
4. (14) Performed the Second Consultation for $ 10,000 of which $
6,000 was cashed.
5. (18) Bought Office Equipment for $ 3,000 of which $ 1,000 was paid
and the remaining on account.
6. (22) Received $ 1,000 of consultation in (14).
7. (26) Paid salaries of $ 1,500 for the Month.
8. (30) Paid marketing expenses of $ 500 for the Month.

Journal Entry:
(1)
Subscribe $ 10,000 to start the company
Debit Cash for $ 10,000 Credit Shared Capital for $ 10,000

(2)
Acquired a computer for $ 2,000 in cash
Debit Computer for $ 1,000 Credit Liability for $ 1,000

Page 4 of 7
 ACC203 Exam I Notes

(8)
Performed the First Consultation for $ 7,000 in cash
Debit Cash Money for $ 7,000 Credit Service Revenue for $
7,000

(14)
Performed the Second Consultation for $ 10,000 of which $ 6,000
was cashed
Debit Cash for $ 6,000 Credit Revenue for $ 10,000
Debit Accounts Receivable $
4,000

(18)
Bought Office Equipment for $ 3,000 of which $ 1,000 was paid
and the remaining on account
Debit Cash for $ 10,000 Credit Shared Capital for $ 10,000

(22)
Received $ 1,000 of consultation in (14).
Debit Cash for $ 1,000 Credit Accounts Receivable $
1,000

(26)
Paid salaries of $ 1,500 for the Month
Debit Salary for $ 1,500 Credit Cash for $ 1,500

Page 5 of 7
 ACC203 Exam I Notes

(30)
Paid marketing expenses of $ 500 for the Month
Debit Marketing Expenses for $ Credit Cash for $ 300
300

Total Debit and Credit for this journal is: $ 42,800.

If the Debit and Credit total are not equal, there is an error.

Income Statement:
Revenue = $ 12,000
Office Expenses $ 500
Total = $ 11,500

Accruals and Deferrals:

Deferrals:
One year Insurance premium is paid in advance amounting to $1,200 on
January 1st, 2020.
The entry to be posted at the date of payment:
Debit Prepaid Insurance $ 1,200.
Credit Cash $ 1,200.

At 31/12/2020 the below entry is booked to record the insurance

expense:
Debit Insurance Expense $100.

Page 6 of 7
 ACC203 Exam I Notes
Credit Prepaid Insurance $ 100.

The Insurance Company records the below:

1/1/2020:
Debit Cash $ 1,200.
Credit Unearned Revenue $ 1,200.

At 31/1/2020, (the End of the Month):

Debit Unearned Revenue $ 100.
Credit Insurance Revenue $ 100.

Accruals:
If no payment occurs, a company should also book the expense if it incurred it or
revenue if it earns it (Deserves It).
At the end of each month, the company should think of what expenses or revenues
it should record:
For example, all salaries, electricity, or any type of expense should be booked even
if not paid:

Debit Salary Expense.

Credit Salaries Payable
Or in Cash of a Revenue

Debit Accounts Receivable.

Credit Revenue.

Page 7 of 7