Version 02 Flashcards
When an asset decreases there are four likely reasons
- Acquire an asset for cash (DR Assets increase, CR Assets decrease; common)
- Pay off a liability, usually with cash (DR Liabilities decrease, CR Assets decrease; common)
- Buy back stock from shareholders, usually with cash (DR POE decease, CR Assets decrease; occasional)
- Pay an expense, usually with cash (DR Exp increase, CR Assets decrease; common)
When a liability increases there are three likely reasons
- Borrow money, buy an asset on credit, or receive an advance from a customer (DR Assets increase, CR Liabilities increase; common)
- Declare a dividend (DR POE decrease, CR Liabilities increase; occasional)
- Incur an expense not yet paid (DR Exp increase, CR Liabilities increase; common)
When PEO goes up there is only one reason
- Sell stock to shareholders (DR Assets increase, CR POE increase; occasional)
When revenue increases there are two likely reasons
- Earn a revenue that was received now (cash) or will be received later (receivable) (DR Assets increase, CR Rev increase; common)
- Earn a revenue that was received previously (DR Liabilities decrease, CR Rev increase; common)
Purchase inventory for cash
DR Inventory (A) CR Cash (A)
Collect receivable from previous credit sale to customer
DR Cash (A) CR AR (A)
Purchase insurance in advance
DR Prepaid Insurance (A) CR Cash (A)
Borrow money from a bank
DR Cash (A) CR Loan Payable (L)
Buy inventory on account (credit) that will be paid later
DR Inventory (A) CR AP (L)
Receive advance payment from a customer, good or service to be provided later
DR Cash (A) CR Deferred Revenue (L)
Receive advance payment from a customer, good or service to be provided later
DR Cash (A) CR Deferred Revenue (L)
Pay for inventory previously purchased on account
CANCEL
Pay for wages previously recorded as an expense and a liability
DR Wages Payable (L) CR Cash (A)
Record a cash sale
DR Cash (A) CR Sales Revenue (R)
Record a credit sale
DR AR (A) CR Sales Revenue (R)
Record revenue for providing a good or service that was paid for in advance
DR Deferred Revenue (L)
CR Sales Revenue (R)
Record wages due to employees that have not yet been paid
DR Wage Expense (Exp)
CR Wages Payable (L)
Record interest due on a loan that has not yet been paid
DR Interest Expense (Exp)
CR Interest Payable (L)
Record expense related to sale of inventory
DR COGS (Exp) CR Inventory (A)
Record expense related to consumption of insurance paid in advance
DR Insurance Expense (Exp)
CR Prepaid Insurance (A)
Record sale (issue) of common stock to shareholders
DR Cash (A) CR Common Stock (POE)
Record repurchase of common stock from shareholders
DR Common Stock (POE) CR Cash (A)
Record a declaration of cash dividends by the board of directors
DR Retained Earnings (POE)
CR Dividends Payable (L)
Company sells common stock to shareholders for $5,000 in cash
DR Cash (A) 5,000 CR Common Stock (POE) 5,000
The company borrows $1,000 from a bank
DR Cash (A) 1,000 CR Bank Loan (L) 1,000
The company pays first and last month’s rent on a storage space for $300
DR Prepaid Rent (A) 300 CR Cash (A) 300
The company buys inventory for $1,500 on account
DR Inventory (A) 1,500 CR AP (L) 1,500
The company sells $200 worth of inventory for $350 in cash
DR Cash (A) 350 CR Sales Revenue (R) 350
DR COGS (E) 200 CR Inventory (A) 200
The company sells $500 worth of inventory for $800 “on account”
DR AR (A) 800 CR Sales Revenue (R) 800
DR COGS (E) 500 CR Inventory (A) 500
The company pays wages of $400 for the previous two weeks’ work
DR Other Expense (E) 400 CR Cash (A) 400
The company receives an advance payment from a customer for $600
DR Cash (A) 600 CR Deferred Revenue (L) 600
The company collects all $800 owed from sale on account
DR Cash 800
CR AR 800
The company buys $500 in inventory on account
DR Inventory 500
CR AP 500
The company provides $400 in inventory to the customer who paid in advance, completing that order from customer paying the $600 in advance previously
DR Deferred Revenue 600
CR Sales Revenue 600
DR COGS 400
CR Inventory 400
The company owes employees $400 in wages to be paid next month
DR Other Expense 400
CR Wages Payable 400
The company estimates that it consumed $100 worth of electricity during the month
DR Other Expense 100
CR Electricity Payable 100
The company has consumed one month of rental services ($150)
DR Other Expense 150
CR Prepaid Rent 150
The company owes the bank $10 in interest to be paid next month
DR Interest Expense 10
CR Interest Payable 10
Starbucks declares a dividend of $30
DR Retained Earnings (-OE) 30
CR Accrued Liabilities (+L) 30
Starbucks pays the dividend of $30 that was previously declared
DR Accrued Liabilities (-L) 30 CR Cash (-A) 30
