Study guides & practice problems

Financial Accounting · Study guide

Journal Entries Cheat Sheet

Debit and credit rules

Three questions for every transaction

1. Which accounts changed?
2. Did each one go up or down?
3. Using the rules above, is that a debit or a credit? Total debits must equal total credits.

Examples

1. Bought $2,000 of supplies on account.

2. Performed services for $1,500 cash.

3. Paid $800 of the amount owed to the supplier.

Tip: debits are listed first, and credits are indented below them. If an entry doesn’t balance, re-check question 2.

Financial Accounting · Study guide

Adjusting Entries, Step by Step

Adjusting entries are recorded at the end of a period so revenue and expenses land in the period they belong to. Each one affects an income statement account and a balance sheet account, and never involves cash.

Worked examples · December 31

1. Employees earned $800 of wages that will be paid in January.

2. On October 1, a customer paid $1,200 for 12 months of service.
$1,200 ÷ 12 × 3 months = $300 earned.

3. On December 1, the company paid $2,400 for a 12-month insurance policy.
$2,400 ÷ 12 × 1 month = $200 used.

4. Equipment cost $10,000, has a $1,000 salvage value and a 5-year life (straight-line).
($10,000 − $1,000) ÷ 5 = $1,800 per year.

Check: accumulated depreciation is a contra-asset. It has a credit balance and reduces equipment on the balance sheet.

Financial Accounting · Practice problem

Build an Income Statement

Mustang Design Co. has these adjusted balances for the year ended December 31. Prepare the income statement.

Solution

Mustang Design Co.
Income Statement · For the Year Ended December 31

Watch out: Cash and Accounts Payable belong on the balance sheet, and Dividends go on the statement of retained earnings. None of them affect net income.

Intermediate Accounting · Practice problem

FIFO vs. LIFO Inventory

A company uses a periodic inventory system, and prices rose during the year. Find cost of goods sold (COGS) and ending inventory under FIFO and LIFO.

Units sold: 250 · Units left: 50

Solution

FIFO (first in, first out): sold 100 × $10 + 150 × $12 = $2,800. Left: 50 × $12 = $600.

LIFO (last in, first out): sold 200 × $12 + 50 × $10 = $2,900. Left: 50 × $10 = $500.

Check: COGS + ending inventory = $3,400 under both methods. With rising prices, FIFO gives lower COGS and higher net income. LIFO is allowed under U.S. GAAP but not under IFRS.

Intermediate Accounting · Worked example

Bonds Issued at a Discount

On January 1, a company issues $100,000 of 5-year bonds with a 6% stated rate, paid annually on December 31. The market rate is 8%, so the bonds sell at a discount.

1. Find the issue price

Factors: PV of an ordinary annuity and PV of $1, n = 5, i = 8%.

2. Record the issuance

3. Effective-interest amortization

4. Year 1 interest entry

Pattern: interest expense = carrying value × market rate. The carrying value climbs toward $100,000 by maturity.

Any course · Study plan

Two-Week Midterm Study Plan

A realistic plan for the 14 days before an exam, at about 60–90 minutes a day.

What to bring to a session

• The syllabus or exam topic list
• Homework or practice problems you got wrong
• Any practice exams your professor has shared

Tip: studying accounting is mostly doing problems, not re-reading. If you can’t solve it without notes, you’re not done with that topic.