ACC 1000 — Quiz 1 Study Guide

Built from Classes 1–3, your handwritten notes, and Professor Ryan’s recognition handouts. Quiz is Monday 9/14, first 30 minutes of class. Bring your own calculator — calculators are only provided for exams.

Two phases on the quiz. Phase 1 is knowing every account: what it means and where it goes. Phase 2 is constructing an income statement and balance sheet from scratch. Transaction grids are more Quiz 2 — use them as reinforcement.

Professor Ryan’s recognition guides

Ask the first question before you even look at cash.

Revenue — did we provide the customer with our product or service?

YES → recognize revenue on the income statement

Did they pay us today?

Yes: Increase cash · current asset, balance sheet

No: Accounts receivable · current asset, balance sheet

NO → not revenue

Did they pay us in advance?

Yes: Deferred revenue · current liability, balance sheet

Expense — did we incur or use the expense?

YES → recognize expense on the income statement

Have we paid them yet?

Yes: Cash decreases · current asset, balance sheet

No → have we been billed?

Yes: Accounts payable · current liability, balance sheet

No: Accrued expense · current liability, balance sheet

NO → not an expense

Did we pay in advance?

Yes: Prepaid expense · current asset, balance sheet

The trap in both trees. Cash never decides recognition. Delivery decides revenue; use decides expense. Cash only picks the paired balance sheet account.

Account map

Account	Stmt	Section	What it means
Cash	BS	Current asset	Money on hand. Always listed first.
Short-term investments	BS	Current asset	Securities to be sold within one year.
Accounts receivable	BS	Current asset	We delivered; the customer has not paid.
Inventory	BS	Current asset	Goods held for sale. Becomes COGS when sold.
Prepaid expense	BS	Current asset	We paid cash before using the service.
Property, plant & equipment	BS	Long-term asset	Original cost of equipment, buildings, vehicles.
Accumulated depreciation	BS	Long-term contra-asset	Running total of depreciation. Always negative.
Goodwill	BS	Long-term intangible asset	Acquisition premium. Only arises from buying a company.
Accounts payable	BS	Current liability	We owe a supplier who invoiced us.
Accrued expenses	BS	Current liability	Incurred but unpaid, with no invoice yet.
Deferred revenue	BS	Current liability	Customer paid us before we delivered.
Short-term debt	BS	Current liability	Debt due within one year.
Long-term debt / notes payable	BS	Long-term liability	Debt due beyond one year.
Common stock	BS	Equity	Cash received from issuing shares.
Retained earnings	BS	Equity	Accumulated profit kept in the business.
Revenue / sales	IS	Revenue	Earned on delivery, not on payment.
Cost of goods sold	IS	Expense (direct)	Direct cost of what was sold, including service labor.
Rent / wages / utilities / G&A	IS	Operating expense	Day-to-day running costs.
Depreciation expense	IS	Operating expense	Same amount each period. Positive on the IS.
Research & development	IS	Operating expense	Shown inside operating expenses.
Interest expense	IS	Other income/expense	Sits below operating income.
Income tax expense	IS	Tax	Last line before net income.

The four confusable pairs

Accounts receivable vs. deferred revenue

Receivable (asset): we delivered, they have not paid. They owe us.

Deferred revenue (liability): they paid, we have not delivered. We owe them.

Gift cards, pre-orders, subscriptions, season passes → deferred revenue.

Accounts payable vs. accrued expenses

Payable: a supplier sent a formal invoice. Usually tied to inventory/purchases.

Accrued: incurred but no invoice yet. Wages, rent, utilities.

Default to accrued. The word “invoice” or “billed” pushes it to payable.

Prepaid expense vs. expense

Pay $5,000 for a year of insurance. On day one nothing is used, so it is a current asset.

Each month about $417 moves out of prepaid and becomes an expense.

PP&E vs. operating expense

Buying the machine creates a long-term asset. No expense on day one.

Gas, storage rent, and depreciation for that machine are operating expenses.

Depreciation and goodwill

Depreciation

Annual depreciation = cost ÷ useful life

For one month, divide by 12. Land never depreciates.

Income statement: depreciation expense (operating). Same amount each period.
Balance sheet: accumulated depreciation (negative contra-asset that grows).

Example: $120,000 over 10 years = $12,000/year = $1,000/month.

Goodwill

Goodwill = purchase price − fair value of net identifiable assets

Net identifiable assets = identifiable assets − liabilities assumed.

Amazon / Whole Foods: paid $13.7B, identifiable $4.7B → goodwill $9.0B.

Only created by an acquisition. Long-term intangible asset.

Financial statement connection map

From Professor Ryan’s handout. The balance sheet stays; the other statements explain one period.

1. Balance sheet

Same foundation period after period. Compare years and find the change.

Assets (own): cash, AR, inventory

Liabilities (owe): AP, accrued expenses

Equity (own − owe): common stock, retained earnings

Cash is explained by the cash flow statement. Ending RE comes from the income statement.

2. Statement of cash flows

Explains all cash activity for that specific period.

Operating flows
Investing flows
Financing flows

Not on Quiz 1. She pinned this until about Class 11.

3. Income statement

Specific-period profit. Wipes clean after the period.

Revenue − Expenses = Net income

Retained earnings bridge:

Beg RE + Net income − Dividends = End RE

Ending RE is the number that lands on the balance sheet.

Four formulas

Accounting equation

Assets = Liabilities + Equity

Also: Assets − Liabilities = Equity

Retained earnings

Beg RE + Net income − Dividends = End RE

This is the bridge from the income statement to the balance sheet.

Timing

Balance sheet layers · Income statement resets

BS is a running total. IS is wiped clean each period.

What changes retained earnings

Revenue ↑ · Expenses ↓ · Dividends ↓

Dividends reduce RE but never appear on the income statement.

Templates to reproduce exactly

Income statement — four blocks

Revenue
− Cost of goods sold
= Gross profit
− Operating expenses
= Operating income (EBIT)
− Interest / other
= Income before taxes
− Income tax expense
= Net income

Write every figure as a positive number. Only genuine other income is treated as a negative expense.

Balance sheet — six required subtotals

Cash → investments → receivables → inventory → prepaid
1. Total current assets
PP&E − accum. dep. + goodwill
2. Total assets

AP → accrued → deferred rev → ST debt
3. Total current liabilities
+ LT debt
4. Total liabilities
Common stock + retained earnings
5. Total equity
6. Total liabilities and equity

Order under time pressure. Label every account first → build the income statement → carry net income into RE → build the balance sheet → check that it balances. You cannot finish the BS without NI.

Worked example — Redwood Company

Full year. Beginning retained earnings $28,000. Dividends paid $3,000.

Income statement

Revenue	$120,000
Cost of goods sold	(48,000)
Gross profit	$72,000
Rent expense	(12,000)
Wages expense	(20,000)
Operating income	$40,000
Interest expense	(4,000)
Income before taxes	$36,000
Income tax expense	(6,000)
Net income	$30,000

Balance sheet

Cash	$35,000
Accounts receivable	22,000
Inventory	18,000
Total current assets	$75,000
Equipment	80,000
Less: accumulated depreciation	(16,000)
Total assets	$139,000
Accounts payable	$14,000
Long-term debt	50,000
Total liabilities	$64,000
Common stock	20,000
Retained earnings	55,000
Total equity	$75,000
Total L + E	$139,000

RE check: $28,000 beginning + $30,000 NI − $3,000 dividends = $55,000 ending. Assets $139,000 = Liabilities + Equity $139,000.

Run this under quiz conditions. Thirty minutes, calculator beside you, notes closed. Then grade it and redo only what you missed.

Part 1 — name the account, statement, and section

#	Prompt	Answer

Part 2 — build both statements

Trial Company, full year. Beginning RE $10,000. Dividends $2,000.

Account	Amount
Cash	$28,000
Accounts receivable	12,000
Inventory	10,000
Prepaid rent	3,000
Equipment	50,000
Accumulated depreciation	8,000
Accounts payable	11,000
Accrued expenses	4,000
Long-term debt	30,000
Common stock	25,000
Revenue	90,000
Cost of goods sold	35,000
Rent expense	10,000
Wages expense	16,000
Depreciation expense	5,000
Interest expense	3,000
Income tax expense	4,000

Part 3 — recognition drills

Highest-value drill. Decide what hits the income statement before touching cash.

#	Scenario	Answer