Principles of Accounting

[ShotoJuku]

I have passed! I couldn't believe it when I pulled up my scores and saw a 50! I truly struggled with that test.
Good luck to everyone else!

[SIZE="3"]The struggle is over and a pass is a pass - Great Job!![/SIZE]

[Librevore]

I have passed! I couldn't believe it when I pulled up my scores and saw a 50! I truly struggled with that test. I answered the last 15-20 questions hardly reading them. I knew the rule of answering every question to up your score as much as possible, with a lucky guess here and there. When I had answered every question I had ony five minutes left.

Funny thing I thought before the test I would do better on financial accounting then on managerial accounting--but now I think it was just the opposite! I Must have memorized cost variable stuff and department centers from IC flashcards. I know my score isn't impressive, but I have this to say for InstantCert: It made me review and learn things I didn't even think were necessary. Certain math functions and processes for example. I probably would not have passed without it. In fact I'm sure of it.

I now have 51 credit hours-9 left to go.

I am planning to take dsst Ethics in America.

Good luck to everyone else!

Yeah!!! You did it! This is not an easy exam from what I hear so you must be elated. Good luck on your Ethics in America.

Librevore

[lhodgdon]

I'm studying for the Accounting CLEP test and spent literally all Labor Day weekend studying. So far (it's now Monday, Labor Day), I've gotten through the Financial Accounting portion on IC. I'm hoping to get through the rest tonight. I may have to do the same thing next weekend as well. But for those of you who are studying for the Accounting test as well, I thought I would share a useful tip I found. The hardest part I found was getting past the whole debit and credit thing, until I found these acronyms.

For accounts that increase on the debit side, use the acronym:
D ividends (or Draws)
E xpenses
A ssets
L oses

For accounts that increase on the credit side, use the acronym:
G ains
I ncome
R evenue
L iability
S tockholder's Equity

The only exception to these acronyms is contra-asset accounts, that increase on the opposite side than they normally would.

These acronyms have been a tremendous help for me. I'm hoping to take the test in the next couple weeks. Wish me luck!

[yutzyj]

I'm studying for the Accounting CLEP test and spent literally all Labor Day weekend studying. So far (it's now Monday, Labor Day), I've gotten through the Financial Accounting portion on IC. I'm hoping to get through the rest tonight. I may have to do the same thing next weekend as well. But for those of you who are studying for the Accounting test as well, I thought I would share a useful tip I found. The hardest part I found was getting past the whole debit and credit thing, until I found these acronyms.

For accounts that increase on the debit side, use the acronym:
D ividends (or Draws)
E xpenses
A ssets
L oses

For accounts that increase on the credit side, use the acronym:
G ains
I ncome
R evenue
L iability
S tockholder's Equity

The only exception to these acronyms is contra-asset accounts, that increase on the opposite side than they normally would.

These acronyms have been a tremendous help for me. I'm hoping to take the test in the next couple weeks. Wish me luck!

thanks hodgdon, i will be studying for this test in the near future and i appreciate this tip.

[snazzlefrag]

Hi lhodgdon,

Welcome to the group!

Your first post is an excellent one. It will be helpful to a lot of people. With that in mind, I have moved your post (and the response from yutzyj) to a thread that is specifically about the Accounting exam. I hope you don't mind, but it will allow anyone looking for Accounting advice to be able to benefit from your useful study tip, and to find it more easily using the search function.

It's great to have you on board.

Best of luck with your exam,
Snazzlefrag

[Librevore]

I'm studying for the Accounting CLEP test and spent literally all Labor Day weekend studying. So far (it's now Monday, Labor Day), I've gotten through the Financial Accounting portion on IC. I'm hoping to get through the rest tonight. I may have to do the same thing next weekend as well. But for those of you who are studying for the Accounting test as well, I thought I would share a useful tip I found. The hardest part I found was getting past the whole debit and credit thing, until I found these acronyms.

For accounts that increase on the debit side, use the acronym:
D ividends (or Draws)
E xpenses
A ssets
L oses

For accounts that increase on the credit side, use the acronym:
G ains
I ncome
R evenue
L iability
S tockholder's Equity

The only exception to these acronyms is contra-asset accounts, that increase on the opposite side than they normally would.

These acronyms have been a tremendous help for me. I'm hoping to take the test in the next couple weeks. Wish me luck!

Good tip! Thanks lhodgson.

[lhodgdon]

Ok, I’ve been studying for the Principles of Accounting test and today I came across a couple questions that are related, but they say the opposite things. I’m not sure if one of the answers are incorrect (InstantCert's material is incorrect, such as a typo) or if I'm just not understanding it. I'd appreciate if anyone could help. The first question is:

If an entity declares a stock dividend totaling $15,000, what account is credited? _______________
Answer: Additional Paid-in-Capital. The additional $15,000 represents an increase in the equity (capital) of the corporation. We know that any dividend decreases retained earnings therefore it is debited $15,000 and the stock dividend is recorded as an increase to the paid-in-capital account as a credit.

dr. Retained Earnings 15,000
cr. Additional Paid-in-Capital 15,000

The second question is:
If a dividend of $5000 is declared, using a comma to separate your answers, what account is debited and what account is credited? __________,__________
Answer: Retained Earnings, Cash.

dr. Retained Earnings 5000
cr. Declared Dividends 5000

The dividend liability is recorded on the day it is declared, not the day it is paid. When the dividend is paid, the cash account is credited and the liability Declared Dividends is debited.


I’m really confused about this one, because the questions appears to be asking the same thing, but it has different answers. Can anyone help? Thanks.

[Kiwi Lover]

Ok, I’ve been studying for the Principles of Accounting test and today I came across a couple questions that are related, but they say the opposite things. I’m not sure if one of the answers are incorrect (InstantCert's material is incorrect, such as a typo) or if I'm just not understanding it. I'd appreciate if anyone could help. The first question is:

If an entity declares a stock dividend totaling $15,000, what account is credited? _______________
Answer: Additional Paid-in-Capital. The additional $15,000 represents an increase in the equity (capital) of the corporation. We know that any dividend decreases retained earnings therefore it is debited $15,000 and the stock dividend is recorded as an increase to the paid-in-capital account as a credit.

dr. Retained Earnings 15,000
cr. Additional Paid-in-Capital 15,000

The second question is:
If a dividend of $5000 is declared, using a comma to separate your answers, what account is debited and what account is credited? __________,__________
Answer: Retained Earnings, Cash.

dr. Retained Earnings 5000
cr. Declared Dividends 5000

The dividend liability is recorded on the day it is declared, not the day it is paid. When the dividend is paid, the cash account is credited and the liability Declared Dividends is debited.


I’m really confused about this one, because the questions appears to be asking the same thing, but it has different answers. Can anyone help? Thanks.

Hi lhodgdon,

I think I can help you on this one.

When a stock dividend is issued, it merely "rearranges" the existing equity on the books--it does not change the bottom line total equity balance. As far as I know, the CORRECT journal entry to record a stock dividend would be as follows:

Small Stock Dividend (10% stock dividend)

DEBIT Retained Earnings $2,000,000
CREDIT Common Stock $ 100,000
CREDIT Paid in Capital $1,900,000

To record issuance of a 10% stock dividend (1,000,000 shares x 10% x $20 per share)

Therefore, per the above example, the first question you posted was correct, in that you would DEBIT Retained Earnings and CREDIT Paid in Capital. The answer to the second question you posted does not seem to be correct to me, as no cash is involved when a stock dividend is issued.

I hope that makes sense! Please feel free to ask any other questions, and I'll do what I can to help!

JoAnne

[snazzlefrag]

Hi lhodgson,

I agree with Kiwi Lover!

There are two important dates involved with dividends: The Declaration Date, and the Payment Date. There are also two types of Dividends: Stock Dividends (preferred), and Cash Dividends (common).

The question and answer for question 1 are correct.

If an entity declares a stock dividend totaling $15,000, what account is credited? _______________

Answer: Additional Paid-in-Capital. The additional $15,000 represents an increase in the equity (capital) of the corporation. We know that any dividend decreases retained earnings therefore it is debited $15,000 and the stock dividend is recorded as an increase to the paid-in-capital account as a credit.

dr. Retained Earnings 15,000
cr. Additional Paid-in-Capital 15,000

On the Declaration Date of "Stock" Dividends on preferred stock (question 1), the Liability is recorded as follows:

Retained Earnings $15000 (decrease: Debit)
Paid-in-Capital _____________$15000 (Increase: Credit)

--
However, I think the inclusion of CASH in the answer to the second question is a mistake. Cash is only credited (decreased) when dividends are actually PAID, not when they are merely DECLARED.

In the text colored red below, it seems that IC got it right. Therefore, I must assume that "Cash" in the answer is a mistake, and it should be "Declared Dividends" instead.

If a dividend of $5000 is declared, using a comma to separate your answers, what account is debited and what account is credited? __________,__________

Answer: Retained Earnings, Cash.

dr. Retained Earnings 5000
cr. Declared Dividends 5000

The dividend liability is recorded on the day it is declared, not the day it is paid. When the dividend is paid, the cash account is credited and the liability Declared Dividends is debited.

On the Declaration Date of "Cash" dividends on common stock (question 2), the Liability is recorded as follows:

Retained Earnings $5000 (decrease: Debit)
Declared Dividends _____________$5000 (Increase: Credit)

--
The Cash account only comes into play when cash dividends are actually PAID.

Hope that helps,
Snazzlefrag

[lhodgdon]

Thanks snazzlefrag and Kiwi Lover for the help. I got it figured out now. The thing that was holding me up was I didn't read the questions close enough (note to self for the exam). One question is about a cash dividend and the other is a stock dividend. All the Accounting books I consulted said the same thing about the cash dividend. I sent an email to the Instant Cert webmaster, so they can look into that question and possibly correct it.

Lynette

Hi lhodgson,

I agree with Kiwi Lover!

There are two important dates involved with dividends: The Declaration Date, and the Payment Date. There are also two types of Dividends: Stock Dividends (preferred), and Cash Dividends (common).

The question and answer for question 1 are correct.



On the Declaration Date of "Stock" Dividends on preferred stock (question 1), the Liability is recorded as follows:

Retained Earnings $15000 (decrease: Debit)
Paid-in-Capital _____________$15000 (Increase: Credit)

--
However, I think the inclusion of CASH in the answer to the second question is a mistake. Cash is only credited (decreased) when dividends are actually PAID, not when they are merely DECLARED.

In the text colored red below, it seems that IC got it right. Therefore, I must assume that "Cash" in the answer is a mistake, and it should be "Declared Dividends" instead.



On the Declaration Date of "Cash" dividends on common stock (question 2), the Liability is recorded as follows:

Retained Earnings $5000 (decrease: Debit)
Declared Dividends _____________$5000 (Increase: Credit)

--
The Cash account only comes into play when cash dividends are actually PAID.

Hope that helps,
Snazzlefrag