Studied by 1 personTags & Description
Accounting
system that records economic transactions, summarizes transactions, and generates financial statements.
Generally accepted accounting principles
GAAP stands for...
Financial Accounting Standards Board
GAAP is set/established by...
International Financial Reporting Standards
What does IFRS stand for?
Relevant (useful) and a faithful representation (accurate)
Accounting information should be...
comparability, verifiability, timely, understandable
Characteristics of accounting information should be...
materiality and cost
Constraints of accounting information include...
Assets = Liabilities + Owner's Equity
The accounting equation is....
A. Because there are fewer Liabilities
Ex. 1-Which of the following would be considered in "better shape"? (Based on Accounting equation)
A. 100,000=30,000+70,000
B. 100,000=60,000+40,000
Retained Earnings
explains what the business did with their NET income.
Beginning Balance + NET Income - Dividends = End Bal.
Calculate NET Income
Balance Sheet
Statement of Financial position
liquidity
How quickly/easily something can be converted to cash
Current Assets
If you are planning on converting assets to cash within the next 12 months, they are considered...
Long-Term Assets
If you plan to keep assets longer than a year, they are considered...
Assets, Liabilities and Stockholder's Equity
Balance Sheets are divided into sections. They are...
Assets
PP&E on the balance sheet would go under Assets or Liabilities and SE?
Assets
Cash, A/R, supplies, and land would go where on the balance sheet?
Liabilities
A/P would go where on the Balance sheet?
Revenues-expenses
Income Statement equation is...
Cash basis accounting
Income is recorded when cash is received. Expense recorded when payment is made
accrual accounting
income is recorded when earned regardless of when payment is made.
Revenue Recognition Principle
Recording revenue when you earn it. (for sale of goods, when good is delivered or customer takes possession)
Matching Principle
record an expense in the same accounting period that you record the revenue those expenses helped you generate
Deferrals, Accruals
Two types of adjustments in adjusting trial balances
Deferrals
cash received before revenue is earned or cash paid before expense occurred.
Cash xxx
unearned revenue xxx (liab. acct.)
How would you make a journal entry for a deferral adjustment where cash is received before revenue is earned?
Ppd. Exp. xxx
Cash xxx
How would you record a JE for a deferral adjustment where cash is paid before expense occurred?
Accruals
revenue is earned before cash is received or expense is incurred before payment is made
A/R xxx
Revenue xxx
how would you record a JE when revenue is earned before cash is received in accrual adjustments?
expense xxx
A/P xxx
How would you record a JE when expense is incurred before payment is made in accrual adjustments?
Rent Exp. 1,000
PrePd. Rent 1,000
Record this adjusting entry:
Have consumed one month of prepaid rent, $1,000.
Supplies Exp. 300
Supplies 300
Record this adjusting entry:
Only have $400 (out of $700) of supplies left.
depreciation exp. 400
A/D equip 400
(Divide equip. value by years of life, then divide that number by 12mo.)
Record this adjusting entry based on Accumulated Depreciation: Equipment has 5 year life. Equipment valued at $24,000.
Sal. Exp. 900
Salary Pay. 900
Record this Adjusting entry:
Owe employers for 1/2 of June salaries of 1800.
Unearned Revenue 200
Service Revenue 200
Record the adjusting JE:
Home Depot paid $400 on June 15 to wash trucks for 1 month.
Tax Exp. 600
Tax Pay. 600
Record this entry:
Tax Liability for June $600
NET sales - COGS = Gross profit - operating exp. = income from operations + other income -other expense = Income before taxes - taxes = NET income
What are the categories of a classified balance sheet?
Bank Reconciliation
-Locates difference in General Ledger balance of cash and bank statement balance of cash.
-Calculates the correct balance for cash
15M + 46M = 61M
4,464,000,000 - 61M = 4,403,000,000
Record using the % of sales principle:
PepsiCo. has sales of $46M. A/R=4,464,000,000, and an allowance of 15,000,000.
A/R Net realizable value:
4,464,000,000-75,000,000
bad debt exp. 60,000,000 (75M-15M allow.)
allow. for uncollect. acct. 60,000,000
Record using the aging principle: PepsiCo's aging:
1-30 days- 3,600,000,000 x 1% = 36,000,000
31-60- 600,000,000 x 2% = 12,000,000
61-90- 200,000,000 x 7% = 14,000,000
90+- 64,000,000 x 20% = 13,000,000
Total 4,464,000,000 75,000,000
(Create JE to rec. allowance for bad debt exp.)
Sales - COGS = Gross Profit
How do you calculate gross profit?
Cost of Goods Available / Number of goods available
How do you calculate Average cost?
COGS + Ending inventory
How do you calculate total goods available to sell?
Gross Profit / Net Sales
How do you calculate Gross Profit %?
Operating Activities.
-Daily Activities businesses do on a daily basis.
-These activities include NET income, change in short term assets, and current liab.
Rev. and Exp.
-Sales to Customers
Investing Activities
-Changes into long term assets
-PP&E
-Long Term investments
-N/R
-Intangibles
Financing Activities
Borrowing money and paying it back, selling your own stock and selling it back, changes in long term liab., changes in SE.
Accrual Accounting
Recognizing transaction when the revenue is earned
Remove non-cash transactions (depr., amortization, loss on sale of asset)
To adjust NET income to cash basis...
deduction
When talking about cash flow statements,
an increase in current assets would result in...
addition
When talking about cash flow statements,
decrease in assets
addition
When talking about cash flow statements,
increase in current liabilities
deduction
When talking about cash flow statements,
decrease in current liablilities
Investing
Acquisition of building by cash payment
Operating
Decrease in Merch. Inventory
Operating
Depr. of Equipment
Operating
decrease in accrued liabilities
Financing
Payment of cash dividend
Note
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