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Ultimate Accounting Guide Sheet

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Ultimate Accounting Guide Sheet

  1. 1. Revenues increase Equity Expenses decrease Equity Credit Side Debit Side Reliability Info strives to faithfully represent the economic situation -Completeness -Includes all info necessary for user to understand -Neutrality -Info cannot be manipulated; free from bias -Freedom from Error -Contains no errors/omissions -Does not require perfect accuracy Earned Goods/services are delivered & related obligs are complete Seller has performed duties under terms of sales agreement- title has passed to buyer w/o right of return or contingencies Realized Seller has received cash or will at some point in the future (AR) Reliability, or faithful representation, is a necessity for individuals who neither have the time nor the expertise to evaluate the factual content of the information. Retained Earnings Equipment Common Stock Unearned Revenue Sales Rent Expense Inventory Assets = Liabilities + Equity D C D C D C Net income = Revenue - Expenses Retained Earnings = Net Income - Dividends Net sales = Credit sales - Sales returns & allowances Net Book Value = Cost - Accumulated Depreciation BS, RE BS BS BS IS IS BS SE A SE L R E A IS=income statement | RE=retained earnings | BS=balance sheet R=revenue E=expense A=asset L=liability SE=Stock- hld eq ITEM STUDY GUIDE MY SIDE HANDY FORMULAS ITEMS, STATEMENTS, & ACCOUNTS STATEMENT ACCOUNT Allow. for Bad Debt Bad Debt Exp -4,500 -4,500 BALANCE SHEET ASSETS = LIABILITIES + EQUITY INCOME STATEMENT REVENUE - EXPENSES = NET INCOME Acquire PP&E Year 1 depreciation Year 2 depreciation Year 3 depreciation +10,000 -3,000-3,000 -3,000-3,000 -3,000-3,000 BALANCE SHEET ASSETS PP& E ACCUM. DEPR INCOME STATEMENT DEPR. EXPENSE Inventory COGS Expense Cash Sales Revenue Totals -500 +500 +500 -500 -500 -500 =-500 =500 =1,000 +1,000 +1,000 +1,000 +1,000 BALANCE SHEET ASSETS = LIABILITIES + EQUITY INCOME STMT BALANCE SHEET INCOME STATEMENT REVENUE - EXPENSES = NET INCOME Receivable = Asset D C Lesson 1 | Accounting Concepts Lesson 2 | Accounting Building Blocks Assets = Liabilities + Equity D C CD C D Lesson 3 | Revenue & Receivables 2) Reporting entities Financial stmts Footnotes Auditors's report Mgmt's discussion & analysis (MD&A) about accounting equation through to 3) Primary users Purpose of accounting: 1) Provide financial information Basic financial statements (FOUR) 1 12 1 2 3 4 Income Statement Revenues -Expenses Net Income Lesson 4 | Inventory & Payables Inventory costing methods ACCT for Inventory Lesson 5 | Fixed & Intangible Assets Lesson 6 Net Book Value = $1,000 Property, Plant, & Equip Other inventory issues Recording transactions Adjusting entries Qualitative characteristics | primary qualities (TWO) Relevance Info capable of making a difference in a decision -Predictive value -Predict outcomes of past, present, & future events -Confirming value -Feedback can be used to set expectations -Materiality -Inclusion/omission would influence judgement For info to be relevant, it should have predictive or confirming value, & be material for the reporting entity. Revenue recognition Receivables Sole proprietors Partnerships Corporations LLC's LIFO & FIFO Primary advantage is tax benefit Older, lower acquisition Px matched w/ higher sales Px Current, higher acquisition Px mtchd w/ curr, higher sales px Inventory is valued using older lower acquisition Px Inventory is valued using current (higher) acquisition Px Increase on the Capital market Product market Government Internal users - execs Straight-Line Depreciation example example $10k asset has salvage of $1k, use life is 3 years =(10000 - 1000)/3 = 3000 per year Balances +10,000 -9,000 -9,000 Depreciation Expense = Asset Cost - Salvage Value Estimated Useful Life Natural Resources 2 Double Declining Balance Depreciation Expense = Determine by taking the straight-line rate of depreciation and double it. Example: Asset w/ 4-year life = straight-line rate 25%, calc'd by 100%/4years. The straight-line rate doubled = 50%. Asset w/ a 5-year life would = 20% straight-line * 2 = 40%. Doubled rate is then multiplied by Net Book Value: Net Book Value * 2 Estimated Useful Life Depreciation Expense = = Depreciation rate * Net Book Value (Straight-line rate *2) * (Cost - Accumulated Depreciation) Stmt of Retained Earnings Beginning RE + Net Income Ending Retained Earnings Stmt of Cash Flows Beginning Cash Operating Activities Investing Activities Financing Activities Net Change in Cash Ending Cash Lower of Cost or Market When future revenue-producing ability < purch Px the inventory asset write down will reflect loss -Ensures inventory is not overvalued -Accelerates future losses to current Inc Stmt Compare historical cost (balance sheet value) to Market Value. Report the lower of the two. -Market value is cost to replace inventory today Accrual Recognizes economic events in the period in which they occur Net realizable value Income Stmt Percentage of credit sales Aging of Accounts Receivable Amount the company expects to collect (GAAP Requirement) Allowance method | Bad Debt Expense (BDE) Recognize BDE in the period of sale by estimating doubtful accounts -Record estimate in contra-asset acct "Allowance for Doubtful Accts" Estimate results in Bad Debt Expense -Estimate results in balance of allowable account -Bad Debt Expense is a "plug" Aging of AR method Estimate how much of the ending balance of AR is bad debt -Amount becomes ending balance of Allowance for Bad Debt -Based on the age of account making up ending bal of AR Percentage of sales method Bad debt is estimated as a % of credit sales that occured during the period -Percent is based on historical trends & company policies -As extracted the asset is depleted and transferred to inventory -As sold the expense is Xferred to income statement as COGS Exp Intangible Assets -Lack physical existence -Not financial instruments -Normally classified as long-term assets Effective/stated rates -Effective = market rate, or yield -Stated = Specified on the face of the bond. Cash Recognizes economic events when cash has been exchanged Ignores revenue recognition & matching principles Not in conformity with GAAP Balance Sheet --Assets-- Cash Inventory PPE Total --Liabilities & Equity-- A/P LT Debt Equity Total Acquire PP&E Year 1 depreciation Year 2 depreciation Year 3 depreciation +10,000 -6,667-6,667 -2,222-2,222 -111-111 BALANCE SHEET ASSETS PP& E ACCUM. DEPR INCOME STATEMENT DEPR. EXPENSE Balances +10,000 -9,000 -9,000 DOUBLE-ENTRY ACCOUNTING DETAILED EXAMPLES DETAILEDEXAMPLES recognized/recorded when BOTH Recognition @ time of sale provides a uniform/reasonable test Recognition Principle: Revenue should be recorded when a resource has been earned *General Rule EXAMPLES EXAMPLES Balance Sheet % of current credit sales is matched with current sales revenue as bad debt expense Allowance does not necessarily reflect the receivables that are uncollectible Bad debt expense is a plug to force allowance for bad debt to the proper balance Allowance for Bad Debts is calculated based on balance in Accounts Receivable Interest Expense Cash Bonds Payable Asset Liability Equity Revenue Expense Dividends Totals Amount Amount Amount Total DRs Amount Amount Amount Total CRs Trial Balance Form-17.50 Cash Common stock Issue 3000 shares of common stock for $15,000 Assets = Liabilities + Equity 15,000 +15,000 +15,000 15,000 -19.75 -19.75 =-19.75 +2.25 BALANCE SHEET ASSETS = LIABILITIES + EQUITY INCOME STATEMENT REVENUE - EXPENSES = NET INCOME 1 2 3 4 $491.00 $493.25 $495.50 $497.75 $493.25 $495.50 $497.75 $500.00 $19.75 $19.75 $19.75 $19.75 $17.50 $17.50 $17.50 $17.50 PERIOD BEGINNING BALANCE INTEREST EXPENSE EFFECTIVE RATE = 4% INTEREST PAYMENT STATED RATE = 3.5% ENDING BALANCE Bond interest: Two year semiannual bond w/ par value of $500 and a stated rate of 7% was priced to yield 8%. -Calc the issue price, find the pres value of both lump-sum principle pymt of $500 and the interest stream of $35 per year. - Pres val of principle = $427 - Pres val of interest stream = $64 - Issue price = $491 Record bond proceeds Cash 491.00 Disc on Bonds Pyble 9.00 Bonds Payable 500.00 Record first semi-annual interest payment Cash 17.50 Cash 15k Common Stock 15k Cash Unearned Revenue Receive $2,000 for future services Assets = Liabilities + Equity2,000 +2,000 +2,0002,000 Cash 2k Unearned Revenue 2k Depreciation Expense Accumulated Depreciation Balance sheet: Reports a company's resources & claims against @ a given point in time. Income Stmt: Rev & Exp over period. Stmt of RE: Shows RE over period. Stmt of Cash Flows: use of $$ Equipment depreciation of $600 per month Assets = Liabilities + Equity600 -600 -600600 Depreciation Expense 600 Accum Deprec 600 Unearned Revenue Service Revenue Serviced pre-paid client ($2k) Assets = Liabilities + Equity2,000 -2,000 +2,0002,000 Unearned Revenue 2k SVC Revenue 2k Advertising Expense Cash Pay $250 for advertising Assets = Liabilities + Equity250 -250 -250250 Cash 250 250 Advertising Expense Accounts Receivable Service Revenue Do work and leave an invoice for $3,500 Assets = Liabilities + Equity3,500 +3,500 +3,5003,500 Accounts Receivable 3.5k 3.5k Service Revenue Dividends Cash Pay $1,500 in dividends Assets = Liabilities + Equity1,500 -1,500 -1,5001,500 Cash 1.5k 1.5k Dividends Interest Expense Debit Credit 19.75 Disc on Bonds Pyble bal 9.00 2.25 -DO NOT REDUCE! cost by salvage value -STOP DEPRECIATING when salvage value is reached Lesson 6, cont... OR