Download - Ultimate Accounting "Cheat Sheet"
Revenues increase Equity Expenses decrease Equity
Credit SideDebit Side
ReliabilityInfo 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
EarnedGoods/services are delivered & related obligs are completeSeller has performed duties under terms of sales agreement- title has passed to buyer w/o right of return or contingencies
RealizedSeller 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 EarningsEquipmentCommon StockUnearned RevenueSalesRent ExpenseInventory
Assets = Liabilities + EquityD C D C D C
Net income = Revenue - ExpensesRetained Earnings = Net Income - DividendsNet sales = Credit sales - Sales returns & allowancesNet Book Value = Cost - Accumulated Depreciation
BS, REBSBSBSISISBS
SEASELREA
IS=income statement | RE=retained earnings | BS=balance sheet
R=revenueE=expenseA=assetL=liabilitySE=Stock- hld eq
ITEM
STUDY GUIDE
MY SIDE
HANDY FORMULAS
ITEMS, STATEMENTS, & ACCOUNTS
STATEMENT ACCOUNT
Allow. for Bad DebtBad Debt Exp
-4,500-4,500
BALANCE SHEET
ASSETS = LIABILITIES + EQUITY
INCOME STATEMENT
REVENUE - EXPENSES = NET INCOME
Acquire PP&EYear 1 depreciationYear 2 depreciationYear 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
InventoryCOGS ExpenseCashSales RevenueTotals
-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 = AssetD C
Lesson 1 | Accounting Concepts
Lesson 2 | Accounting Building Blocks
Assets = Liabilities + EquityD C CD C D
Lesson 3 | Revenue & Receivables
2) Reporting entities
Financial stmtsFootnotesAuditors's reportMgmt'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 StatementRevenues-ExpensesNet Income
Lesson 4 | Inventory & PayablesInventory costing methods
ACCT for Inventory
Lesson 5 | Fixed& Intangible Assets
Lesson 6
Net Book Value = $1,000
Property, Plant, & Equip
Other inventory issues
Recording transactionsAdjusting entries
Qualitative characteristics | primary qualities (TWO)
RelevanceInfo 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 proprietorsPartnershipsCorporationsLLC's
LIFO & FIFO
Primary advantageis tax benefit
Older, lower acquisition Px matched w/ higher sales Px
Current, higher acquisition Pxmtchd w/ curr, higher sales px
Inventory is valued usingolder lower acquisition Px
Inventory is valued using current (higher) acquisition Px
Increase on the
Capital marketProduct marketGovernmentInternal 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 ValueEstimated Useful Life
Natural Resources
2 Double Declining BalanceDepreciation 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 * 2Estimated Useful Life
Depreciation Expense = =
Depreciation rate * Net Book Value(Straight-line rate *2)* (Cost - Accumulated Depreciation)
Stmt of Retained EarningsBeginning RE+ Net IncomeEnding Retained Earnings
Stmt of Cash FlowsBeginning CashOperating ActivitiesInvesting ActivitiesFinancing ActivitiesNet Change in CashEnding Cash
Lower of Cost or MarketWhen 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 StmtCompare historical cost (balance sheet value) to Market Value. Report the lower of the two. -Market value is cost to replace inventory today
AccrualRecognizes economic events in the period in which they occur
Net realizable value
Income Stmt
Percentageof credit
sales
Aging ofAccounts
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 inBad Debt Expense
-Estimate results in balance of allowable account -Bad Debt Expense is a "plug"
Aging of AR methodEstimate 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 methodBad 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 toincome statement as COGS Exp
Intangible Assets-Lack physical existence-Not financial instruments-Normally classified as long-termassets
Effective/stated rates-Effective = market rate, or yield-Stated = Specified on the face ofthe bond.
CashRecognizes economic events when cash has been exchanged
Ignores revenue recognition & matching principlesNot in conformity with GAAP
Balance Sheet--Assets--CashInventoryPPETotal
--Liabilities & Equity--A/PLT DebtEquityTotal
Acquire PP&EYear 1 depreciationYear 2 depreciationYear 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
DETA
ILED EXA
MPLES
recognized/recorded when BOTH
Recognition @ time of sale provides a uniform/reasonable test
Recognition Principle: Revenue should berecorded when a resource has been earned
*General Rule
EXAMPLES
EXAM
PLES
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
AssetLiabilityEquityRevenueExpenseDividendsTotals
Amount
AmountAmount
Total DRs
AmountAmountAmount
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
1234
$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 proceedsCash
491.00
Disc on Bonds Pyble9.00
Bonds Payable500.00
Record first semi-annual interest paymentCash
17.50
Cash15k
CommonStock
15k
Cash Unearned Revenue
Receive $2,000 for future servicesAssets = Liabilities + Equity2,000+2,000 +2,0002,000
Cash2k
UnearnedRevenue
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 monthAssets = Liabilities + Equity600-600 -600600
DepreciationExpense
600
AccumDeprec
600
Unearned Revenue Service Revenue
Serviced pre-paid client ($2k)Assets = Liabilities + Equity2,000
-2,000 +2,0002,000
UnearnedRevenue2k
SVCRevenue2k
Advertising Expense Cash
Pay $250 for advertisingAssets = Liabilities + Equity250-250 -250250
Cash250 250
AdvertisingExpense
Accounts Receivable Service Revenue
Do work and leave an invoice for $3,500Assets = Liabilities + Equity3,500+3,500 +3,5003,500
AccountsReceivable3.5k 3.5k
ServiceRevenue
Dividends Cash
Pay $1,500 in dividendsAssets = Liabilities + Equity1,500-1,500 -1,5001,500
Cash1.5k 1.5k
Dividends
Interest Expense
Debit Credit
19.75Disc on Bonds Pyblebal 9.00
2.25
-DO NOT REDUCE! cost by salvage value-STOP DEPRECIATING when salvage value is reached
Lesson 6, cont...
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