Financial accounting final

What is accounting?

A system of communicating information for better decision making

Financial Accounting Standards Board (FASB)

Makes the rules

Securities Exchange Commission

Enforce the rules

Generally Accepted Accounting Principles (GAAP)

Set of rules and guidelines

Cash is found on the ___

balance sheet

Cash is classified as a and increases on the side

asset, debit

Accumulated depreciation is found on the _

balance sheet

Accumulated depreciation is classified as a contra asset and increases on the ____ side

credit

Account

Storage place for accounting information (transactions)

Journal

place where transactions (economic events) are recorded

Ledger

place where the balance (total) of each account is stored (record transactions

Posting

transferring information from a journal entry to a ledger account

Statement of Stockholders Equity

shows the changes in a companies ownership interest

The statement of stockholders equity includes:

stock, retained earnings, net income, and dividends

Balance sheet

financial statement that reports assets, liabilities, and equities of a specific date

Normal balance

Liability, equity, revenue increase on the credit side

Capital stock is classified as

stockholders equity

accounts payable is classified as

current liability

accounts receivable is classified as

current asset

What accounts are closed?

Revenue, expenses, and dividends (RED)

Where are accounts closed to?

Retained earnings

What account is apart of the closing process but not closed?

Retained Earnings

When are closing entries prepared?

At the end of the accounting period, typically a month, quarter, or year

What would be the consequences of skipping adjusting entries?

inaccurate financial statements

What are the accounts for retail business

Merchandise inventory payable, cost of goods sold, cash, accounts, sales, customer refund payable, sales tax payable

FOB Shipping

buyer pays

FOB destination

seller payers

Cost of goods sold

expense, what the business intends to sell

Periodic System

updated at the end of each year

perpetual system

constantly calculated

FIFO

First In, First Out. Rotation system that uses the oldest products first

LIFO

Last In, First Out. Rotation system that uses the newest products first

Merchandise inventory increases on the ____ side

debit

Cash account increases on the ____ side

debit

sales account increases on the ____ side

credit

cost of merchandise sold increases on the ____ side

credit

customer refund payable increases on the ____ side

credit

FIFO shows

current cost

Average cost

$/unit

ending inventory

purchased units

trade discounts

wholesalers may offer special discounts off list prices to government agencies or businesses that order large quantities

internal control examples

control environment, risk assessment, control procedures, monitoring, info and communication

bank reconciliation purpose

ensure that

internal control

safeguard assets, compliance with laws and regulations

on account

A/R, A/P

in advance

unearned to earned

will be billed

Accounts receivable

Beginning inventory + net purchases =

GAFS (goods available for sale)

GAFS

ending inventory

net sales

cost of goods sold

What is deducted on the banks side of a bank reconciliation?

outstanding checks

What is added on the book side of a bank reconciliation?

notes receivables, interest earned

What is added on the banks side of a bank reconciliation?

deposits in transit

What is deducted on the book side of a bank reconciliation?

NSF checks, service charge

purpose of bank reconciliation

To reconcile (compare) the company's cash balance with the bank's cash balance

cost of goods sold

increase on debit

found on the income statement

accumulated depreciation

increase on credit

balance sheet

merchandise inventory

increase on debit

balance sheet

common stock

increase on credit

balance sheet

bonds payable

increase on credit

balance sheet

retained earnings

credit

balance sheet/retained earnings statement

accrual basis of accounting

record expenses when incurred

adjusting entries must be completed

net income

income statement and statement of retained earnings

First

In, First

Last

In, First

Percentage of net sales method

income statement approach

accounts receivable aging method

balance sheet approach

How to calculate interest

principal (loan) x rate x time

What is AUA

contra asset

account used to write off bad debt

Percentage of net sales

A method of estimating uncollectible accounts expense in which a business assumes that a certain percentage of each year's net sales will be uncollectible

long term

greater than 12 months

short term

less than 12 months

book value

value of an asset or a company as recorded on the balance sheet, based on its original cost minus accumulated depreciation, amortization, or impairment costs

double declining

100%/years x 2

units of production

(cost

straight line depreciation

(cost

sum of the years

n(n+1) / 2

what is depreciation

process of allocating a cost of an asset to an expense over its estimated useful life

capital expenditure vs revenue expenditure

improve asset and increase useful life (debit asset)

If i make changes to the asset, it increases the assets life (ex. forklift)

revenue expenditure

maintenance and repairs

Example: oil changes

debit expense