Unit 1 Accounting Concepts and Chart of Accounts

Vocabulary and key financial formulas from the Unit 1 lecture notes covering account classifications, accounting principles, balance sheet equations, and financial ratios.

CA

Current Asset

PP&E

Property, Plant, and Equipment (Non-Current Asset)

Intangible

No physical substance, not a financial instrument (Non-Current Asset)

CL

Current Liability

LTL

Long-Term Liability

SE

Stockholders' Equity

CA - Current Asset Contra

Classified with parent (primary) account, but has the opposite normal balance

Dividends

Activity that reduces the retained earnings account (activity is on the debit side of retained earnings). You can use a temporary account for dividends, but it is not required to be an account because you can take the amount directly to retained earnings instead.

Materiality

Significant enough to make a difference

Immaterial

Not significant; amount wouldn't make a difference in a decision

Assets

Future Economic Benefits (what the company has)

Liabilities

Sacrifices of Economic Benefits (what the company owes)

Equity

Assets - Liabilities = Equity; (what the company owns)

Comprehensive Income

$$\text{NI} + \text{OCI} = \text{CI}$$

AOCI

Accumulated Other Comprehensive Income; Equity Account

OCI

Current period changes in AOCI

OCI Buzz Words

Foreign, Pension, Unrealized Gain/Loss - AFS

Equity Account Formula

$$\text{BB Account} \pm \text{Activity} = \text{EB Account}$$

Revenues

Providing goods and services to customers, increases NI

Expenses

Used up benefits, decreases NI

Historical Cost Measurement Principle

Amount that something was purchased for. Usually can be verified on a receipt or invoice (business receipt). The historical cost of something does not change. Synonyms: Cost, HC, Purchase Price.

Fair Value Measurement Principle

What something is worth on the fair market TODAY. This amount fluctuates. Synonyms: Fair Market Value, Market Value, FMV)

Revenue Recognition Principle

Recognize revenues in period when goods & services are provided

Matching Principle

Match revenues and expenses in the same period

Conservatism

Under promise, over deliver

JE

Journal Entry

AJE

Adjusting Journal Entry

CJE

Closing Journal Entry

Basic Earnings per Share (EPS)

$$\text{EPS} = \frac{\text{Net Income} - \text{Preferred Dividends}}{\text{Weighted Average \# Common Shares Outstanding}}$$

Simple Interest Calculation

$$\text{Principal} \times \text{Stated Rate} \times \frac{\text{\#months outstanding}}{12}$$

Simple Net Income Calculation

$$\text{Revenue} - \text{Expense} = \text{NI}$$

Net Income

Revenues > Expense

Net Loss

Expenses > Revenues

Retained Earnings Calculation

$$\text{BB RE} + \text{NI} - \text{Dividends} = \text{EB RE}$$

Balance Sheet Equation

$$\text{Assets} = \text{Liabilities} + \text{Equity}$$

Balance Sheet Buzz Words

Point in time, cumulative, financial position, liquidity, solvency, financial flexibility, capital structure

Income Statement Buzz Words

Period of time, results of operations, earnings statement, one period at a time

Account Types with Normal Debit Balances

Assets, Expenses, Losses, (Dividends * if used as a temp. account)

Account Types with Normal Credit Balances

Liabilities, Equity, Revenues, Gains

Temporary Accounts

Revenues, Gains, Expenses, Losses, Dividends

Permanent Accounts

Assets, Liabilities, Equity

Gross Profit (GP)

Sales Revenue (net) - Cost of Goods Sold = GP

IS Total 1

Gross Profit

IS Total 2

Operating Income or Income from Operations

IS Total 3

Pretax Income

IS Total 4

Income from Continuing Operations

IS Total 5

Net Income

Cash Flows Sections

Operating, Investing, Financing

AOLS

Assets Opposite, Liabilities Same

Current Ratio

$$\frac{\text{CA}}{\text{CL}}$$

Quick Ratio (Acid-Test Ratio)

$$\frac{\text{Cash through A/R, net}}{\text{CL}}$$

Times Interest Earned Ratio

$$\frac{\text{NI} + \text{Interest Expense} + \text{Income Tax Expense}}{\text{Interest Expense}}$$

Debt-to-Equity Ratio

$$\frac{\text{Total Liabilities}}{\text{Total Equity}}$$

Gross Profit Margin

$$\frac{\text{IS Total 1}}{\text{Net Sales}}$$

Profit Margin

$$\frac{\text{IS Total 5}}{\text{Net Sales}}$$

Depreciable Base

Historical Cost - Salvage Value

Annual Straight Line Depreciation

$$\frac{\text{Historical Cost} - \text{Salvage Value}}{\text{Est. Useful Life}}$$