Environmental policy and accounting

phase I pollution plan

used for land that’s larger than 1 acre

phase II pollution plan

used for land greater than 5 acres

main cause of sedimentation

construction

lead abatement

work designed to permanently eliminate lead-based paint hazards

what happens when you don’t comply with lead regulations

you get a fine of $37,000

things to consider when finding subcontractors

reliability, quality of work, good customer service

accounting cycle

classify and record transactions, post transactions, prepare trial & adjusted balance, prepare financial statements

transaction

any interaction that increased or decreased business account

source document

proof that a transaction occurred; ex: receipts

journals (accounting)

set of books recording daily transactions

post transactions

transferring transactions recorded in journals to appropriate accounts

preparing a trail balance

total up all prepaid & accrued expenses along w/ accrued & unearned revenue as well as estimated items and inventory adjustments

current assets

can be converted into cash within a year

fixed assets

needed to carry on company business, ex: property & equipment

current liabilities

must be paid within one year

owner’s equity

initial investment in business + accumulated net profits not paid out to owners

working capital equation

current assets- current liabilities

quick ratio equation

(current assets- inventory)/ current liabilities

cash accounting method

record income in the year- expenses in the year you paid them; doesn’t match revenues w/ expenses incurred related to that revenue

accrual method

income recognized when services occur (when you work on the project) not when you get the money

completed contract method

company waits to recognize any income until project is complete; allows company to defer paying taxes until complete

what are the disadvantages of completed contract method

books & records don’t show clear info on operations; income can be bunched into a year if a lot of projects are complete in that year

percentage of completion

recognizes income as project is being completed

percentage of completion advantages

better job of directly matching revenue to expenses related to a specific job

percentage of completion disadvantages

relies on estimates of project % done; not always accurate