ACCT 3001 HOLMES LSU FINAL

Assets

Expenses

Dividends

all increase with a DEBIT balance

Liabilities

Retained Earnings

Revenues

Common Stocks

all increase with a CREDIT balance

Net Income = Revenues - Expenses

net income equation

End RE = Beginning RE + Net Income - Dividends

retained earnings formula

Assets = Liabilities + Stockholders' Equity

accounting equation

1. Analyze transactions

2. Record in the journal

3. Post to the ledger

4. Unadjusted trial balance

5. Adjustments

6. Adjusted trial balance

7. Financial statements

8. Closing entries

9. Post closing trial balance

the accounting cycle parts

DEBIT Cash

CREDIT Common Stock

CREDIT PIC in Excess of Par

journal entry when selling Common Stock more than par value

DEBIT Equipment

CREDIT Cash

CREDIT Notes Payable

journal entry for purchasing equipment paying cash and signing a note

DEBIT Inventory

CREDIT Accounts Payable

purchasing inventory on account, using the perpetual inventory system

DEBIT Accounts Receivable

CREDIT Sales Revenue

DEBIT COGS

CREDIT Inventory

selling inventory on account, using the perpetual system, when all sales are credit sales; involves COGS (HINT HAS TWO NUMBERS IN THE QUESTION)

DEBIT Rent Expense

CREDIT Cash

paying rent for the month

DEBIT Prepaid Insurance

CREDIT Cash

paying insurance for a one year period, not having the benefit yet

DEBIT Accounts Payable

CREDIT Cash

paying the bill for inventory previously purchased on account

DEBIT Cash

CREDIT Accounts Receivable

collecting money from customers on account

Gross Profit = Sales Revenue - COGS

Gross Profit equation

revenues

recorded in the period they are EARNED

expenses

recorded in the period they are INCURRED

1. Revenue or Expense

2. Asset or Liability

things every adjusting entry includes; NEVER includes Cash

DEBIT Depreciation Expense

CREDIT Accumulated Depreciation

journal entry for depreciation expense (be sure to include ONLY the months being accounted for, not necessarily the entire amount given)

DEBIT Bad Debt Expense

CREDIT Allowance for Doubtful Accounts

journal entry for making an adjustment that includes estimating an amount of Accounts Receivable that will NOT be collected (pay attention to where the debit/credit balance is located and what needs to be subtracted or added) USING THE NUMBER THAT IS IN THE MIDDLE OF THE T ACCOUNT NOT THE NUMBER THAT IS THE BALANCE

DEBIT Allowance for Doubtful Accounts

CREDIT Accounts Receivable

making a write off when a company is bankrupt and permanently unable to pay the amount they owed

DEBIT Expense

CREDIT Payable

entry made to accrue expenses; assuming the amounts are being incurred before the end of a fiscal year and not being paid until the following year

DEBIT Receivable

CREDIT Revenue

entry made to accrue revenues (interest revenue)

DEBIT Income Tax Expense

CREDIT Income Tax Payable

entry made to pay income taxes

DEBIT Insurance Expense

CREDIT Cash

recording insurance if an EXPENSE account was originally DEBITED

DEBIT Prepaid Insurance

CREDIT Insurance Expense

adjustment to recording insurance when an EXPENSE account is originally DEBITED

DEBIT Prepaid Insurance

CREDIT Cash

recording insurance if an ASSET is originally DEBITED

DEBIT Insurance Expense

CREDIT Prepaid Insurance

the adjustment made to recording insurance when an ASSET is originally DEBITED

DEBIT Cash

CREDIT Unearned Revenue

original journal entry made when recording unearned/deferred revenue; LIABILITY ACCOUNT CREDITED

DEBIT Unearned Revenue

CREDIT Revenue

adjusting entry made for unearned/deferred revenue; LIABILITY account originally CREDITED

DEBIT Cash

CREDIT Revenue

entry made for unearned/deferred revenue when a REVENUE account was originally CREDITED

DEBIT Revenue

CREDIT Unearned Revenue

adjusting entry made for unearned/deferred revenue when a REVENUE account originally CREDITED

physical count

needs to be done at the end of the year (regarding inventory)

-shoplifting

-damaged items

-waste

-theft

the things that cause shrinkage with regard to inventory

-Revenue

-Expense

-Dividends

the temporary accounts that all need to close at the end of the period

balance sheet

these accounts are NOT being closed at the end of the period

DEBIT Revenue (would include Interest Revenue)

CREDIT Income Summary

entry to close the revenue account(s)

DEBIT Income Summary

CREDIT Expense accounts (Interest, Rent, Salary, etc.)

entry to close the expense account(s)

DEBIT Income Summary

CREDIT Retained Earnings

entry to close net income

DEBIT Retained Earnings

CREDIT Dividends

entry to close dividends

GAAP

relies heavily on historical cost

IFRS

relies heavily on fair value

accrual basis of accounting

-GAAP approved

-recognize revenue when earned

-recognize expenses when incurred

-does NOT regard the time of receipt or payment of cash

-investors want timely information, which is why this one is better

cash basis of accounting

-record revenue when cash is received

-record expenses when cash is paid

Cash Collections

-Beginning Accounts Receivable

+End Accts Receivable

+Beginning Unearned Revenue

-End Unearned Revenue

formula to calculate service revenue on an accrual basis

Cash Disbursements

-Beginning Accrued Liabilities

+End Accrued Liabilities

+Beginning Prepaid Expenses

-End Prepaid Expenses

formula to calculate operating expenses on an accrual basis

OVERSTATED; UNDERSTATED

-Prepaid Expenses : Assets OVER; Expenses UNDER

-Unearned Revenues: Liabilities OVER; Revenues UNDER

balance sheet account is (overstated or understated) for prepaid expenses and unearned revenues

income statement account is (overstated or understated) for prepaid expenses and unearned revenues

UNDERSTATED; UNDERSTATED

-Accrued Revenues: Receivable UNDER; Revenues UNDER

-Accrued Expenses: Expense UNDER; Liabilities UNDER

income statement account is (overstated or understated) for accrued revenues and accrued expenses

balance sheet account is (overstated or understated) for accrued revenues and accrued expenses

HINT: EVERY ACCOUNT IS UNDERSTATED

authorized stock

maximum number of shares a corporation is allowed to sell

issued stock

stock that has been sold

outstanding stock

stock that is in the hands of the shareholders

treasury stock

stock that has been reissued by the company, issued but NOT outstanding

contra stock holders's equity

the type of account Treasury Stock is

par value

the stated value of the stock, price will be CREDITED to Common Stock

pre emptive rights

protects stockholders from dilution, the current stockholders are asked first when selling more stock in order to maintain their percentage in the company

issue costs

reduces the amounts paid in, reduces Cash; needs to be subtracted out from the amount of money the CS is issued for

record date

NO ENTRY for Dividends

cumulative stock

pay the skipped amount first, unpaid dividends accumulate every year

participating preferred stock

participate and receive more dividend than the set percentage

convertible stock

can convert into common stock

callable stock

can choose to buy back the stock

redeemable stock

mandatory buy back of the stock

used in transactions when they do not want to give control of the company, used with an acquisition of a new company

why preferred stock would be used in a company

DEBIT Retained Earnings

CREDIT Dividends Payable

journal entry for the declaration date of dividends

DEBIT Dividends Payable

CREDIT Cash

journal entry for the payment date of dividends

property dividends

distribution of to stockholders that is payable in some asset other than cash

liquidating dividends

when a dividend comes from something other than earnings, returning an investment because the company is going under

reducing PIC

how a liquidating dividend is accounted for

Gain/(Loss) = CV - FMV

formula for finding out a gain or (loss)

DEBIT Investments

CREDIT Unrealized Gain on Investments

journal entry for declaration of dividend (when an investment is given instead of cash; and there is a gain)

DEBIT Unrealized Loss on Investments

CREDIT Investments

journal entry for declaration of dividend (when investment is given instead of cash; and there is a loss)

DEBIT Property Dividend Payable

CREDIT Investments

journal entry for payment date of dividend (when property dividend given)

DEBIT Retained Earnings

DEBIT PIC > Par

CREDIT Dividend Payable

journal entry for declaration date when liquidating dividends are being given

DEBIT Dividend Payable

CREDIT Cash

journal entry for the payment date when liquidating dividend is being given

small stock dividend (< 25%)

recorded at FMV

large stock dividend (> 25%)

recorded at par value

stock dividends

a corporation issued its own stock to its stockholders on a pro rata basis (per share basis); used when there is no cash to issue a cash dividend, dividends are announced 1-3 months before paying

decrease stock RE;

increase PIC

stock dividends' effect on stock holders' equity

DEBIT Retained Earnings

CREDIT Common Stock Dividend Distributable

CREDIT PIC > Par

journal entry for declaration date for stock dividends (when recorded at market value)

DEBIT Common Stock Dividend Distributable

CREDIT Common Stock

journal entry for issue date for stock dividends

outstanding

the shares dividends are based on

DEBIT Retained Earnings

CREDIT Common Stock Dividend Distributable

journal entry for declaration date for a stock dividend (when recorded at par value)

DEBIT Common Stock Dividend Distributable

CREDIT Common Stock

issue date for stock dividend when recorded at par value

stock split

increases the number of shares authorized, issue, and outstanding, has a proportionate reduction in the par or stated value of stock; splitting into more than one share; keep market value NOT too high; expensive if it never splits, happens like every seven years

no entry

journal entry for a stock split

par value

common stock dividends distributable will be always stated at this value

market

(market/stated) rate is used to calculate PV

stated

(market/stated) rate is used to calculate interest payments

discount

market rate > stated rate

premium

market rate < stated rate

Interest Pmt = (Face Value)(Stated Rate)(Months/12)

formula for interest payments

current liability

where Interest Payable is listed on the balance sheet

long term liability

where Bonds Payable is located on the balance sheet

long term liability

where Warranty Liability is located on the balance sheet

current liability

where Warranty Expense is located on the balance sheet

DEBIT Cash

CREDIT Bonds Payable

CREDIT Premium on Bonds Payable

the journal entry for the issuance of a bond that has market rate < stated rate

DEBIT Cash

DEBIT Discount on Bonds Payable

CREDIT Bonds Payable

the journal entry for the issuance of a bond that has a market rate > stated rate

DEBIT Interest Expense

CREDIT Discount on Bonds Payable

CREDIT Cash

the journal entry for interest expense when there is a discount (accruing)

DEBIT Interest Expense

DEBIT Premium on Bonds Payable

CREDIT Cash

the journal entry for interest expense when there is a premium (accruing)

DEBIT Interest Payable

CREDIT Cash

the journal entry for paying the interest expense