"Accounting 2301: Final Exam Review

Accounting

system that records economic transactions, summarizes transactions, and generates financial statements.

Generally accepted accounting principles

GAAP stands for...

Financial Accounting Standards Board

GAAP is set/established by...

International Financial Reporting Standards

What does IFRS stand for?

Relevant (useful) and a faithful representation (accurate)

Accounting information should be...

comparability, verifiability, timely, understandable

Characteristics of accounting information should be...

materiality and cost

Constraints of accounting information include...

Assets = Liabilities + Owner's Equity

The accounting equation is....

A. Because there are fewer Liabilities

Ex. 1-Which of the following would be considered in "better shape"? (Based on Accounting equation)

A. 100,000=30,000+70,000

B. 100,000=60,000+40,000

Retained Earnings

explains what the business did with their NET income.

Beginning Balance + NET Income - Dividends = End Bal.

Calculate NET Income

Balance Sheet

Statement of Financial position

liquidity

How quickly/easily something can be converted to cash

Current Assets

If you are planning on converting assets to cash within the next 12 months, they are considered...

Long-Term Assets

If you plan to keep assets longer than a year, they are considered...

Assets, Liabilities and Stockholder's Equity

Balance Sheets are divided into sections. They are...

Assets

PP&E on the balance sheet would go under Assets or Liabilities and SE?

Assets

Cash, A/R, supplies, and land would go where on the balance sheet?

Liabilities

A/P would go where on the Balance sheet?

Revenues-expenses

Income Statement equation is...

Cash basis accounting

Income is recorded when cash is received. Expense recorded when payment is made

accrual accounting

income is recorded when earned regardless of when payment is made.

Revenue Recognition Principle

Recording revenue when you earn it. (for sale of goods, when good is delivered or customer takes possession)

Matching Principle

record an expense in the same accounting period that you record the revenue those expenses helped you generate

Deferrals, Accruals

Two types of adjustments in adjusting trial balances

Deferrals

cash received before revenue is earned or cash paid before expense occurred.

Cash xxx

unearned revenue xxx (liab. acct.)

How would you make a journal entry for a deferral adjustment where cash is received before revenue is earned?

Ppd. Exp. xxx

Cash xxx

How would you record a JE for a deferral adjustment where cash is paid before expense occurred?

Accruals

revenue is earned before cash is received or expense is incurred before payment is made

A/R xxx

Revenue xxx

how would you record a JE when revenue is earned before cash is received in accrual adjustments?

expense xxx

A/P xxx

How would you record a JE when expense is incurred before payment is made in accrual adjustments?

Rent Exp. 1,000

PrePd. Rent 1,000

Record this adjusting entry:

Have consumed one month of prepaid rent, $1,000.

Supplies Exp. 300

Supplies 300

Record this adjusting entry:

Only have $400 (out of $700) of supplies left.

depreciation exp. 400

A/D equip 400

(Divide equip. value by years of life, then divide that number by 12mo.)

Record this adjusting entry based on Accumulated Depreciation: Equipment has 5 year life. Equipment valued at $24,000.

Sal. Exp. 900

Salary Pay. 900

Record this Adjusting entry:

Owe employers for 1/2 of June salaries of 1800.

Unearned Revenue 200

Service Revenue 200

Record the adjusting JE:

Home Depot paid $400 on June 15 to wash trucks for 1 month.

Tax Exp. 600

Tax Pay. 600

Record this entry:

Tax Liability for June $600

NET sales - COGS = Gross profit - operating exp. = income from operations + other income -other expense = Income before taxes - taxes = NET income

What are the categories of a classified balance sheet?

Bank Reconciliation

-Locates difference in General Ledger balance of cash and bank statement balance of cash.

-Calculates the correct balance for cash

1. 15M + 46M = 61M

2. 4,464,000,000 - 61M = 4,403,000,000

Record using the % of sales principle:

PepsiCo. has sales of $46M. A/R=4,464,000,000, and an allowance of 15,000,000.

1. A/R Net realizable value:

4,464,000,000-75,000,000

2. bad debt exp. 60,000,000 (75M-15M allow.)

allow. for uncollect. acct. 60,000,000

1. Record using the aging principle: PepsiCo's aging:

1-30 days- 3,600,000,000 x 1% = 36,000,000

31-60- 600,000,000 x 2% = 12,000,000

61-90- 200,000,000 x 7% = 14,000,000

90+- 64,000,000 x 20% = 13,000,000

Total 4,464,000,000 75,000,000

2. (Create JE to rec. allowance for bad debt exp.)

Sales - COGS = Gross Profit

How do you calculate gross profit?

Cost of Goods Available / Number of goods available

How do you calculate Average cost?

COGS + Ending inventory

How do you calculate total goods available to sell?

Gross Profit / Net Sales

How do you calculate Gross Profit %?

Operating Activities.

-Daily Activities businesses do on a daily basis.

-These activities include NET income, change in short term assets, and current liab.

- Rev. and Exp.

-Sales to Customers

Investing Activities

-Changes into long term assets

-PP&E

-Long Term investments

-N/R

-Intangibles

Financing Activities

Borrowing money and paying it back, selling your own stock and selling it back, changes in long term liab., changes in SE.

Accrual Accounting

Recognizing transaction when the revenue is earned

Remove non-cash transactions (depr., amortization, loss on sale of asset)

To adjust NET income to cash basis...

deduction

When talking about cash flow statements,

an increase in current assets would result in...

addition

When talking about cash flow statements,

decrease in assets

addition

When talking about cash flow statements,

increase in current liabilities

deduction

When talking about cash flow statements,

decrease in current liablilities

- Investing

Acquisition of building by cash payment

+ Operating

Decrease in Merch. Inventory

+ Operating

Depr. of Equipment

- Operating

decrease in accrued liabilities

- Financing

Payment of cash dividend