ch1-4 + 6

income statement

period of time

rev-exp=net income

time period assumption

life of a company divided into shorter

monthly, quarterly, yearly

is a building purchase an expense? (JE)

no, it’s an asset.
PPE $1M +A
Cash $100,000 - A
NP $900,000 +L

supplies purchased to be used next month (JE)

not an expense
supplies 100 +A
cash 100 -A
change in comp. of assets

cash basis accounting

report revenue when cash is received expense when cash is paid.
not GAAP

GAAP Stands for

Generally Accepted Accounting Principles.

GAAP are the ____ in the ___ to calculate and ____ information in f/s.

rules
US
report

A____ B____ accting reports revenue when ___ and expense when ___.
regard less of _____, ____, or ___.

accrual basis acct
earned
incurred
cash, receipt, or payment

R___ R____ Principle is required under accrual acct. records revenue when earned.

Revenue Recognition Principles

deferred revenue is a ____ representing a company’s obligation to provide good or services in the ____.

liability

future

E____ R___ Principle
dr. v knows it as____
records expenses in the same ____ as the revenue they ____.

Expense Recognition
Matching
Period
Generate

symbol for revenue expense

revenue: +R +SE
expense: +E -SE

a trial balance is reported by simply listing and summarizing the ____ balances.

t-accounts balances

prepaid=

an asset

stockholders’ equity includes

1. commons stock (contributed capital)

2. retained earnings

revenue are recorded with a _____.

credit
D|C
A: + -
L: - +
SE: - +
R: - +
E: + -

expenses are recorded with a ____.

debit
D|C
A: + -
L: - +
SE: - +
R: - +
E: + -

revenue: amount earned by selling goods or services to ______.

customers.

expenses: cost of business to earn ___,

revenues.

revenue recognition principle
revenue recognized when ____.
earned means company has ____ its obligation to customer

earned
fulfilled

think og revenue & expenses as subcategories within ___ ___.

retained earnings

promises exchange for promises are not considered ____, this no ___ ___.

transaction
journal entry

AR stands for ___,
AR is an _____.
AR is the amounts _____ to the business bt customers for ____.

accounts receivable
asset
amounts owed to the business by customer for past transaction.

AP stands for ___
It is a ___.
Amount owed by the business.
to ____ for ____ ____.

Accounts Payable
Liability
Suppliers, past transaction

payable is a

liability

permanent accounts

balance sheets
accounts specifically
A,L,SE

temporary accounts

Revenue
Expense
Dividend

Net Income

1. not ___

2. not __

3. not ____

1. cash

2. change in val.

3. exact

IFRS stands for __ __ __ __.
It is the rules _ to - & - info in f/s.

International Financial Reporting Standards.

rules used internationally to calculate & reports info on f/s.

basic acct equation

A=L+SE

an exchange of only a promise is not an a____ t____, _____ _____ required.

acct transaction no entry required

assest are: R____ & Future E___ B___
name some assets

Resources & Future Economic Benefits
Cash, A/R, Supplies, equip, & more

liability are ___ by a business
name 3 liabilities

owned by a business
accounts payable, wages payable, notes payable, & more

stockholders’ equity

Amount:
- Invested: Commons Stock
- Reinvested: Retained Earnings

cost principle

asset & liab. recorded at original cost

transaction d___ & m____ effect to a business

direct & measurable

D____ of effects
Every transaction has at least ____ ____.

Duality of effects
A=L+SE
Every transaction has at least 2 effects.

Accts name (Correct order)

Cash

Supplies

Equip

A/P

N/P

CS

RE

signs a $100k contract

not a transaction

no journal entry

a promise only made

analyse through the acct equation:

equip purchase $500k

paid cash $200k
promissory note ?

A=L+SE
A: (200k) cash +500k Equip

SE: 300k NP

debit only means

left

credit only mean

right

debit/credit framework

A: D+ C-
L: D- C+
SE: D- C+

debt has priority over ____.
promise of an exchange not a ____
d-c frame work

equity
transaction
debit/credit frame work

A: D+ C-
L: D- C+
SE: D- C+

indicate normal balance (nb)

A: D+
L: C+
SE: C+

company issues common stock of $10,000
all 3 steps

1. analyze (a: 10k / se: 10k)

2. journalize (cash - d - 10k / cs - c - 10k)

3. summarize (cash +10k left / CS-SE 10 + right)

classified balance sheet

shows subtotal
current asset/liab>under 1 year
noncurrent asset/liab>over 1 year

list in order of ____ and _____.

liquidity & maturity

PPE

property, plant, equip.

1st asset

cash

BS is for a ___ in time.

point

1. IS

2. SRE

3. SCF

___of time.

period of time

Org. Forms

1. Sole Prop

2. Partnership

3. Corp

4. Others (LLC)

Accounting - A system of A, R, & S. Results of B A. Reporting to D M.

1. Analyzing, recording, summarizing

2. Business activities

3. Decision makers

4 major external users

1. creditors

2. Investors

3. directors

4. gov't

Goal of Acct

useful info

Basic Acct Equation

A = L + SE

Assets

1. Cash

2. A/R

3. Inv

4. Equip

5. More to come

Liability

1. AP

2. NP

3. more to come

Stockholders’ equity

1. CS - common stock

2. RE - retained earnings

3. more to come (ChIl)

Net income is not ___.
Expenses all ___.
Div is not an ____.

1. Cash

2. Cost

3. Expense

Dividends

1. Often paid in cash

2. Optional

3. Declared by Board

4. Not an expense!

4 FS (Order + Formulas)

1. I/S (NI=R-E)

2. SRE (ERE= BRE ± NI-Div.)

3. BS (A=L+SE)

4. SCF (± 0. ± I ± F)

IS
R-E=NI

Income Statement

Revenue - Expenses = Net Income for a period of time

SRE

ERE= BRE ± NI-Div.

Statement of Retained Earning Period of time

Ending Retained Earnings = Beginning Retained Earning ± Net income - Dividends

SCF Categories

Statement of Cash Flows (f/a period)

± Operating ± Investing ± Financing

Receivable is an

asset

Payable is a

liability

1. GAAP

2. FASB

3. IFRS

1. Generally Accepted Accounting Principles

2. Financial Accounting Standard Board

3. International Financial Reporting Standards

A/R

Accounts Receivable

Amount owed to business by customers for past transaction(s)

We focus on accounting from a

corporate standpoint

cost principle

Assets are initially reported on the B/S on their original cost to the company

Separate Entity Assumption

Financial results of a business includes the results of business only

Adjusting Entries (AJE)

Entries made at the end of the period to properly report earnings, expenses, assets, and liabilities.

Expense Symbols

Expenses increase (+E), Stockholder’s equity decreases (-SE).

Book Value

Carrying value, amount that an asset or liability is reported in financial statements.

PP&E

Property, Plant, and Equipment.

Depreciation

Process of allocating costs to PP&E to prior periods.

Accumulated Depreciation

T-account that records this period and prior periods’ depreciation expenses.

Contra Asset Account

An account that offsets another account. Accumulated depreciation is one example.

Contra Asset Account Symbol

+xA, -A.

Deferred Revenue

A liability to work or return the cash.

Adjusted Trial Balance

A list of accounts after adjustments where Debits = Credits—Always.

Permanent Accounts

Accounts where the carrying ending value is the starting value in the next period (balance sheet accounts).

Temporary Accounts

Accounts where the balance is zeroed out at the end of the period (Revenues, Expenses, Dividends declared).

Closing Entries

Entries that close out temporary accounts to Retained Earnings.

Adjusting Entries Never

Involve cash.

Adjusting Entries Always

Are recorded at the end of the period and include one balance sheet and one income statement account.

Dividends

Not an expense; reduction to Retained Earnings.

Service Company

Sells services, not physical goods.

Merchandising Company

Sells goods that have been obtained from a supplier.

Inventory

Assets acquired for resale to customers.

Periodic System

Updates inventory records at the end of the period using a physical count.

Perpetual System

Continuously tracks inventory records; requires two journal entries (sales and cost) and still requires a physical count.

Goods Available for Sale (GAS)

Beginning Inventory + Purchases for the Period.

Cost of Goods Sold (CGS)

BI + P – EI = CGS or BI + P – CGS = EI.

Shrinkage

Inventory lost due to theft, fraud, or error.

FOB Shipping Point

Goods owned by the buyer when they leave the seller’s premises.

FOB Destination Point

Goods owned by the buyer when delivered to the buyer.

2/10, n/30

2% discount if paid in 10 days, or full amount due in 30 days.