Accounting Principles and Practices

These flashcards cover key accounting concepts, principles, and calculations based on the provided lecture notes.

Journal Entry at Payoff (Accrued Interest)

Interest Payable 6667, Note Payable 200000, Cash

Total Cost of Goods Sold (COGS) using LIFO

Total COGS is calculated as 415.75.

Business Entity Principle

The principle that a business's financial transactions must be kept separate from the personal financial transactions of its owners.

Net Income Calculation

Net income is calculated by subtracting total expenses from total revenues.

Effect of Not Recording Adjusting Entry for Advance Payment

Overstate equity, understate income, and understate liabilities.

Depreciation Expense vs. Accumulated Depreciation

Depreciation expense is the cost of an asset allocated over its useful life, while accumulated depreciation is the total depreciation expense that has been recorded on the asset.

Income Statement Components

Revenues - Expenses = Net Income.

Periodic Inventory Formula

Beginning inventory + Net purchases = Goods available for sale; subtract COGS to find ending inventory.

Bank Reconciliation Statement Components

Include deposits in transit, outstanding checks, bank errors, and NSF checks.

Weighted Average Costing Method

An inventory costing method that calculates COGS and ending inventory based on the average cost of all units available for sale.

Accounts Receivable Turnover Formula

Accounts Receivable Turnover = Net Sales / Average Accounts Receivable.

Bad Debt Expense Estimation Methods

Acceptable methods include percentage of sales, percentage of accounts receivable, accounts receivable aging, and direct write-off method.

Allowance for Uncollectible Accounts Entries

Record estimate of uncollectible accounts as a contra asset in the Allowance account.

Long-term Assets Acquisition

Record all expenditures necessary to prepare the asset for its intended use.

Contingent Liabilities

Pending lawsuits or estimated losses not yet recorded in financial statements.

Payroll Taxes

Include Social Security tax, Medicare tax, federal and state income tax, and unemployment taxes.

Effect of Allowance Method Writeoff on Financial Statements

No effect on expenses or net income, but reduces AR and the contra asset Allowance.

Statement of Cash Flows Activities

Operating activities involve cash transactions in revenues and expenses, investing activities involve long-term assets, and financing involves long-term liabilities.

Operating Activities Section of Cash Flow Statement

Calculation starts with net income, adjusts for non-cash items, and changes in working capital.

Investing Activities Cash Flow

Includes cash provided by the sale of equipment or investments and cash used by the purchase of new equipment.

Financing Activities Cash Flow

Includes cash from issuing common stock, paying back note payables, and buying back stock.

Overstatement of Ending Inventory Effect

If ending inventory is overstated, COGS is understated and net income is overstated.

Adjustment for Salaries/Wages

Adjusting entries to recognize salaries expense and salaries payable at the end of an accounting period.