Final Accounting Final-Loyet-Fall 2023

Assets increase on

Debit

Liabilities increase on

Credit

Stockholder's Equity increases on

Credit

Revenues increase on

Credit

Expenses increase on

Debit

Gains increase on

Credit

Losses increase on

Debit

Dividends increase on

Debit

COGS increase on

Debit

"Prepaid" in an account title means the account is a(n)

Asset

"Unearned" in an account title means the account is a(n)

Liability

"Payable" in an account title means the account is a(n)

Liability

"Receivable" in an account title means the account is a(n)

Asset

Interest formula

Principle x Rate x Time

List the 9 steps of the accounting cycle

1. Analyze business transactions.

2. Journalize business transactions.

3. Post information from the journal to the ledger.

4. Prepare a trial balance to ensure debit=credit.

5. Journalize and post the adjusting entries.

6. Prepare an adjusted trial balance to ensure debit=credit.

7. Prepare the four financial statements.

8. Journalize and post the closing entries.

9. Prepare a post closing trial balance to ensure debit=credit.

Income Statement

Revenue

-COGS

___________

Gross Profit

-Expenses

_____________

Operating Income

+Gains

-Losses

____________

Income before Tax

-Taxes

_____________

Net Income

Balance Sheet

Assets = Liabilities + Stockholders' Equity

Assets: current assets, investments, PPE, intangible assets, other

Liabilities: current liabilities + noncurrent liabilities

Equity: CS Par + PS Par + CS Paid-in Capital in Excess + PS Paid-in Capital in Excess + Retained Earnings LESS Treasury Stock

Statement of Retained Earnings

Beginning Balance in RE

+Net Income

-Dividends

___________________

Ending Balance in RE

Statement of Cash Flow

Beginning Balance of Cash

+- Operating Activities

+- Investing Activities

+-Financing Activities

_________________________

Ending Balance of Cash

Cash going down on cash flow statement is called a

use

Cash going up on cash flow statement is called a

source

Operating Activities on Cash Flow Statement

Income statement items (revenues, expenses, gains, losses)

Investing Activities on Cash Flow Statement

Changes in Investments

Buy & Sell Long-Term Assets

Financing Activities on Cash Flow Statement

Borrow & Repay Long-Term Liabilities

Issue Stock

Pay Dividends

Buy & Sell Treasury Stock

Steps to convert Net Income to Cash

Start with Net Income

Add back depreciation and amortization

Add back Losses

Subtract Gains

Analyze every current liability account (direct correlation)

Analyze every current asset account (reverse correlation)

Determine investing net cash

Determine financing net cash

Calculate Cash Balance at end of year (add beginning cash balance, operations cash, investing cash, and financing cash)

Internal Controls definition

policies and procedures designed to provide reasonable assurance that a business will safeguard its assets and record its transactions properly in order to eliminate any material discrepancies

Six elements of Internal Controls

1. Establishment of Responsibility

2. Segregation of Duties

3. Documentation Procedures

4. Physical, Mechanical, and Electronic Controls

5. Independent Internal Verification

6. Other Controls

What 3 qualities allow for someone to steal internally (the qualities that make internal controls necessary)

opportunity

financial

rationalization

Which inventory method should you use for highest Net Income (make your business look better?)

FIFO

Which inventory method provides the highest ending inventory value?

FIFO

Which inventory method provides the most in income tax savings (lower net income)

LIFO

Straight Line Method of Depreciation

(cost-salvage)/useful life

that number will be the constant depreciation expense

Units of Production Method of Depreciation

(cost-salvage)/total expected units

times that number by individual per year units

Double Declining Method of Depreciation

( 100/years ) * 2

multiply that decimal percentage by the beginning value of each year to find depreciation expense