Accounting Final

Three External Users

1. Investors

2. Creditors

3. IRS

Three Internal Users

1. Management

2. Finance Department

3. Human Resources

What is SEC

Federal agency regulating sales of stocks and bonds

What is FASB

Nongovernmental agency in charge of US GAAP

What is US GAAP

Rules, not law, for accounting in US

what is IFRS

Standards to help compare international companies

What is balance sheet

• point in time

• statement of performance

  • revenue

  • expenses

  • net income

What is statment of cash flow?

• Period of time

• inflow and outflow of cash

  • CFO

  • CFI

  • CFF

What is statement of stockholders equity?

• period of time

• Investment Changes

  • Common Stock

  • Retained earnings

What is Auditors report (2)

• Independent Auditor with opinion regarding financial statements

• Presented fairly

Current Assets

Cash and other assets able to turn into cash and expeted to <= 1 year

Noncurrent assets

Assets that are illiquid or unexpecte to turn into cash and would take > 1 year

Current liabilities

Liabilities to be settled in <= 1 year

Noncurrent liabilities

Obligations to be settled in > 1 year

Accrual Basis (2)

• Record revenue when earned and expenses when incurred

• Required by GAAP/IFRS

Revenues are recognized

• Credited

• when company transfer/provides goods/services

• in amount expected to recieve

Expenses are recgonized

• debited

• when company uses resources in the course of generating revenues

• match cost with benefit

FOB Shipping Point

Cusotmer owns product on the truct (when shipped out)

FOB Destination

Customer owns product when in hand

Bad debt expense

Estimated uncollectable accounts recievable

Percentage of credit sales (equation)

bad debt expense = total credit sales * bed debt %

Aging of Accounts Recievable

As recievables get iolder, they are less likely to be paid. Gives you the desired ending balance.

Weighted Average Cost (Equation)

Total cost of goods available for sale / # of units available

How to get high tax from COGS

Lower COGS → Higher Profit → Higher Tax

Depreciation (2)

• Allocating the decrease in value of an asset over the productive life

  • Debit Depreciation Expense (-SE), Credit Accumulated Depreciation (-A)

How to depreciate (equation)

(Cost - (residual value OR accumulated depreciation)) / (useful life OR estimated total production) * 2 for double decline

Low taxes from depreciation?

Higher Depreciation → Lower NI → Lower Taxes

Net Book Value (equation)

Cost - accumulated depreciation

Gain/Loss

Amount recieved from disposal (selling the asset) - net book value

Cash equivlents (3)

• Short term, highly liquid investments

• Readily converteable to cash

• so near maturity littel risk of change from interest rates

  • < 3 months