"Accounting" for the sleep ive lost from this class 😭

Chapter 1 (1-31), Chapter 2 (31-53), Chapter 3 (xx)

Dividends

Temporary

Expenses

Temporary

Revenue P/T?

Temporary

Liabilities P/T?

Permanent

Assets P/T?

Permanent

Retained earnings P/T?

Permanent

Permanent Accounts

Retained earnings, Assets, Liabilities, Equity

Perpetual Inventory

Keep a running total of the amount of the inventory on hand at any given time.

Expenses

Debit

Revenue increase d/c?

Credit

Dividends increase d/c?

Debit

Common stock increase d/c?

Credit

RE increase d/c?

credit

Revenues - expenses

Net income

Expenses are to be recognized in the same period as the revenues they relate to, regardless of when cash is paid.

Expense Recognition Principle

When action is delivered

Recorded revenue

In the amount, it expects to receive regardless of when cash is received

Transaction price

Satisfy the performance obligation. When the company transfers promised goods and services to customers

First principle of recognized revenue

Specifies both the timing and amount of revenue to be _______

Recognized revenue

Required by GAAP for financial reporting

Accrual Basis Accounting

Gross Profit

sales rev - cogs =

The direct cost of producing or buying the goods sold by a company (inventory)

Cogs

loss/gain on sale of Investments

Other income statement

Interest expense

Other income statement

Dividend Revenue

Other income statement

Interest Revenue

Other income statement

Other income statements

Revenues, expenses, gains or losses thhat result from activities that are not “central to on going operations

Peripheral transactions

Side parts to predict main sales

Expenditures

Outflows of cash for any purpose, including buying equipment, paying off a bank loan, or paying employees their wages.

Expenditures are not

Expenses

Expenses

Using up of a resource to help generate revenue

Revenues

Increases in assets or settlement of liabilities from the major or central ongoing operations

Asset: copyright

Non current

Asset: patents

Non current

Asset: trademark

Non current

Asset: furniture

Non current

Asset: equipment

Non current

Asset: inventory

Non current

Asset: inventory

Current

Asset: supplies

Current

Trial Balance purpose

Catch OBVIOUS errors (not all)

debit = credit

What is a Trial Balance?

A list of accounts in the general ledger and their balance (debit/credit and amount)

What is a Ledger

A collection of T-accounts

Assets should never be below 0

Because every transaction must be equal

1st key principle in transaction analysis

Every transaction effects at least TWO accounts

2nd key principle in transaction analysis

The account equation must balance after every transaction

The accounting cycle

A sequence of activities undertaken by accountants to accumulate and report the financial information of a business

Ratio equation

Current assets / Current liabilities

The primary objective of financial reporting is

to provide information that is useful for decision making.

Cash is received before the revenue is earned

Deferred Revenue

Cash is received __**after**__ the revenue is earned

Accrued Revenue

Cash is paid __**before**__ the expense is incurred

Deferred Expense

Cash is paid __**after**__ the expense is incurred

Accrued Expense

The accounting equation

Assets = Liabilities + Shareholder’s Equity

Balance sheet’s equation (hint: another way of writing the “the accounting equation”)

Assets = Total Liabilities + Shareholders Equity

What is equity?

Ownership

Assets

Economic resources that the company owns

Liabilities

Sources of financing for those economic resources

Shareholder’s Equity

Contributed equity and earned equity

What are the four financial statements?

Income

Statement of shareholder’s equity

Balance sheets

Statement of cash flows

Annual reports “10 K’s”

Summary of financial operations for year, quarter or month?

Income statements

Summarizes the revenues and expenses for a specific period of time?

Profit

FORMULA:

Revenue - expenses

Expenses > revenues

Net Loss

Statement of shareholder’s equity

Indicates the amount of financing provided by owners of the business and reinvested earnings

Common stock

Contributed equity

Retained earnings

Earned equity not given as dividends

Retained earnings formula

FORMULA:

All income of the business (since the beginning) - all dividends (since the beginning)

Dividend

Distributes the profit of a business to its owners

True or false:

Retained earnings = profit kept in the business and NOT distributed to the owners?

True

Statement of cash flows

Summarizes the cash inflows and outflows for a specific period of time

Sources of cash

Operating, investing, financing

Balance sheet

Summarizes the assets, liabilities, and owner’s equity at a specific amount of time

Generally Accepted Accounting Principles (GAAP)

The rules and assumptions under which the financial statements must be prepared

Who determines GAAP?

Financial Accounting Standards Board (FASB), Securities and Exchange Commission (SEC), International Accounting Standards Board (IASB)

True or false: Do the four financial statements rely on each other’s information and cause a domino effect?

True

If expenses drop and revenues stay the same, would shareholder’s equity (SHE) go up or down?

Up

Sources of SHE

Owners, stock, retained earnings (RE), income, revenue, expenses

Revenue is NOT:

Profit

True or false: Net income is profit?

True

If an international company wants to trade in the US, what should they use?

IFRS or US GAAP

What is the Financial Accounting Standards Board (FASB)?

A private board consisting of 8 people, who sets the rules for the United States.

What is the Securities and Exchange Commission (SEC)?

The “Ultimate Authority” for publicly traded companies. Delegates the authority for accounting rules to the FASB.

What gives the Securities and Exchange Commission (SEC) Ultimate Authority

“Securities Exchange Act of 1934.”

The Act empowers the SEC with total authority over all aspects of publicly traded companies to ensure that investors are not deceived or harmed.

Relevance

The capacity of information to make a difference in a decision.

Materiality

Is the transaction/error size large enough to affect the judgment of someone relying on the statement?

Why is materiality important when it comes to relevance?

It accounts for traders who want to trade frequently. They make compromises by having quarterly reports instead of daily reports.

Faithful Representation

Users can depend on the following information:

Complete

Accurate

Unbiased

Faithful Representation is the ______ in materiality

Threshold for determining

because things that could not make a difference to one person would be important for the other. 3rd parties, such as auditors, will help determine which is important enough to label.

Comparability

Distinguishes can be made between companies.

Consistency

Statements can be compared within a single company from one accounting period to the next.

Verifiability

Two independent measures using the same assumptions and methods would obtain similar results.

Timeliness

Information is disclosed to outsiders in a timely manner.

What makes accounting information useful?

The conceptual framework.

The conceptual framework consists of what characteristics?

Relevance

Faithful Representation

Comparability

Consistency

Verifiability

Timeliness

The conceptual framework consists of what elements?

Assets

Liabilities

S.H.E

Revenue

Expense

The conceptual framework consists of what assumptions and principles?

Monetary Unit

Economy Entity

Time Period

Growing Concern

Measurement

Full Disclosure

Revenue Recognition

Expense Recognition

Monetary Unit Assumption

Only transactions that can be expressed in terms of money can be included in the accounting records.

Monetary Unit Assumption will have what characteristics?

Always use monetary units

Does not account for information

Some items are left off financial statements (human capital)

Economy Entity Assumption

Activities of the business are separate from activities of the owners.