acctg pt2 (intro to sfp)

Accounting

Accounting

system designed to identify, collect, process, measure and communicate economic information about the business entity to those users having interest in the financial affairs of the entity

Accounting (accounting standards council)

is a service activity

Accounting (accounting standards council)

Its function is to provide quantitative information, primarily financial in nature, about finances, about economic entities, that is intended to be useful in making economic decision.

Accounting (committee on accounting terminology of the american institute of certified public accountants)

the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are in part, at least, of a Financial character and interpreting the results thereof.

Accounting (american accounting association)

the method of recognizing, appraising and communicating economic details to permit informed judgment and decision by users of the information.

Statement of financial position

Also known as Balance sheet

Statement of financial position

It presents the financial position of an entity at a given date

As at, as of

The date of the statement of financial position is always “” or “” the end of the period

Assets, liabilities, and equity

SFP shows the company’s _____, _____, and ______

Debit and credit

SFP is divided into two parts

Liabilities

claims of creditors

Equity

claims of owners

Real accounts

The accounts in the balance sheet is called

Real accounts

accounts where their balances are carried forward into the next accounting period

Closing

Real accounts always have a _______ balance

Assets

What you “own”

Assets

Control and inflows

Debit

Normal balance of Assets

Assets

SFP balances start with ______

Assets

company resources that are expected to have future economic benefits

Liabilities

What you “owe”

Liabilities

No control and outflows

Liabilities

These are obligations of the company

Credit

Normal balance of Liabilities

Equity

What you “own” - What you “owe”

Equity

Residual Interest

Equity

the excess of assets over liabilities

Equity

the net assets of the business

Current assets

A type of asset wherein items listed on a company’s balance sheet that are expected to be converted into cash within one fiscal year (12 months of the transaction date)

Current assets

assets that are expected to be converted to cash or consumed within one year.

Noncurrent assets

A type of asset wherein long-term assets that a company expects to hold over one fiscal year (more than 12 months) that cannot be readily converted to cash within a year

Noncurrent assets

assets that are expected to be used for more than one year.

Cash, cash equivalents, account receivables, trading securities, inventories, supplies, and other prepaid assets

Examples of Current Assets (C, CE, AR, TS, I, S, and OPS)

Cash

Include bills and coins on hand, bank accounts, and operating funds

Cash

currency readily available to be used for the company's operations

Cash

It is any medium of exchange that a bank will accept for deposit at face value

Cash equivalents

Short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value

Cash equivalents

technically not cash because it is not immediately available for use. It is almost cash in the sense that it will become cash within the next 90 days.

Cash equivalents

includes investment and treasury bills (t-bills)

Account receivables

Amounts owed by customers to the entity

Receivables

a general term that refers to the company's right to collect payment from third parties, such as customers and employees

Receivables

arise from contractual rights to receive cash or other assets from third parties.

Trade receivables

claims from suppliers from unpaid sales or services rendered in advance to customers

Trade receivables

came from the normal operating activities of the company. This is usually the largest receivables of an entity.

Discount

amount to be deducted in a customer payment

Discount period

a period where the customer could avail a discount

Notes receivables

Are evidenced by a promissory note

Promissory note

a piece of paper signed by the borrower where it promises to pay a certain amount at a certain time

Interest receivables

Are collectible amounts due to the cost of borrowing money

Trading securities

Securities that have been purchased by a company for the purposes of realizing a short term profit

Inventories

This balance sheet account represents cost of unsold merchandise

Inventories

company’s assets that are sold in the normal course of its business

Merchandise inventory

goods held for sale by the trading or merchandising company, account use in merchandising business (buy and sell)

Raw materials inventory

materials held for use in the production of finished foods of a manufacturing company

Goods in process inventory

materials in process in the production area but not yet finish

Finished goods inventory

finished product held for sale by the manufacturing company

Manufacturing business

from raw materials that will undergo the process  into finished products

Supplies

Those that are to be used in the day-to-day operations of the business such as Office supplies are not Inventories. It is classified as an asset called

Supplies and other prepaid assets

This include office supplies to be consumed by the business and prepaid assets.

Prepaid expenses

expenses not yet incurred but paid in advance

Property, plant, and equipment, intangibles, investment properties, biological assets, accumulated depreciation

Examples of Non-current Assets (PPE, IA, IP, BA)

Property, plant, and equipment

Include fixed assets used in the normal operating cycle or production of the business.

Property, plant, and equipment

Long term assets with physical substance

Fixed assets

old term of Property, plant, and equipment

Property, plant, and equipment

These assets are long-term assets that are used in the operations of the company

Land, building, equipment, land and building improvements, leasehold improvements

Examples of PPE are: (L, B, E, LBI, LI)

Land

real property used in operations or for rent. This is a fixed asset not subject to deprecation.

Building

real property used in operations such as warehouse and office buildings.

Equipment

this includes office computers, automobiles, delivery vehicle, and manufacturing equipment.

Land and building improvements

these are enhancements to land or building. Land improvements includes landscaping, parking lots and driveways. Building improvements includes floor and roof renovation.

Leasehold improvements

it’s like building improvements, except that the premise is just rented by the company.

Intangibles

an asset but without physical substance (e.g. trademarks, patent, copyright, goodwill)

investment properties

are long-lived assets not used in production

Biological assets

Are living plants or animals held by the business for resale or for breeding

Accumulated depreciation

Is a valuation account which represents the decrease in value of a fixed asset except for land due to continued use, wear and tear, passage of time and obsolescence

Current liabilities

Are obligations or debts of the business which will be settled within 12 months of the date on the balance sheet.

Noncurrent liabilities

Are obligations or debts of the business that will be due and payable beyond one year or 12 months

Accounts payable, notes payable, interest payable, other accrued expenses, income tax payable, unearned income

Examples of current liabilities

Accounts payable

Are open accounts relating to purchase of goods and/or raw materials

Notes payable

Are evidenced by a promissory note.

Other accrued expenses

These accounts pertain to expenses incurred but not yet paid.

Income tax payable

Business organization’s tax liability to the government where it operates

Unearned income

This represents income received in advance but not yet earned. In short, collection are already made but services are not yet rendered.

Notes payable, mortgage payable, loan payable, bonds payable

Examples of Noncurrent Liabilities

Notes payable

are issued promissory notes payable beyond one year

Mortgage payable

a long term liability account that refers to debt secured by a mortgage in real estate

Loan payable

an amount borrowed to the bank by the company payable beyond one year

Bonds payable

an amount obtain substantial sums of money from lenders to finance the acquisition of equipment and other needed assets, this obtain by issuing bonds

Trade payables

company obligations due to purchase of inventories or a requirement to pay the supplier

Equity

the owner’s capital in the business

Equity

the remaining amount or residual interest after deducting liabilities from the assets

Owner’s equity, partners’ equity, stockholders’ equity

Categories of equity

Owner’s equity

Equity For Sole Proprietorship

Partners’ equity

Equity For Partnership

Stockholders’ equity

Equity For Corporation

Capital

this is the account use to record the original and addition investment of the owner of the business entity

Withdrawal

when the owner of a business entity withdraws cash in or other assets, such as recorded in the drawing

Income and expense summary

it is a temporary account used at the end of the accounting period to close income and expenses. This account shows the profit or loss for the period before closing to the capital account

Expenses

Are the costs of operating the business

Cost of sales, cost of supplies used, salaries and wages, insurance, depreciation, taxes, bad debts

Examples of expenses