Uploaded by Kyle Orthner

Accounting Criteria

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Accounting Criteria:
Company
Statement of Financial Position
As at Dec 31, 20XX
Dr#(Cr)
(Dr)#Cr
Assets
Liabilities
Criteria:
Criteria:
1. Will provide a future benefit.
1. The business owes cash or service(s).
2. Due to a past event.
2. Due to a past event
3. The business controls the future benefit.
3. The business cannot avoid paying the
cash or service(s)
Equity
Criteria:
1. It is not an asset, liability, revenue or
expense.
Total Assets
Total Liabilities and Equity
Company
Statement of Income
For Year-Ending Dec 31, 20XX
Revenue
Criteria:
1. Sale of the product or performance of the
service has been substantially completed
(i.e. the customer has possession of the
product or has received the service).
2. The dollar amount of the sale is determinable.
3. Collection of the cash from the customer is
reasonably assured.
Expense
Criteria:
1. The dollar amount of the expense is
determinable.
2. The expense can be tied to revenue that has
been recognized as revenue.
Net income
Every transaction must “double-hit” the financial statements.
Accounting Rules:
Expenses)3)Salaries,)Rent,)Utilities,)Advertising,)Property)Tax)
)
• If#the#benefit#is#realized#by#the#business#within#the#month#of#the#expense#
being#paid#for,#then#the#amount#paid#is#recorded#as#an#expense#on#the#income#
statement.#
• As#noted#below,#a#business#will#not#know#for#sure#when#inventory#will#be#
sold,#therefore#inventory#is#always#recorded#as#an#asset#first,#even#if#the#
business#plans#to#sell#it#within#the#month.###
)
PP&E)333!)Depreciation:)
)
• Each#time#a#business#purchases#a#piece#of#property,#plant#or#equipment#
(PP&E)#it#will#be#put#on#the#balance#sheet#as#an#asset#at#a#value#equal#to#the#
cost#of#acquiring#it.#
#
• At#yearDend#a#portion#of#the#PP&E#will#be#expensed#each#year#as#depreciation#
on#the#income#statement#to#match#the#revenue#it#generated.#
#
• Trigger#point#for#becoming#an#expense#–#YearDend#
#
Inventory)333!)COGS)
)
• Each#time#a#piece#of#inventory#is#purchased#it#will#be#put#on#the#balance#sheet#
as#an#asset#at#a#value#equal#to#the#cost#of#acquiring#it.#
#
• When#the#inventory#is#sold#(i.e.#each#time#a#unit#is#sold),#the#portion#of#
inventory#sold#will#be#expensed#as#COGS#on#the#income#statement#to#match#
the#revenue#it#generated.##
#
• Trigger#point#for#becoming#an#expense#–#When#inventory#is#sold#
#
Prepaids)333!)Expenses)
)
• Each#time#a#business#pays#in#advance#for#an#expense#that#they#will#not#realize#
the#benefit#for#till#a#timeframe#greater#than#30#days#(i.e.#the#next#month),#the#
prepaid#purchased#will#be#put#on#the#balance#sheet#as#an#asset#at#a#value#
equal#to#the#cost#of#what#was#paid.###
#
• Once#the#period#lapses#in#which#the#business#will#benefit#from#the#prepaid,#
the#portion#of#the#prepaid#that#lapses#will#be#expensed#as#an#“expense”#
(depending#on#what#was#prepaid#for)#on#the#income#statement#to#match#the#
revenue#it#generated.#
#
• Trigger#Point#–#Usually#month#or#yearDend.#
)
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