Ошибка! Используйте вкладку "Главная" для применения Title к тексту, который должен здесь отображаться. 1 REVIEW OF ACCOUNTING © Dan Gode 1 Definitions 1.1 Entity concept Owner and entity are separate (eg. Bill Gates’ personal assets are not the same as Microsoft’s). 1.2 Common unit concept Use common unit when measuring different items (eg. $10 and 10 euros can have two different profits when measuring by the different currencies). 1.3 Going concern assumption When you look at assets and prepare the balance sheet under the assumption that the company will continue operating. 1.4 Assets Probable, reasonable, and verifiable future benefit 1.5 Liabilities 1.6 Equity 1.7 Revenues 1.8 Expenses Expenses are the day you use, not the day you pay for it. 1.9 Gains 1.10 Losses © Rachana and Dan Gode (dangode.com). All rights reserved. July 9, 2023. e-Learning from Almaris.com 1 Ошибка! Используйте вкладку "Главная" для применения Title к тексту, который должен здесь отображаться. 2 1.11 Income statement Reflects revenue and expenses – are the shareholders better off based on the revenue and expenses of the company? 1.12 Balance sheet Describes entity’s financial position at a moment in time. It needs to balance (i.e. assets must equal liability plus equity OR assets minus liabilities equals equity) 1.13 Cash flow statement: Direct format 1.14 Cash flow statement: Indirect format 1.15 Double entry bookkeeping 1.16 What is the origin/logic of using the terms debits and credits? Receivables are from debtors (people who owe money) therefore debits are positive. Creditors are people who give money therefore credits are negative. When a bank takes a deposit, they debit cash and credit your account. 1.17 How do income flows differ from cash flows? Income flows show owners getting richer or poorer while cash flows are cash basis of accounting. 1.17.1 What are the permanent differences between income flows and cash flows? Contribution, distribution, dividends (cash flow related to shareholders) Borrowing, principal repayment of debt (debt related) 1.17.2 Explain why interest on debt is an expense, but dividends are not. Money going to preferred shareholders does impoverish common shareholders. Preferred dividends are not tax deductible but they look like an expense. 1.17.3 What are the temporary differences between income flows and cash flows? 1.18 What does “accrue” mean? Define the following terms. © Rachana and Dan Gode (dangode.com). All rights reserved. July 9, 2023. e-Learning from Almaris.com 2 Ошибка! Используйте вкладку "Главная" для применения Title к тексту, который должен здесь отображаться. 3 1.18.1 Accrued revenues Revenue comes before receipt (eg. Receivables) 1.18.2 Accrued expenses 1.19 What does “defer” mean? Define the following terms. 1.19.1 Deferred revenues Book revenue before I receive cash 1.19.2 Deferred expenses Book expense after I pay cash 1.20 What is the logic of indirect cash flow adjustments? 2 Journal entries 2.1 Cash sales Cash sales = $100 ________A__________ Cash Contra-assets +dr 100 -dr -cr __________L__________ -dr +cr +cr E on B/S -dr +cr E via I/S Revenue -dr +cr 100 -cr __________L__________ -dr +cr +cr E on B/S -dr +cr E via I/S Revenue -dr +cr 110 2.2 Sell on credit Credit sales = $110 ________A__________ Receivables Contra-assets +dr 110 -dr © Rachana and Dan Gode (dangode.com). All rights reserved. July 9, 2023. e-Learning from Almaris.com 3 Ошибка! Используйте вкладку "Главная" для применения Title к тексту, который должен здесь отображаться. 4 2.3 Collect receivables Collections = $110 ________A__________ Cash Receivables Contra-assets +dr 110 -dr -cr __________L__________ -dr +cr 110 +cr E on B/S -dr +cr E via I/S -dr +cr __________L__________ Deferred Revenue E on B/S -dr -dr +cr 320 +cr E via I/S -dr +cr 2.4 Collect money in advance Collections = $320 ________A__________ Cash Contra-assets +dr 320 -dr -cr +cr 2.5 Recognize revenue for cash collected in advance in a prior period Revenue recognized = $320 ________A__________ +dr -cr __________L__________ Deferred Revenue E on B/S -dr 320 -dr +cr Contra-assets -dr +cr E via I/S -dr +cr 320 -cr __________L__________ 250 -dr +cr +cr E on B/S -dr +cr E via I/S -dr +cr Revenu +cr 2.6 Buy PP&E for cash PP&E purchased = $250 ________A__________ Cash PP&E Contra-assets +dr 250 -dr 2.7 Depreciate PP&E not used for manufacturing Depreciation expense = $50 ________A__________ +dr -cr __________L__________ -dr +cr Contra-assets -dr +cr E on B/S -dr +cr © Rachana and Dan Gode (dangode.com). All rights reserved. July 9, 2023. e-Learning from Almaris.com 4 Ошибка! Используйте вкладку "Главная" для применения Title к тексту, который должен здесь отображаться. Accumulated Depreciation 5 50 E via I/S Depreciation Expense -dr 50 +cr 2.8 Sell used PP&E Cost of PP&E sold = $500 Accumulated depreciation of PP&E sold = $200 Proceeds from sale = $345 ________A__________ Cash Gross PPE Contra-assets Accumulated Depreciation +dr 345 -cr __________L__________ 500 -dr +cr -dr 200 +cr E on B/S -dr +cr E via I/S Gain on Sale -dr +cr 45 __________L__________ Payable E on B/S -dr -dr +cr 400 +cr E via I/S -dr +cr 2.9 Buy raw materials inventories on credit Purchases = $400 ________A__________ RMI Contra-assets +dr 400 -dr -cr +cr 2.10 Pay for raw materials purchased Payment = $400 ________A__________ +dr -cr __________L__________ -dr +cr Contra-assets -dr +cr E on B/S -dr +cr E via I/S -dr +cr -dr +cr 2.11 Move raw materials to work-in-process inventory Cost of raw materials moved to work in process = $190 ________A__________ +dr © Rachana and Dan Gode (dangode.com). All rights reserved. July 9, 2023. e-Learning from Almaris.com -cr __________L__________ 5 Ошибка! Используйте вкладку "Главная" для применения Title к тексту, который должен здесь отображаться. RMI WIP 6 190 Contra-assets 190 -dr +cr E on B/S -dr +cr E via I/S -dr +cr 2.12 Pay cash for manufacturing labor Wage cost incurred = $190 ________A__________ +dr -cr __________L__________ -dr +cr Contra-assets -dr +cr E on B/S -dr +cr E via I/S -dr +cr 2.13 Pay cash for manufacturing overhead Manufacturing overhead, such as utilities incurred = $90 ________A__________ +dr -cr __________L__________ -dr +cr Contra-assets -dr +cr E on B/S -dr +cr E via I/S -dr +cr 2.14 Depreciate equipment used for manufacturing Depreciation cost = $75 ________A__________ +dr -cr __________L__________ -dr +cr Contra-assets -dr +cr E on B/S -dr +cr E via I/S -dr +cr 2.15 Move goods from work in process to finished goods Cost of goods manufactured = $230 ________A__________ +dr -cr __________L__________ -dr +cr Contra-assets -dr +cr E on B/S -dr +cr E via I/S -dr +cr © Rachana and Dan Gode (dangode.com). All rights reserved. July 9, 2023. e-Learning from Almaris.com 6 Ошибка! Используйте вкладку "Главная" для применения Title к тексту, который должен здесь отображаться. 7 2.16 Incur COGS COGS = $236 ________A__________ +dr -cr __________L__________ -dr +cr Contra-assets -dr +cr E on B/S -dr +cr E via I/S -dr +cr 2.17 Incur and pay non-manufacturing salaries in cash Salaries = $155 ________A__________ +dr -cr __________L__________ -dr +cr Contra-assets -dr +cr E on B/S -dr +cr E via I/S -dr +cr 2.18 Borrow money Cash borrowed = $700 ________A__________ +dr -cr __________L__________ -dr +cr Contra-assets -dr +cr E on B/S -dr +cr E via I/S -dr +cr 2.19 Incur interest expense to be paid later Interest expense = $70 ________A__________ +dr -cr __________L__________ -dr +cr Contra-assets -dr +cr E on B/S -dr +cr E via I/S -dr +cr 2.20 Pay interest payable in cash Interest paid = $70 ________A__________ +dr -cr __________L__________ -dr +cr Contra-assets -dr +cr E on B/S -dr +cr E via I/S -dr +cr © Rachana and Dan Gode (dangode.com). All rights reserved. July 9, 2023. e-Learning from Almaris.com 7 Ошибка! Используйте вкладку "Главная" для применения Title к тексту, который должен здесь отображаться. 8 2.21 Repay loan principal Loan repaid = $80 ________A__________ +dr -cr __________L__________ -dr +cr Contra-assets -dr +cr E on B/S -dr +cr E via I/S -dr +cr 2.22 Get capital contributions from shareholders in cash Capital contribution = $920 ________A__________ +dr -cr __________L__________ -dr +cr Contra-assets -dr +cr E on B/S -dr +cr E via I/S -dr +cr 2.23 Buy back shares Shares bought back = $85 Assume that the shares are bought back at the same price they were issued and are retired after the buyback. Thus, there is no “Treasury stock.” ________A__________ +dr -cr __________L__________ -dr +cr Contra-assets -dr +cr E on B/S -dr +cr E via I/S -dr +cr 2.24 Declare dividends to be paid later Dividends declared = $45 ________A__________ +dr -cr __________L__________ -dr +cr Contra-assets -dr +cr E on B/S -dr +cr E via I/S -dr +cr __________L__________ -dr +cr 2.25 Pay dividends declared earlier Dividends paid = $45 ________A__________ +dr © Rachana and Dan Gode (dangode.com). All rights reserved. July 9, 2023. e-Learning from Almaris.com -cr 8 Ошибка! Используйте вкладку "Главная" для применения Title к тексту, который должен здесь отображаться. Contra-assets -dr +cr 9 E on B/S -dr +cr E via I/S -dr +cr 3 Equations 3.1 Gross receivables Beginning balance = Previous ending balance + = Ending balance 3.2 Deferred revenues Beginning balance = Previous ending balance + = Ending balance 3.3 Prepaid rent Beginning balance = Previous ending balance + = Ending balance 3.4 Raw materials inventories Beginning balance = Previous ending balance + = Ending balance 3.5 Work-in-process inventories Beginning balance = Previous ending balance © Rachana and Dan Gode (dangode.com). All rights reserved. July 9, 2023. e-Learning from Almaris.com 9 Ошибка! Используйте вкладку "Главная" для применения Title к тексту, который должен здесь отображаться. 10 + = Ending balance 3.6 Finished-goods inventories Beginning balance = Previous ending balance + = Ending balance 3.7 Accounts payable to suppliers Beginning balance = Previous ending balance + = Ending balance 3.8 Salary payable Beginning balance = Previous ending balance + = Ending balance 3.9 Accrued warranties Beginning balance = Previous ending balance + = Ending balance 3.10 Gross PP&E Beginning balance = Previous ending balance + = Ending balance © Rachana and Dan Gode (dangode.com). All rights reserved. July 9, 2023. e-Learning from Almaris.com 10 Ошибка! Используйте вкладку "Главная" для применения Title к тексту, который должен здесь отображаться. 11 3.11 Accumulated depreciation Beginning balance = Previous ending balance + = Ending balance 3.12 The principal portion of the debt Beginning balance = Previous ending balance + = Ending balance 3.13 Interest payable or accrued interest Beginning balance = Previous ending balance + = Ending balance 3.14 Paid-in capital or contributed capital Paid-in capital = par value + additional paid-in capital Beginning balance = Previous ending balance + = Ending balance 3.15 Dividends payable Beginning balance = Previous ending balance + = Ending balance 3.16 Retained earnings Beginning balance = Previous ending balance + © Rachana and Dan Gode (dangode.com). All rights reserved. July 9, 2023. e-Learning from Almaris.com 11 Ошибка! Используйте вкладку "Главная" для применения Title к тексту, который должен здесь отображаться. 12 = Ending balance 4 Cash flow adjustments Change in the balance sheet Pick one: Add or Subtract Change in retained earnings due to net income Add Change in retained earnings due to non-operating gains in net income Subtract Change in gross receivables Subtract Change in deferred revenues ? Change in prepaid rent ? Change in inventories ? Change in payables to suppliers ? Depreciation expense ? Change in salaries payable ? 4.1 Understanding indirect cash flow adjustments 4.1.1 Why do you subtract the gain from the sale of PP&E? 4.1.2 Why do you subtract the change in gross receivables? 4.1.3 Why do you add the change in deferred revenues? 4.1.4 Why do you subtract the change in prepayments? 4.1.5 Why do you subtract the change in inventories? 4.1.6 Why do you add the change in payables to suppliers? © Rachana and Dan Gode (dangode.com). All rights reserved. July 9, 2023. e-Learning from Almaris.com 12 Ошибка! Используйте вкладку "Главная" для применения Title к тексту, который должен здесь отображаться. 13 4.1.7 Depreciation expense versus change in accumulated depreciation Assume that the depreciation cost is expensed as incurred because it is unrelated to manufacturing. Why do we add depreciation expense on the income statement instead of adding a change in accumulated depreciation? 4.1.8 Why do you add the change in salaries payable? 4.1.9 Why are changes in some accounts excluded from the operating section? Why do we exclude changes in gross PP&E, debt, and paid-in capital from the operating section? Why is the change in retained earnings due to dividends excluded from the operating section? 5 Inventory cost flows 5.1 Explain FIFO Does it expense the most recent costs or older costs? Which costs are in the ending inventory? 5.2 Explain LIFO Does it expense the most recent costs or older costs? Which costs are in the ending inventory? © Rachana and Dan Gode (dangode.com). All rights reserved. July 9, 2023. e-Learning from Almaris.com 13
