Chapter 1:
Financial accounting focuses on the needs of
external users, and managerial accounting focuses
on the needs of internal users.
Measurement principle (cost principle) Accounting
information is based on actual cost. This means if
cash is given for a service, its cost is measured by
the cash paid
Revenue recognition principle requires that revenue
be recorded when goods or services are provided to
customers and at an amount expected to be received
from customers.
The expense recognition (or matching) principle
requires that expenses be recorded in the same
accounting period as the revenues that are
recognized as a result of those expenses.
Full disclosure principle A company reports the
details behind financial statements that would impact
users' decisions. Those disclosures are often in
footnotes to the statements.
Income statement: revenues - expenses = net income
Statement of retained earnings: beginning retained
earnings + net income - dividends = end retained
earnings
Balance sheet: Assets (long and short) = Equity +
liabilities (long and short)
Statement of cash flowers: operating costs (rev-exp)+
Investing costs (equ, land etc) + financing costs
(stocks-div)= change in cash
Chapter 2:
Financial statements over time: 1 income statements
2. Statement of returned earnings 3. Balance sheet
Debt ratio = total liabilities/total assets (the higher it is
the worse off the company)
Chapter 3:
Accrual basis accounting records revenues when
services and products are delivered and records
expenses when incurred (matched with revenues).
Cash basis accounting records revenues when cash
is received and records expenses when cash is paid.
Cash basis income is cash receipts minus cash
payments.
adjusting entry: made at the end of an accounting
period reflects a transaction or event that is not yet
recorded.
Plant assets are long-term tangible assets used to
produce and sell products and services. Examples
include buildings, machines, vehicles, and
equipment. All plant assets (excluding land eventually
wear out or become less useful.
straight-line depreciation; assets net cost divided by
its usefulness life
Book value: assets cost minus accumulated
depreciation
Unearned revenue is a liability
Accrued expenses, or accrued liabilities, are costs
that are incurred in a period that are both unpaid and
unrecorded. Accrued expenses are reported on the
income statement for the period when incurred. (ex
wages)
Principal amount owed × Annual interest rate ×
Fraction of year since last payment = accrued interest
expense
Accrued revenues are revenues earned in a period
that are both unrecorded and not yet received in cash
(or other assets). An example is a technician who
bills customers after the job is done. If one-third of a
job is complete by the end of a period, then the
technician must record one-third of the expected
billing as revenue in that period-even though there is
-
no billing or collection. Accrued revenues are also
called accrued assets.
Accounting cycle steps: 1. Analyze the Transaction 2.
Journalize your transactions 3. Post your
transactions 4. Prepare unadjusted trial balance 5.
Record adjustments then post 6. Prepare adjusted
trial balance 7. Prepare financial statements 8. Close
accounts 9. Prepare post-closing trial balance
Chapter 4
Cash discount: A purchase discount on the price paid
by the buyer, or a sales discount on the amount
received for the seller.
FOB shipping point: ownership is transferred at the
shipping point meaning goods are owned by the
buyer during transit
FOB destination: ownership is transferred at the
destination meaning goods are owned by the seller
during transit
Multi-step income statement: (1) gross prot; (2)
income from operations, which is gross profit minus
operating expenses; and (3) net income, which is
income from operations plus or minus nonoperating
items.a a
chapter 5
FIFO: Earliest units purchased are the first to be
reported as cost of goods sold.
LIFO: Latest units purchased are the first to be
reported as cost of goods sold.
Weighted average: costs of goods available/number
of units available
Cost flow assumption: net sales - clost flow = gross
profit. Inventory balance in the remaining inventory
chapter 7:
Bad debt: Accounts of customers who do not pay
what they have promised to pay
Chapter 8:
units of production depreciation: {(cost - salvage
value)/total units of production} x units produced in
period
Double declining method: [(100%/useful life) x 2] x
beginning period book value
Betterments (capital expenditure): Expenditures to
make a plant asset more efficient or productive.
Include upgrading components and adding additions
onto plant assets.
Extraordinary repairs (capital expenditure):
Expenditures that extend the asset's useful life
beyond its original estimate.
chapter 10
Bond advantages: Bonds do not affect owner control,
interest on bonds is tax deductible, and bonds can
potentially increase return on equity.
Bond disadvantages: Bonds can potentially decrease
return on equity and require payments of both
periodic interest and the par value at maturity.
Chapter 11
Dividend yield = dividends per share/ dividend yield
EPC = (net income/weighted average common
shares). Shares market value/EPC = PE ratio
Journal entries
Paying within discount period
Accounts Payable
Merchandise Inventory
Cash
Recording purchases returns or allowances
Cash or Accounts Payable
Merchandise Inventory
Sales returns on non-deffective inventory
Sales returns and allowances
Cash or accounts receivable
-
Merchandise inventory
Costs of goods sold
Price reductions when unsatisfied with goods
Sales returns and allowances
Cash or accounts receivable
Inventory shrinkage
Cost of goods sold
Merchandise inventory
Sales using bank credit card
Cash
Credit card expense
Sales
Writing of bad debt under the direct method
Bad debt expense
Accounts receivable
bad debt later recovered under the direct method
Accounts receivable
Bad debt expense
Cash
Accounts receivable
Estimating bad debts allowance method
Bad debt expense
Allowance for bad debt
Writing of bad debt under the allowance method
Allowance for doubtful accounts
Accounts receivable
Bad debt later recorded under allowance method
Accounts receivable
Allowance for doubtful accounts
Cash
Accounts receivable
Note is dishonored
Accounts receivable
Interest revenue
Notes receivable
Note honored over two periods (ie operating cycle ends and
nothing is paid yet since not due)
Cash
Interest revenue
Interest receivable
Notes receivable
Betterment and extraordinary repairs
Plant asset
Cash
Completely depreciated b4 discarding
Depletion expense
Accumulated depreciation
Discarding partially depreciated asset
Accumulated depreciation - equipment
Loss on disposal of equipment
Equipment
Sale above book value
Cash
Accumulated depreciation - equipment
gain on disposal of equipment
Equipment
Sale below book value
Cash
Loss on disposal of equipment
Accumulated depreciation - equipment
Equipment
Employee payroll tax expense
Salaries expense
All the tax
Employer payroll tax expense
Payroll tax expense
All the taxes
Warranty expense accrued
Warranty expense
Estimated warranty liability
Warranty repairs and replacements
Estimated warranty liability
Parts inventory
Issuance of bonds discount
Cash
Discounts on bonds
Bonds payable
Issuance of bonds premium
Cash
premium on bonds
Bonds payable
Issuance of common stock above par value
Cash (stocks times amount sold for)
Common stock (stocks times par value)
Paid in capital excess par value (cash common stock)
