Social Science
Economics
Finance
Financial Accounting Review
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Terms in this set (45)
1. Assets
2. Liabilities
3. Shareholder's Equity
6 Account Types
4. Revenues
5. Expenses
6. Dividends
Note: the 6 account types are in Financial
Statement order
Assets
Balance Sheet, Real, Dr NAB, (Cr if contra)
Ex: Cash, Receivables, Prepaid Expenses
Balance Sheet, Real, Cr NAB, (Dr if contra)
Liabilities
Ex: Payables, Unearned Revenue, Deferred Gross
Profit
Balance Sheet, Real, Cr NAB, (Dr if contra)
Shareholder's Equity
Ex: Paid-in Capital, Retained Earnings, Other
Comprehensive Income
Revenues
Expenses
Income Statement, Nominal, Cr NAB, (Dr if contra)
Ex: Sales, Interest/Dividend Revenue, Gains
Income Statement, Nominal, Dr NAB, (Cr if contra)
Ex: Cost of Goods Sold, SG&A, Wages
Financial Accounting Review
Dividends
Statement of Retained Earnings, Nominal, Dr NAB
Ex: Dividends on Common Stock vs. Preferred)
PERMANENT accounts, or assets/liabilities that
Real
carry over into the next period; Balance Sheet;
12/31 = 1/1
TEMPORARY accounts that close out each year;
Nominal
Income Statement - Revenues, Expenses,
Dividends; 1/1 = $0
1. Allowance for Doubtful Accounts - Cr NAB
2. Inventory, Purchase Discounts, Returns &
Asset Contra-Accounts:
Allowances - Cr NAB
3. Billing on Construction in Process - Cr NAB
4. Accumulated Depreciation - Cr NAB
5. Accumulated Amortization - Cr NAB
Liability Contra-Accounts:
1. Discount on Bonds Payable - Dr NAB
1. Treasury Stock - Dr NAB
Shareholder's Equity ContraAccounts
2. Accumulated Other Comprehensive Loss - Dr
NAB
3. Unrealized Holding Loss (Equity) - Dr NAB
4. Other Comprehensive Loss (Pension) - Dr NAB
1. Sales Discount - Dr NAB
Revenue Contra-Accounts
2. Sales Returns & Allowances - Dr NAB
3. Unrealized Holding Loss (Income) - Dr NAB
Expenses Contra-Accounts
1. Tax Benefit from Loss Carryback/Carryforward Cr NAB
Financial Accounting Review
1. Trading & Available-for-sale Securities = at FV
2. Accts/Trade Receivable = at NRV (Price - Cost)
3. Inventory/Merchandize = at Lower of Cost or
Market
Historical Cost Exceptions
4. Held-to-Maturity Securities = at Amortized Cost
5. PPE = Depreciated cost (net of Accumulated
Depr)
6. Intangibles = at Amortized Cost
7. Bonds Payable = at Amortized value
Receivable
Payable
Asset; amount receivable from customers, etc.
Liability; amount payable to supplier; etc.
Revenue; income from delivering product/service
Revenue
(except "Unearned Revenue" which is a Current
Liability)
Expense; cost of earning (& matched to) revenue
Expense
(except "Prepaid Expense" which is a Current
Asset)
Gain
Loss
Revenue; of peripheral transaction; not the main
business
Expense; of peripheral transaction; not the main
business
1. Income Statement [Net Income ->]
Order of Financial Statements
2. Statement of Retained Earnings [RE ->]
3. Balance Sheet [Total A = L + SE}
4. Statement of Cash Flows [ = End Cash]
Statement of Cash Flows
Uses cash basis
Financial Accounting Review
Financial Statements
Show + and (-) amounts; not Dr & Cr (which
presentation
investors need not know)
Adjusting entry
Entry at period end adjusting certain accounts that
constantly change internally or over time
Entry at period end, zeroing out Revenues,
Close entry
Expenses & Dividend accounts and updating
Balance Sheet - Retained Earnings
Correcting entry
Reversing entry
Entry made to adjust prior incorrect entries
Optional entry made to reverse Adjusting entry to
simplify bookkeeping.
1. Journal Entries - analyze/record transactions
2. Posting - transfer from JEs to GL accts
3. Trial Balance - summarizes GL by listing each
bal.
4. Adjusting Entries - update accts at period end
Accounting Cycle steps
5. Adjusted Trial Balance - lists each acct bal. w/
adj
6. Financial Statements
7. Closing Entries - zero out all NOMINAL accts
8. Closing Trial Balance - only REAL balances
remain
The primary objective of GAAP Financial
"Decision Usefulness"
Statements; providing use info (relevant, reliable,
comparable & consistent) so that external users
can make informed decisions.
FASB Conceptual Framework
(with SEC authority), the concept & reason upon
which GAAP rules & standards are based.
Financial Accounting Review
1. Monetary Unit
FASB Assumptions
2. Economic Entity
3. Time Period
4. Going-Concern
1. Historical Cost
FASB Principles
2. Full Disclosure
3. Revenue Recognition & Matching
1. Conservatism
FASB Constraints
2. Materiality
3. Industry Practices
4. Cost-Benefit
Only events expressible in dollars ($) are in
Monetary Unit
Financial Accounting records (not inflation
adjusted).
Economic Entity
Time Period
Going-Concern
Historical Cost (HC)
Full Disclosure
Each business must keep its Financial Accounting
separate from its owners & others.
Financial Statements are issued for specific
periods: Quarterly (interim) and the Annual Report
Financial Accounting assumes (without contrary
evidence) that a company is not liquidating.
Used for most accounts; objective & verifiable; not
current market value
All info that could influence user decisions should
be in Financial Statements (or in Notes)
Financial Accounting Review
Record revenue when earned (generally on
Revenue Recognition &
delivery of product or service) & associated
Matching
expenses in same period (generally when
resources are used) = Accrual Basis
If in doubt, use amounts that will not overstate
Conservatism
Assets or Net Income or understate Liabilities.
Also, any asset must be written down to a lower
MV if it is < its HC. DO NOT MISLEAD INVESTORS.
Materiality
Industry Practices
Cost-Benefit
GAAP rules-formats-methods can be violated for
items too small to affect decisions.
Certain exceptions to normal GAAP are OK based
on longtime industry use.
FASB weighs user benefit of GAAP rules against
the implementation & audit cost.