CHAPTER 1
Accounting- The information system that identifies, records, and
communicates the economic events of an organization to interested
Users.
Identify the advantages and disadvantages of the corporate form of
business organization.
Corporation: A business organizes as a separate legal entity owned
by stockholders. (Many owners)
Advantages
Easy to transfer ownership​
Greater capital raising potential/ Easy to raise funds Unfavorable tax
treatment​
Stocks are easy to sell​
Become stockholders for investing a little bit of money No personal Liability
Disadvantages
Corporate stockholders usually pay higher taxes
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Identify internal and external users of financial information.
Internal users- of accounting information are mangers who plan, organize,
and run a business. These include marketing managers, production
supervisors, finance directors, and company officers.
Might ask questions such as:
Is cash sufficient to pay dividends to Microsoft
stockholders? (Finance)​
Can we afford to give General Motors employees pay raises this year?
(Human Resources)​
What price for an Apple iPod will maximize the company’s net income?
(Marketing)​
Which Pepsico product line is the most profitable? Should any product lines
be eliminated? (Management)
External users- users who are outside of the organization. There are
several kinds. Investors use accounting to make decisions to buy, hold, or
sell stock. Creditors such as suppliers and bankers use accounting
information to evaluate the risks of selling or credit or lending money.
Might ask questions such as:
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Is General Electric earning satisfactory income?
How does Disney compare in size to profitability to Time Warner? (Last one
and this one Investors)​
Will United Airlines be able to pay its debts as they come due? (Creditors)
Define and identify assets, liabilities, and stockholders’ equity
accounts and the accounting equation.​
ASSESTS= LIABILITIES+ OWNERS EQUITY
Assets- Resources owned by a business​
Liabilities- Amounts owed to creditors in the form of debts and other
obligations.​
Owners Equity- The owners claim to assets.
Identify activities as financing, investing, and operating.
Example: Tootsie Roll​
Financing: came from personal saving’s and likely came from outside
sources like banks.
Investment: Invested the cash in equipment to run the business, such
as mixing equipment and delivery trucks.
Operating- Then he started making and selling the candy.
Financing- to start or expand a business the owner or owners quite often
need cash from outside sources.
Two primary sources are:
●​ Borrowing money (debt financing)
​Amounts owed are liabilities
​Party to whom amounts are owed are creditors
​Notes payable and bonds payable are different types of liabilities.
●​ Issuing (selling) shares of stock for cash
​Payments to stockholders are called dividends.
Investing- involve the purchase of resources (assets) needed to
operate the business operation.
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Calculate components of the income statement, retained
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Operating- once a business has the asset’s it needs, it can begin it
Resources owned by a business are called assets. Land (Property)​
Building (Plant)​
Equipment
Cash​
Investments in debt or equity securities of another company.
Revenues- Amounts earned from the sale of products (sales, revenue,
service revenue, and interest revenue.)​
Inventory- Goods available for sale to customers.​
Accounts Receivable- Rights to receive money from a customer as the result
of a sale.
Credit Card is considered cash.
Macy’s card would be accounts receivable.​
Expenses- cost of assets consumed or services used. (cost of goods sold,
selling, marketing, administrative, interest, and income taxes expense).​
Liabilities arising from expenses include accounts payable, interest payable,
wages payable, sales taxes payable, and income taxes payable.​
Net Income- when revenues exceed expenses​
Net loss- when expenses exceed revenues. If negative in (...)
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earnings statement, and balance sheet and identify the
interrelationships.
Income Statement- Shows how successfully a business performed during a
period of time. Reports the revenue and expenses for a specific time frame.
owns and what it owes.
*Reports revenues and expenses for a specific period of time. *Net Incomerevenues exceed expenses.​
*Net loss- expenses exceed revenues​
*Past net income provides information for predicting.
Revenues- Expenses
Revenues​
– cost of goods sold =gross profit –operating expenses =net income or net
loss
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Retained Earnings Statement- Indicates how much income was distributes as
dividends and how much was retained in the business.
*Statements show amounts and causes of changes in retained earning
during a period.
*Reports assets and claims to assets at a specific point in time. *Assets have
to come first and then liabilities and owners equity.
*Time period is the same a that covered in the income statement. *Users
can evaluate dividend payment practices.
Before Balance​
+Net Income Net income is needed to determine ending balance in
retained earnings​
-Dividends​
=Ending Retained Earnings
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Balance Sheet- Presents a picture at a point in time of what a business
Assets (Cash, Accounts Receivable, Prepaid Insurance, Equipment,
Inventory)​
=Liabilities (Notes Payable, Accounts Payable, Unearned service revenue,
Salaries and wages payable, Interest payable)
time and how much cash was used.
Answers=
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+Owners Equity (Common + Preferred Stock+ Retained Earnings)
Statement of Cash Flows: Shows sources of cash during a period of
*Where did cash come from during the period?​
*How was cash used during the period.?​
*What was the change in cash in the cash balance during the period? ​
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Cash flow operating activities +Cash flow investing activities +Cash flow
finance activities​
=Net cash from financing activities Net increase in cash
Cash at beginning of period
Cash at the end of period
Identify the purpose of the auditor’s report.
sheet.
Earnings Per Share (EPS) = (Net Income – Preferred Dividends)/
Average Commons Shares Outstanding
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Define a current asset.
Current Assets​
Long-Term Investments Property, Plant, Equipment Intangible Assets
Current Assets
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Auditors opinion as to fairness of presentation of financial position and
results of operations and their conformance with generally accepted
accounting principles.
Identify the different categories of assets found on the balance
Auditor, a CPA who conducts an independent examination of the financial
accounting data presented by a company.​
They give unqualified opinion, meaning they have no reservations
concerning the material validity of the presented information, if the financial
statements present the financial position, results of operations, and cash
flow in accordance with accepted accounting standards.
CHAPTER 2
Assets that a company expects to convert to cash or use up within one year
or the operating cycle, which ever is longer. Operating Cycle is the average
time it takes from the purchase of inventory to the collection of cash from
customers.
Common types of current assets are
Calculate earnings per share.
Identify the reasons companies pay dividends.
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Cash Investments Receivables Inventories Prepaid Expenses
Calculate the current ratio and understand its purpose.
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Companies also must at least maintain dividends at current levels to satisfy
investors​
Provide certainty about the companies finical well being.​
They attract investors.
If company does not pay it is so they can reinvest in the
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company.​
Maybe if people feel like they are making money they will invest more
money?
Current Ratio= (Current Assets/ Current Liabilities)
Liquidity Ratios measures the short-term ability of the company to pay it’s
maturing obligations and meet unexpected needs for cash.​
One liquidity ratio is current ratios.
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One potential weakness of the current ratio is that it does not take into
account is the composition assets.
For example, a satisfactory current ratio does not disclose whether a portion
of the current assets is ties up in slow moving inventory.
The composition of the current assets matters because a dollar of cash is
more readily available to pay the bills than dollar inventory.
Interpret a high debt to assets ratio.
Example, suppose a company’s cash balance declined while its merchandise
inventory increased substantially. If it increased because the company is
having difficulty selling its products, then the current ratio might not fully
reflect the reduction on the company’s liquidity.
A current ratio of 2 means that the company has twice
as many current assets as current liabilities and has
little risk of not meeting its current obligations.
Debt to Assets Ratio= (Total liabilities/ Total assets)
It measures the percentage of total financing provided by creditors rather
than stockholders. Debt financing is more risky than equity financing
because debt must be repaid at specific points in time, whether the company
is performing well or not. Thus, the higher the percentage of debt financing,
the risker the company.
The adequacy of this ratio is often judged in the light of the company’s
earnings. Generally, companies with relatively stable earnings, such as public
utilities, can support higher debt to assets ratio than can cyclical companies
with widely fluctuating earnings, such as many high tech companies.
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Define free cash flow.
Free cash flow= cash provided by operations- capital expendituresThis ratio means that the company has three times as much
debt as equity.
Cash provided by operations= how much money the business makes​
Capital Expenditures= plant, property, equipment​
Cash dividends= dividends in cash
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Define Generally Accepted Accounting Principles (GAAP) and
the characteristic “relevant”.
Generally Accepted Accounting Principles (GAAP)- A set rules and practices,
having substantial authorities support, that the accounting profession
recognizes as a general guide for financial reporting purposes.
Relevance: Accounting information would have relevance if it would make a
difference in a business decision. Information in considered relevant if it
provides information that has predictive value, that is, helps provide
accurate expectations about the future, and has confirmatory values, that is,
confirms or corrects prior expectations. Materiality is a company specific
aspect of relevance. An item is material when its size makes it likely to
influence decision of an inventors.
CHAPTER 3
Analyze the effect of business transactions on the accounting
equation.
Identify the characteristics of the double-entry system. Each
transaction has a dual (double-side) effect on the
equation.
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Transactions are economic events that require recording in the financial
statements.
Not all activities represent transactions.​
Assets, liabilities, or stockholders’ equity items change as a result of some
economic event.​
Duel effect on the accounting equation
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Record of increase and decreases in a specific asset, liability, equity,
revenue, or expense item.​
Debit= Left​
Credit= Right
Identify the sequence of steps in the recording process.
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Each transaction must affect two or more accounts to keep basic accounting
equation in balance.​
Recording done by debating at least one account and crediting another.
DEBITS = CREDIT
If Debts are greater then credit, the accounts will have a debit balance.​
If Credit are greater than Debits, the accounts will have a credit balance.
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The Journal:
Prepare or analyze journal entries.
(Just Know How To Do It)
Identify source documents.
Source documents- such as a sales slip, a check, a bill, or a cash
Book of original entry.​
Transactions recorded in chronological order. Contributions to the recording
process.
1. Discloses the compete effects of a transaction.​
2. Provides a chronological record of transaction.​
3. Helps to prevent or locate errors because the debit and credit
amounts can easily be compared.
register tape, provide evidence of the transaction.
Apply debit/credit rules and normal account balances.
Apply the revenue recognition principle.
Calculate net income using the accrual basis of accounting.
Debit- Assets and Expenses go up with debit, this is it’s normal account
balance.​
Credit- Liabilities, Owners Equity, and Revenues go up with credit, this is it’s
normal account balance.
Analyze account activity and calculate ending account balances.
(Just Know How To Do It)
Identify the purpose of a trial balance.
Trial Balance
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A list of accounts and their balances at given time.​
Accounts are listed in the order in which they appear in the ledger. Purpose
is to prove that debits equal credit.​
May also undercover errors in journalizing and posting.​
Useful in the preparation of financial statement.
The trial balance my balance even when
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A transaction is not journalized.​
A court journal entry in not posted.​
A journal entry is posted twice.​
Incorrect accounts are used in Journalizing or posting Or... offsetting errors
are made in recording the amounts of a transaction.
CHAPTER 4
Companies recognize revenue in the accounting period in which the
performance obligation is satisfied.​
Basically, when you do the service, is the date you record it.
Transactions recorded in the periods in which events occur. Revenues are
recognized when services performed, even if cash is not received.​
Expenses are recognized when incurred, when cash was not paid. (Look at
slide 12 as an example)
Identify why adjusting entries are needed and analyze the impact of
not making adjusting entries.
In order for revenues to be recorded in period in which the performance
obligations are satisfied, and for expenses to be recognized in the period in
which they are incurred, companies make adjusting entries.
Prepare adjusting journal entries.
(Do examples)
Define depreciation.
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Ensure that the revenue recognition and expense recognition principles are
followed.​
Are required every time a company prepares financial statements. Includes
one income statement account and one balance sheet account.​
Never include cash!
Adjusting entries are necessary because the trial balance the first pulling
together of the transaction data- may not contain up to date and complete
data. This is for several reasons
1. Some events are not recorded daily because it is not efficient to do so.
Ex: are the use of supplies and the earning of wages by employees.
2. Some costs are not recorded during the accounting periods because these
costs expire with the passage of time rather than as a result of recurring
daily transactions. Ex: charges related to the use of buildings and
equipment, rent, and insurance.
3. Some items may be unrecorded. Ex: Utility service bill that will not be
received until the next accounting period.
The process of allocating the cost of an asset to expense over its useful life.
Buildings, equipment, and motor vehicles (long-lived assets) are recorded as
assets rather than an expense, in the year acquired.​
Companies report a portion of the cost of a long-lived asset as an expense
(depreciation) during each period of the asset’s useful life.
Does not attempt to report the actual change in the value of the asset.
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Identify the characteristics of the adjusted trial balance.
Identify the purpose of closing entries.
Calculate the retained earnings balance after closing entries.
(Just know how to do it)
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Closing entries produce a zero balance in each temporary
account.
Temporary:
All revenue accounts All expense accounts Dividends
Permanent:
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Adjusted Trial Balance- prepared after all adjusting entries have been
journalized and posted.​
Its purpose is to prove equality of the total debit and credit balance in the
ledger after all adjustments have been made.​
Financial statements can be prepared directly from the adjusted trial
balance.​
Order that it needs to be prepared in:
Income statement -> Retained Earnings Statement-> Balance
Sheet
The purpose of the post-closing trial balance is to prove the equality of the
permanent account balances the the company carries forward into the next
accounting period. All temporary accounts will have a zero balance.
At the end of the accounting period, companies transfer the temporary
account balances to the permanent stockholders’ equity account- retained
earnings.
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All asset accounts​
All liability accounts Stockholders’ equity accounts
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next couple moments, up to date, real time. Ex: Bank statement on my
phone.
- Ending inventory Cost of good sold
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12/10/2015
Chapter 5:
Analyze the flow of costs for a merchandising company.
Beginning inventory + Purchase, net
Available for sale
How to calculate net purchase
Purchases
+ Freight
- Purchase discounts
- Purchase returns and allowances
Net Purchase
Perpetual System-keeps up with how much inventory sold within the
Facts:
Maintain detailed records of the cost of each inventory purchase and sale.
Records continuously, shows inventory that should be on hand for every
item.​
Company determines cost of goods sold each time a sale occurs.
Advantages of the perpetual system:
Traditionally used for merchandise with high unit values​
Shows the quantity and cost of the inventory that should be on hand at any
time.​
Provides better control over inventories than a periodic system.
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Periodic System- wait till end of the accounting period. NOT very detailed.
Ex: You will not see that inventory is missing (possibly theft) until end of the
accounting period.​
Facts:
Does not keep a detailed record of the goods on hand.​
Cost of Good Sold determines by count at the end of the accounting period.​
Example calculations of Cost of Good Sold:
Beginning inventory + Purchase, net
Available for sale - Ending inventory Cost of good sold
(100,000) +(800,000) (900,000) -(125,000)
775,000
Analyze purchase discounts and other costs associated with the
purchase of inventory.
Purchase Discounts:
Credit Terms may permit buyer to claim a cash discount for prompt
Examples/ Common Terms
2/10, n/30 : 2% discount if paid within 10 days, otherwise net amount due
in 30 days.​
1/10 EOM : 1% discount if paid within first 10 days of next month.​
n/10 EOM : 1% net amount due within the first 10 days of the next month.
If she takes a discounts:
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Other Cost Associated FOB Shipping Point:
EX: When I order something from Target. My responsibility when it goes to
FedEx. (Inventory, cash)
FOB Destination:
Advantages:
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payment.
Purchaser saves money.​
Seller shortens the operating cycle by converting the accounts receivables
into cash earlier.
#1 Account Payable 3,500
Inventory 70
Cash 3,430
If she does not take discounts:
#3 Account Payable 3,500
Cash 3,500
Ownership of the goods passes to the buyer when the public carrier accepts
the goods from the seller.​
Buy pays freight costs.​
FOB shipping point= Add as inventory in the books.
Ownership of the goods remain with the seller until the goods reach the
buyer.​
Seller pays the freight costs.​
Freight costs incurred by the seller are an operating expense.
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EX: Buy on eBay and they pay for the shipping. Their responsibility till I get
it. (Freight out/ expense, cash)
#1 Accounts Payable Inventory
300 300
Goods available for future sales to customers are considered inventory.
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Purchase Returns and Allowances
Purchasers may be dissatisfied because goods are damaged or defective, of
inferior quality, or do not meet specifications.​
Purchase Return:​
Return goods for credit if the sale was made on credit, or for cash refund if
the purchase was for cash.
EX: When I returned the strip dress from target this summer.
Purchase Allowance:
May choose to keep the merchandise if the seller will grant a reduction of the
purchase price.​
EX: When I got a discount on my homecoming dress b/c the zipper.​
Define inventory:
A complete list of items such as property, goods in stock, or the
contents of a building. (Anything you can sell (widgets)) It is a current
asset
Identify when sales revenue is recorded.
Companies may purchase inventory for cash or on account (credit).​
They normally record purchases when they receive the goods from the seller.
Every purchase should be supported by business documents that provide
written evidence of a transaction.​
Each cash purchase should be supported by a canceled check or a cash
register receipt indicating the items purchases and amounts paid. Companies
record cash purchases by an increase (debit) in Inventory and a decrease
(credit) in Cash.
Made using cash or credit (on account)​
Sales revenue, like service revenues, is recorded when the performance
obligation is satisfied.​
Performance obligation is satisfied when the goods are transferred from the
seller to the buyer.
Sales invoice should support each credit sale. - This is what you do for the
perpetual system
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Identify contra revenue accounts.
Like Sales Returns and Allowances, Sales Discounts is a contra revenue
account to Sale Revenue, which means it is offset against a revenue account
on the income statement.​
The normal balance of sales returns and allowances is a debit.​
Companies use a contra account, instead of debiting sales revenue, to
disclose in the accounts and in the income statement in the amount of sales
return and allowances.
Calculate net sales, cost of goods sold, gross profit, and the gross
profit rate.​
Net Sales:
Sales Revenue​
- Sales Return and Allowances - Sales Discounts
Net sales
Cost of Good Sold:
#1 Cash OR Accounts Receivable xxx
Sales Revenue xxx
#2 Cost of goods sold xxx
Inventory xxx
Sales Discounts and sale returns and allowances are apart of
contra revenue accounts.
Beginning inventory + Purchase, net
Available for sale
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Gross profit:​
Sales Revenue – Cost of Goods Sold Gross profit rate:
Gross Profit / Net Sales
- Ending inventory Cost of good sold
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Chapter 6:
Calculate ending inventory based upon the physical count and
ownership of goods.
HW 6-1
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shipping.
- Consignment goods not included in inventory​
- If inventory becomes worthless, you cannot include it.​
- Take inconsideration of goods in transit, FOB destination or FOB
- Study E6-2 from class book example
EX: Illustration: Crivitz TV Company purchases three identical 50-inch TVs
on different dates at costs of $700, $750, and $800. During the year Crivitz
sold two sets at $1,200 each. These facts are summarized below.​
Calculate ending inventory under FIFO.
Calculate cost of goods sold under LIFO.
Kam Company has the following units and costs. Units Inventory, Jan. 1
8,000
Unit Cost $11
Units Purchase, June 19 13,000
Purchase, Nov. 8 5,000
Unit Cost 12,
13
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If 9,000 units are on hand at December 31, what is the cost of the good sold
under LIFO.
(8,000 +13,OOO+5,000) – 9000 = 17,000 (5,000 * 13) = 65,000​
(13,000 * 12) =144,000​
144,000 + 65,000 = 209,000
Given sales, inventory transactions, expenses, and tax rate,
calculate net income.
EX:
Calculate inventory turnover.
= Cost of Goods Sold / Average Inventory
* Average inventory = beginning inventory + ending inventory / 2
Define LIFO reserve.
Sales Revenue​
- Sales Returns and Allowance - Sales Discounts
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Net Sales​
- Cost of Good Sold
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identify the accounting convention it represents. When the value of the
inventory is lower than it’s cost.
Gross Profit​
- Operating Expense
Income before taxes - Income tax expense
Net Income
PRACTICE HW 5-6
Apply the lower of cost or market basis to inventory and
Companies can “write down” the inventory to its market value in the period
in which the price decline occurs.​
Market value = Replacement Cost​
Example of conservatism (allows you to anticipate future losses but not
future gains.)
Firms using LIFO must report the amount that inventory would
increase ( occasionally decrease) if the FIFO method had been used.
This reporting enables analysts to make adjustments to compare
companies that use different cost flow methods
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Creating a different net income
Interpret the effect on the financial statements of an error in the
physical inventory count.
Inventory errors affect the computation of cost of goods sold and net income
in two periods.
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Ending inventory under LIFO + LIFO reserve = Ending inventory under FIFO
Lifo inventory - fifo inventory
Fifo had higher cots than lifo when:
cogs available for sale are the same
ending inventory are different. Cogs are different​
Grossprofit is different
An error in ending inventory of the current period will have a reverse effect
on net income of the next accounting period.​
Over the two years, the total net income is correct because the errors offset
each other.
Ending inventory depends entirely on the accuracy of taking and costing the
inventory.
Chapter 7:
Identify the three factors that contribute to fraudulent activity.
Applies to publicly traded of internal control.​
Required to maintain a system of internal control.​
Corporate executives and board of directors must ensure that these
controls are reliable and effective.​
Independent outside auditors must attest to the adequacy of the internal
control system.​
SOX created the Public Company Accounting Oversight Board (PCAOB)
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Financial pressure – Employees sometimes commit fraud because of
personal financial problems caused by too much debit.
Or they might commit fraud because they want to lead a lifestyle
that they cannot afford on the their current salary.
Opportunity – (Most important from fraud triangle.) For an employee to
commit fraud, the workplace environment must provide opportunities that
an employee can exploit.
Opportunities occur when the workplace lacks sufficient controls to
deter and detect fraud.
EX: inadequate monitoring of employee actions can create opportunities for
theft and can embolden employees because they believe they will not be
caught.​
Rationalization – In order to justify their fraud, employees rationalize their
dishonest action.
EX: Employees sometimes justify fraud because they believe they are
underpaid while the employer is making lots of money. These employees feel
justified stealing because they believe they should be paid more.​
Identify the requirements for internal controls enacted by the
Sarbanes-Oxley Act.​
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Methods and measures adopted to:
1.​
2.​
3.​
4.​
Five primary components
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Given a scenario, identify the internal control principles being
EX:
Safeguard assets
Enhance accuracy and reliability of accounting records
Increase efficiency of operations.
Ensure compliance and laws and regulations.
control environments
risk assessment
control activities
information and communication
monitoring
Bond employees who handle cash​
Rotate employees’ duties and require vacations Conduct background checks
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violated.
1. Human Resource Controls
EX: Because of all the tools we have today, we need to make sure
everything is the way it’s suppose to be. The main reason that people do not
take vacations is because they are trying to hide something. This is why
many companies say that vacations are mandatory.​
2. Document Procedures
EX: This is the reason that documents are numbered, you can tell which
ones are missing.​
3. Segregation of Duties
EX: If someone is working in the balance books the other person should be
in custody of cash on hand. So break up the duties. *The more people
involved in a scandal which increase the chance of them being caught.
4. Physical Controls
Companies should use prenumbered documents, and all documents should
be accounted for.​
Employees should promptly forward source documents for accounting entries
to the accounting department.
Different Individuals should be responsible for related activities. The
responsibilities for recordkeeping for an asset should be separate from the
physical custody of that asset.
5. Independent Internal Verification
separate should check their work. Just have someone who is unbiased
towards each employer and put them in a situation. Make sure that the
checking is random.​
6. Establishment of Responsibility
EX: If someone worked at a bank, each teller gets their own cashbox.
Identify internal controls for cash.
Cash Receipt Controls
-Establishment of Responsibility:
-Documentation Procedure:
-Segregations of Duties
cash.
-Human Resource Controls
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Television monitors and garment sensors to detect theft.​
Safes, Vaults, and safety deposit boxes for cash and business papers.​
Alarms to prevent break-ins.​
Time clocks for recording time worked.​
Computer facilities with pass key access or fingerprint or eyeball scans​
Locked warehouses and storage cabinets for inventories and records.
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EX: Going back to the segregation of duties, someone else who is
Records periodically verified by employee who is independent. Discrepancies
reported to management.
Control is most effective when only one person is responsible for a given
task.​
Establishing responsibility often requires limiting access only to authorized
personnel, and then identifying these personal.
THERE ARE MANY EXAMPLES IN THE SLIDE. GO BACK AND
PRACTICE
Only designated personal are authorized to handle cash receipts
(cashiers)
Use remittance advice (mail receipts), cash register tapes or
computer records, and deposit slips.
Different individuals receive cash, record cash receipts and hold the
Supervisors count cash receipts daily, assistant treasure compares
total receipts to bank deposits daily.
-Independent Internal Verification
- Physical Control
Cash Receipt Controls: (Over the Counter Receipts)
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Bond personal who handle cash; require employees to take
vacations can conduct background checks.
Store cash in safes and bank vaults: limit access to storage areas;
use cash registers.
Important internal control principle-segregation of record keeping from
physical custody.
Cash Receipt Controls: (Mail Receipts)
Should be opened by two people; a list prepared, and each check
endorsed “For Deposit Only”​
Each mail clerk signs list to establish responsibility for the data. Original
copy of the list, along with the checks, is sent to the cashier’s department.
Applications:
Cash Disbursement Control: Voucher System
Control Features: Use if a Bank
The use of a bank contributes significantly to good internal control
Copy of the list is sent to the accounting department for
recording. Clerk also keeps a copy.
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when companies pay by check or electronic funds transfer (EFT) rather
than by cash.
Cash Disbursement Control
Generally, internal control over cash disbursements is more effective
Voucher System Controls
Petty Cash Fund
A network of approval by authorized individuals, acting independently, to
ensure all disbursements by check are proper.​
A voucher is an authorized form prepared for each expenditure in a voucher
system.
over cash,
Prepare a bank reconciliation. (This problem will not contain any
errors as reconciling items.)​
Reconciling Items:
​
​
​
Control Features: Use if a Bank : Bank Statements Debit Memorandum
Minimizes the amount of currency on hand. Creates a double record of bank
transactions. Bank Reconciliation.
Credit Memorandum
Bank service charge.​
NSF (not sufficient funds)
Collect notes Receivable
Interest Earned
​
​
​
​
*Above all are TIME LAGS BANK
Deposits in Transit Outstanding Checks​
Banks Memoranda​
Errors – prob. won’t contain
Beginning Balance Per Bank + Deposit in Transit​
- Outstanding Checks Correct Balance
BOOK
Beginning Balance Per Book​
+ Notes collected by bank​
- NSF (bounced) checks​
- Check printing or other service charge Correct Balance
Prepare journal entries related to petty cash.
Petty Cash Fund: used to pay small amounts. Involves:
Establishing the fund March 1 Petty Cash
100​
100
Cash​
Making payments from the fund
Replenishing the funds
lOMoARcPSD|46174839
REVIEW 7-14
REVIEW 7-15
​
​
​
​
​
​
result from the sale of goods and services.
Jul. 5 Sales returns and allowances 100
(PRACTICE WITH JOURNAL ENTRIES)
Chapter 8:
Define trade receivables.
- Notes and accounts receivable that result from sales transactions.
Account Receivables- Amounts customers owe on account that
EX:
Illustration: Assume that Jordache Co. on July 1, 2014, sells merchandise
on account to Polo Company for $1,000 terms 2/10, n/30. Prepare the
journal entry to record this transaction on the books of Jordache Co.​
​
​
Jul. 1
Jordache Co.
Accounts Receivable Sales Revenue
1,000​
1,000
Illustration: On July 5, Polo returns merchandise worth $100 to
​
​
​
​
​
​
​
you use your JCPenney Company credit card to purchase clothing with a
sales price of $300.
Illustration: On July 11, Jordache receives payment from Polo Company for
the balance due.
Jul. 11
Cash​
Sale discounts ($900 x .02)
882 18
to be received.
Accounts Receivable
900
lOMoARcPSD|46174839
Accounts Receivable 100
Illustration: Some retailers issue their own credit cards. Assume that
​
​
​
charges 1.5% per month on the balance due
Accounts Receivable Sales Revenue
300
Assuming that you owe $300 at the end of the month, and JCPenney
Accounts Receivable 300 Interest Receivable
- Companies may grant credit in exchange for a promissory note- a written
promise to pay a specified amount of money on demand or at a definite
time.
300​
Notes Receivables- Written promise (formal instrument) for amount
Primary Notes may be used:
When individuals and companies lend or borrow money When amount of
transaction and credit period exceed normal limits​
In settlement of accounts receivable.
oo
o
Illustration: Brent Company wrote a $1,000, two-month, 8% promissory
note dated May 1, to settle an open account. Prepare entry would Wilma
Company makes for the receipt of the note.​
​
​
​
accepting a five-month, 9% interest note. If Wolder presents the note to
Higley Inc. on November 1, the maturity date, Wolder’s entry to record the
collection is:​
​
May 1 Notes Receivable 1,000 Accounts Receivable
1,000 Illustration: Wolder Co. lends Higley Inc. $10,000 on June 1,
Nov 1
Cash
10,375
Notes Receivable
10,000
300
​
​
​
to employees, and income tax refundable.
Interest Revenue 375 ($10,000 X 9% X 5/12 =375)
lOMoARcPSD|46174839
Nontrade receivables- such as interest, loans, to officers, advance
Calculate net accounts receivable.
Gross Accounts Receivable – Allowance for doubtful accounts = net accounts
receivable
AR 10,000​
10% allowances doubt (1000) (How much $ you are expecting not to
make)
​
​
​
​
​
​
losses associated with accounts receivable should be recorded.
Net 9000
Bad Debit Expense 1000​
Allowance- for Doubtful accounts 1000
Net accounts receivable = the amounts you expect to make​
*What happens to net accounts during write off’s? Nothing Identify the
accounting period bad debt expense from credit
Exercise 8-5 from homework (Means you subtract)
Using the allowance method, prepare the adjusting entry for bad
debt expense.
Exercise 8-5 from homework
- Actual uncollectible are debited to Allowance for Doubtful Accounts
and credited to Accounts Receivable at the time the specific account written
off as uncollectible.
Prepare journal entries associated with a note receivable and
interest revenue.
Exercise 8-7 from homework
Analyze the accounts receivable turnover and average
collection period.
Exercise 8-10 Submission from homework
Accounts Receivable Turnover:
Assess the liquidity of the receivables.
Average Collection period
receivables.
lOMoARcPSD|46174839
Measure the number of times, on average, a company collects
receivables during the period.
​
​
Identify methods to accelerate the receipt of cash from
Use the assess effectiveness of credit and collection policies. Collection
period should not exceed credit term period.
A common way to accelerate receivables collection is a sale to a factor. A
factor is a finance company or bank that buys receivables from businesses
for a fee and then collects the payments directly from the customers.
Chapter 9:
Using the historical cost principle, calculate the cost of land and
equipment.
Cost of land:
All necessary costs inquired in making land ready for its intended use
increase (debit) the Land account.
Cost typically include:
1.​ Cash purchase price
2.​ Closing sots such as title and attorney’s fees,
3.​ Real estate brokers’ commission, and
4.​ Accrued property taxes and other liens on the land assumed by the​
purchaser.
Illustration: Assume that Hayes Manufacturing Company acquires real
estate at a cash cost of $100,000. The property contains an old warehouse
that is razed at a net cost of $6,000 ($7,500 in costs less $1,500 proceeds
from salvaged materials). Additional expenditures are the attorney’s fee,
$1,000, and the real estate broker’s commission, $8,000.​
​
Cash price property (100,000)​
Net removal cost of warehouse (6,000)​
Attorney’s fees (1,000)​
Real estate broker’s commission (8,000)
Land
100,000 6,000 1,000 8,000
HW 9-3
Cost of equipment:
lOMoARcPSD|46174839
Include all costs incurred in acquiring the equipment and preparing it for
use.​
Cost Typically Include:​
1. Cash purchase price
115,000
2. Sales TAX​
3. Freight Changes​
4. Insurance during transit paid by this purchaser​
5. Expenditures required in assembling, installing, and test the unit.​
​
price of $22,000. Related expenditures are sales taxes $1,320, painting and
lettering $500, motor vehicle license $80, and a three-year accident
insurance policy $1,600.​
​
​
​
​
​
​
Prepare the journal entry to record these costs:​
Equipment 23,820​
License expense 80​
Prepaid insurance 1600
Illustration: Lenard Company purchases a delivery truck at a cash
Compute the cost of the delivery truck.
Cost of Delivery Truck
Truck
22,000 1,320
500 23,820
Cash Price​
Sales Taxes​
Painting and lettering
Identify the factors in computing depreciation.
​
​
​
​
​
​
year is involved.
Given a scenario, calculate the book value of a long-lived asset.
Cost – Accumulated Depreciations = Book value
Calculate depreciation expense after a change in salvage value.
Calculate the gain or loss on the disposal of a plant asset. Calculate
return on assets.
Return on Assets: Net Income Average Total Assets
Identify where intangible assets are found on the balance
Cash
25,500
lOMoARcPSD|46174839
Calculate depreciation expense using the straight-line method.
Cost – Salvage value = Deprecation = Straight line method Useful life in
years
- Make sure you look how many months are left in year, if more than 1
HW 9-5
HW 9-6
P9-3A
P9-6A
sheet.
​
​
​
​
​
-
Patents
Copyrights
Franchise or license
Trademarks
Trade names
​
- Goodwill​
​
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Intangible assets with a theoretically infinite life such as goodwill cannot be
amortized and therefor do not appear on the balance.​
If the intangible assets have an identifiable value and lifespan they appear
on the balance sheet as long term assets valued according to their purchase
prices and their amortization prices.
Accounting FINAL
12/10/2015
lOMoARcPSD|46174839
Chapter 1 & Chapter 2
Calculate components of the income statement, retained earnings
statement, and balance sheet (for example, given selected financial
information calculate the total current assets).​
Revenue​
- Expense​
Net Income​
Retained Earning’s Statement
Retained Earnings (Beg Balance)
+ Net Income
- Dividends​
Retained Earning (Ending Balance) Balance Sheet
Assets
Income Statement
Current Assets
Cash Investments Receivables Inventories Prepaid expense
ooooo
Long-Term Investments
Investments in stock and bonds
o
+ Liabilities
Plants Property and Equipment
Long useful lives​
Currently used in operations​
Land, Buildings, Equipment, Delivery Vehicles, and Furniture -Depreciationallocating the cots of assets to number of years.​
-Accumulated deprecation- total amount of depreciation expensed thus far in
the asset’s life.
Intangible Assets
Assets that do not have a physical substance. Includes:
o
o
Long term assets
Long term notes receivable
oooo
o
oo
Goodwill​
Patents​
Copyright​
Trademarks/ tradenames
Current Liabilities
(Notes Payable)​
(Accounts Payable) (Unearned Service Revenue) (Salaries and Wages
Payable)
oooo
lOMoARcPSD|46174839
o
(Interest Payable)
= Stockholders Equity
Use the accounting equation to solve for an unknown.
Equity
Long- term liabilities
Bonds payable Mortgages Payable​
Long Term notes payable Lease liabilities​
Pension liabilities
ooooo
(Common Stock)
(Retained Earnings)
Assets= Liabilities + Stockholders
lOMoARcPSD|46174839
Chapter 3
Analyze the effect of business transactions on the accounting
equation.
HW 3-2, 3-11
Transactions are economic events that require recording in the financial
statements.​
Not all activities represent transactions.​
Assets, liabilities, or stockholders’ equity items change as a result of some
economic event.
Duel effect on the accounting equation
lOMoARcPSD|46174839
* The process of identifying the specific effects of economic events on the
accounting equation.
(Go over slides in Chapter 3: 10-20)
Identify activities as financing, investing, and operating.
Financing- borrowing money, issuing shares of stock, and paying
dividends.
To start or expand a business the owner or owners quite often need
cash from outside sources.
Investing- include the purchase or sale of long-lived assets used in
operating a business, or the purchase or sale of investment securities.
Operating- involve providing guide services.
Example: Tootsie Roll
Involve the purchase of resources (assets) needed to operate the
business.
Once a business has the asset’s it needs, it can began it’s
operation.
Chapter 4
Apply the revenue recognition principle.
June Accounts Receivable Service Revenue
lOMoARcPSD|46174839
Financing: came from personal saving’s and likely came from outside
sources like banks.​
Investment: Invested the cash in equipment to run the business, such as
mixing equipment and delivery trucks.
Operating- Then he started making and selling the candy.
Companies recognize revenue in the accounting period in which the
performance obligation is satisfied.
The day you complete the service, is the date you record.
o
EX: Assume Conrad Dry Cleaners cleans clothing on June 30, but customers
do not claim and pay for their clothes until the first week of July. The journal
entries for June and July would be:
July Cash
Account Receivable
0​
0
100 100
Calculate net income from an adjusted trial balance.
Trial Balance- Each account is analyzed to determine whether it is
complete and up to date.
You just take Revenue – Expenses from your adjusted trial balance.
Prepare adjusting journal entries for prepaid rent and interest.
Prepaid Expenses- Payment of cash, that is recorded as an asset
because service or benefit will be received in the future.
Costs that will expire either with the passage of time or through
Rent Expense 100
Prepaid Rent 100
Interest Expense 100
Interest Expense 100
2/10, n/30 : 2% discount if paid within 10 days, otherwise net amount due
in 30 days.
1/10 EOM : 1% discount if paid within first 10 days of next month. n/10
EOM : 1% net amount due within the first 10 days of the next
month.
​
​
​
​
​
​
​
​
detailed. Ex: You will not see that inventory is missing (possibly theft) until
end of the accounting period.
If she takes a discounts:
#1 Account Payable Inventory
3,500​
70
Facts:
increase (debit) to expense account
decrease (credit) to an asset account.
Cash
3,430
If she does not take discounts:
#3 Account Payable Cash
3,500 3,500
Calculate cost of goods sold under a periodic system.
Periodic System- wait till end of the accounting period. NOT very
Does not keep a detailed record of the goods on hand.
Beginning inventory + Purchase, net
Available for sale - Ending inventory Cost of good sold
Chapter 6
(100,000) +(800,000) (900,000) -(125,000)
775,000
If 9,000 units are on hand at December 31, what is the
Inventory, Jan. 1 Purchase, June 19
Purchase, Nov. 8
Units 8,000
13,000​
5,000
Unit Cost $11
12 13
period.
Example calculations of Cost of Good Sold:
Kam Company has the following units and costs.
cost of the ending inventory under LIFO?
*100,000
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Cost of Good Sold determines by count at the end of the accounting
Calculate ending inventory using LIFO.
Calculate cost of goods sold and gross profit using average cost.
Cost of good sold practice:
Davidson Electronics has the following:
Units Unit Cost
​
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​
​
​
​
Chapter 7​
Prepare a bank reconciliation.
Inventory, Jan 1 5,000 $80
Purchase, April 2 15,000 10
Purchase, Aug. 28 20,000 12
If Davidson has 7,000 units on hand at December 31, the cost of
ending inventory under the average-cost method is:
-75,250
(net sales- cost of good sold) gross profit.
Sales Revenue
- Sales Return and Allowances
- Sales Discounts
​
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​
​
​
budget.
Net sales
Reconciling Items:
​
​
​
​
*Above all are TIME LAGS BANK
Deposits in Transit Outstanding Checks​
Banks Memoranda​
Errors – prob. won’t contain
Beginning Balance Per Bank + Deposit in Transit​
- Outstanding Checks Correct Balance
lOMoARcPSD|46174839
BOOK
Calculate the amount of cash to borrow based upon a cash
Beginning Balance Per Book​
+ Notes collected by bank​
- NSF (bounced) checks​
- Check printing or other service charge Correct Balance
- If you do not meet the minimum this is what you do.
Jul. 1
EX:
Accounts Receivable Sale revenue
1,000​
1,000
lOMoARcPSD|46174839
HW 7-14
Chapter 8
Calculate the cash received from an account receivable when a sales
discount is taken.
EX:
Illustration: Assume that Jordache Co. on July 1, 2014, sells merchandise on
account to Polo Company for $1,000 terms 2/10, n/30. Prepare the journal
entry to record this transaction on the books of Jordache Co.​
​
​
​
​
to Jordache Co.​
​
​
100​
EX:​
​
​
​
​
​
900​
​
bad debt expense.​
​
​
​
​
Illustration: On July 5, Polo returns merchandise worth $100
Jul. 5
Jul. 11
Sales and returns and allowances 100 Accounts Receivable
Illustration: On July 11, Jordache receives payment from Polo Company for
the balance due.
Cash 882 Sale discounts ($900 x .02) 18
Accounts Receivable
Chapter 9
Prepare the adjusting entry to record the estimate of
EX:
EX: 8-5 HW
When counting the days omit the day issues but not the due date. * Be able
to solve for the time
Bad Debt Expense​
Allowance for Doubtful accounts
1000​
1000
Calculate the duration of a note receivable given the
interest rate and interest expense.
Identify items classified as property, plant, and equipment.
Plant:
​
​
All necessary costs incurred in making land ready for it’s intended use
increase (debit) the Land account.
Equipment:
Include all costs incurred in acquiring the equipment and preparing it
for use.
Cash purchase price​
Sales Taxes​
Freight Charges​
Insurance during transit paid by the purchaser​
Expenditures required in assembling, installing, and testing the units.
* Are critical to a companies success
Property:
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Physical substance (a definite size and shape)​
Are used in the operations of a business​
Are not intended for sale to customers​
Are expected to provide service to the company for a number of years,
except for land.
Cash purchase price​
Closing costs such as title and attorney’s fee​
Real estate brokers’ commission, and​
Accrued property taxes and other liens on the land assumed by the
purchaser.
Cost – Salvage value = Deprecation​
How many years they want X Depreciation= accumulated depreciation
Calculate depreciation expense and accumulated depreciation.
(Read from the book)
Chapter 10:
Define current liability.
Determine correct accounting for repairs and
maintenance.
Current liabilities:
Tax​
Salaries and Wages Interest
Notes payable Accounts payable Unearned revenue
EX:
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Company expects to pay the debt from existing current assets or though
the creation of other current liabilities.​
Company will pay the debt within one year or the operating cycle, which
ever one is longer.
​
​
​
And Accrued liabilities:
​
​
​
​
2014, if Cole Williams Co. signs a $100,000 12%, four month note maturing
on January 1. When a company issues an interest-bearing note, the amount
of the assets it receives generally equals the note’s face value.
Prepare journal entries associated with notes payable.
Practice 10-1 HW
First National Bank agrees to lend $100,000 on September 1,
​
​
​
​
makes an adjusting entry at December 31 to recognize interest.
Sept 1 EX:
Cash​
Notes Payable
100,000​
100,000
If Cole Williams Co. prepares financial statements annually, it
​
​
​
​
value of the note plus interest. It records payment as follows.
Cash
104,000
Dec 31
EX:
Interest expense Interest Payable
4,000 4,000
Determine proper classification (current or long-term)
for a note payable on the balance sheet.
Current Maturities of Long-Term Debt
Portion of long-term debt that comes due in the current year.
No adjusting entry required.
EX:
Wendy Construction issues a five-year, interest-bearing
$25,000 note on January 1, 2011. This note specifies that each January 1,
starting January 1, 2012, Wendy should pay $5,000 of the note. When the
company prepares financial statements on December 31, 2011,
What amount should be reported as a current liability?
5,000
What amount should be reported as a long-term
liability? 20,000
​
​
​
​
sales of $10,000 and sales tax of $600 (sales tax rate of 6%), the journal
entry is:
Mar. 25 Cash 10,600 Sales Revenue
10,000
EX:
lOMoARcPSD|46174839
At maturity (January 1) Cole Williams Co, must pay the face
Jan 1
Notes Payable Interest Payable
100,000 4,000
Identify the correct journal entry to record sales tax.
Practice 10-1 HW
The March 25 cash register readings for Cooley Grocery show
​
​
Cooley Grocery rings up total receipts of $10,600. Because the amount
received from the sales is equal to the sales price 100%, plus 6% of sales,
(sales tax rate of 6%), the journal entry is:
Assume Cargo Corporation records its payroll for the week of March 7 as
follows:
Mar. 7
Salaries and Wages Expense FICA tax payable​
Federal Income tax payable
State Income tax payable
Salaries and Wages Payable
100,000​
7,650
21,864 2,922 67,564
67,564 67,564
Ex:
​
​
​
Understand the journal entry to record payroll. EX:
Mar. 25
Cash​
Sales Revenue​
Sales tax payable 600
Record the payment of this payroll on March 7
EX:
Mar. 7 Salaries and Wages Payable Cash
lOMoARcPSD|46174839
Sales tax payable 600
10,600​
10,000
Based on Cargo Corps’s 100,000 payroll, the company would record the
employer’s expense and labiality for these payroll taxes as follows.
Payroll tax expense 13,850
FICA tax payable 7,650
State unemployment taxes payable 800
Federal unemployment tax payable 5,400
DO WE NEED TO KNOW THIS?
E10-6
​
​
​
each for its five-game home schedule. The entry for the sales of season
ticket is:
Sept 7
Unearned Ticket Revenue 100,000
lOMoARcPSD|46174839
Identify the journal entry for unearned revenues.
EX:
Aug 6 Cash 500,000 Unearned Ticket Revenue 500,000
As each game is completed. Superior records the earning of revenue.
Superior University sells 10,000 season football tickets at $50
Ticket Revenue
100,000
E10-5
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​
​
function of three factors:
1. Thedollaramountstobereceived​
2. The length of time until the amounts are received​
3. The market rate of interest​
The process of finding the present value is refereed to as discounting
the future amounts.
EX:
Calculate the selling price of a bond.
The current market price (present value) of a bond use a
Assume that Acropolis Company on January 1, 2014, issues $100,000
of 9% bonds, due in 5 years with interest payable annually at end-year.
o
Based on interest rates, determine if a bond would be sold at a
premium (above face value) or a discount (below face value).​
lOMoARcPSD|46174839
Present values of $100,000 received in 5 years = $64,993
Present value of $9000 received annually for 5 yrs= $35,007
Market Price of bonds = $100,000
​
​
$100,000, five year, 10% bonds at 98 (98% of face value) with interest
Ex:
Assume that on January 1, 2014, Candlestick Inc, sells
payable on January 1. The entry to record the insurance is:
Jan.1 Cash​
Discount on bonds payable
Bonds payable
98,000 2,000
Sale of bonds below face value causes the total cost of borrowing to be
more than the bond interest paid.​
The reason: Borrower is required to pay the bond discount at the maturity
date. Thus, the bond discount is considered to be a increase in the
cost of borrowing.
​
​
sell at 102 rather then 98. Then entry record the sale is:
EX:
Assume that the Candlestick Inc. bonds previously described
100,000
Jan.1 Cash
102,000 Discount on bonds payable
Bonds payable
The carrying value of the bonds is the face value of the bonds less
unamortized bond discount or plus unamortized bond premium at the
redemption date.
EX:
lOMoARcPSD|46174839
100,000 102,000
Sale of bonds above face value causes the total cost of borrowing to be
less than the bond interest paid.​
The reason: The borrower is not required to pay the bond premium at the
maturity date of the bonds. Thus, the bond premium is considered to be
a reduction in the cost of borrowing.
Calculate the gain or loss on the redemption of a bond.
Practice 10-1 HW
Assume at the end of the fourth period, Candlestick Inc.,
having sold its bonds at a premium, retires the bonds at 103 after paying
the annual interest. Assume that the carrying value of the bonds at the
redemption date is $100,400 (principal $100,000 and premium $400).
Candlestick records the redemption at the end of the fourth interest period
(January 1, 2018) as:
Bonds Payable 100,000
Premium on bonds payable 400
Loss on bond redemption 2,600
(DOES PREIMUM =
LOSS???????????????????????????????????)
Cash 103,000
100,000 * 1.03 = 103,000
Premium 400
103,000- 400= 2,600 (loss on redemption)
Chapter 11:
Interpret the corporate characteristic of limited liability.
Limited Liability of Stockholders: Limited to their investment.
​
​
​
common stock and calculate total shares issued.
lOMoARcPSD|46174839
E10-14
EX: If the stockholder invests $500 they can only lose up to $500.
- This is an advantage
Understand the journal entry to record the issuance of
11-2, 11-4 (a) hw
Primary Objectives:
Identify the specific source of paid- in capital.​
Maintain the distinction between paid- in capital and retained earnings.
​
​
value common stock. Prepare Hydro Slide’s journal entry if (A) 1,000 share
are issued for $1 par share, and (B) 1,000 shares are issued for $5 per
EX:
share.
1,000
1,000
4,000
Assume that Hydro-Slide Inc issues 2,000 shares of $1 par
​
​
A) Cash
B) Cash
Common stock(1,000 X $1)
1,000
5,000
Common stock(1,000 X $1)​
Paid in capital in excess of par value
Stockholders equity section assuming Hydro-Slide, Inc. has
​
​
retained earnings of $27,000.
EX:
reacquired from shareholders, but not retired.
Corporations purchase their outstanding stock:
Purchase of Treasury Stock:
lOMoARcPSD|46174839
Define treasury stock.
Treasury Stock- corporation’s own stock that it has
To reissue shares to officers and employees under bonus and stock
compensation plans.​
To increase trading of the company’s stock in the securities market.
To have additional shares available for use in acquiring other companies.​
To increase earning per share.
Generally accounted for by the cost method.​
Debit Treasury Stock for the price paid.​
Treasury stock is a contra stockholder’s equity account, not an asset.​
Treasury Stock decreases by the same amount when the company later sells
the shares.
​
​
​
cumulative preferred stock outstanding. Each $100 share pays a $7 dividend
(.07 x $100). The annual dividend is $35,000 (5,000 x $7 per share). If
dividends are two years in arrears, preferred stockholders are entitled to
receive the following dividends in the current year.
Calculate preferred stock dividends.
EX:
Scientific Leasing has 5,000 shares of 7%, $100 par value,
Identify the declaration date, record date, or payment date
associated with dividends.
dividend.
Declaration Date- board meets and authorizes dividends. Record Datethe day people learn they are eligible for dividends. Payment Date- People
who own stock on the record dates get’s their money.
Identify the journal entry to record the declaration of a
EX:
lOMoARcPSD|46174839
A debit balance in Retained Earnings is identified as a Deficit. Retained
Earning Restrictions:
>Capital stock
In excess of par value- common stock +In excess of stated value- common
stock
Additional paid in capital
o
December 2 (Record Date) December 3 (Payment Date)
Legal restrictions (gov)​
Contractual restrictions (lenders) Voluntary Restrictions (board of directors)
Calculate total paid-in capital.
Two classification of paid-in capital:
​
​
​
>Additional paid-in capital
Common Stock + Preferred Stock
lOMoARcPSD|46174839
On Dec. 1, the directors of Media General declare a $0.50 per share cash
dividend on 100,000 shares of $10 par value common stock. The dividend is
payable on Jan. 20 to shareholders of record on Dec. 22:​
​
​
​
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for use in the business.
December 1 (Declaration Date) Cash Dividends
50,000​
50,000
Dividends Payable
No entry
Net Income increase retained earnings and a net loss decreases Retained
Earnings.​
Retained earnings is part of the stockholders’ claim on the total assets of
the corporations.
Recorded under stockholders equity
Dividends Payable Cash
50,000​
50,000
Define retained earnings.
Retained Earnings- is the net income that a company retains
Capital stock
>Paid in capital
CAPITAL STOCK + ADDITONAL PAID IN CAPITAL=
TOTAL PAID IN CAPITAL
Calculate total stockholders’ equity.
lOMoARcPSD|46174839
11-9
Retained Earnings +Total Paid in Capital
Total paid in capital and retained earnings - Treasury Stock
Stockholders equity
11-9
Chapter 12:
Identify the purpose of the Statement of Cash Flows and
the three classifications of cash flows.
Provides information to help assess:
3 Classifications of cash flows.
Entity’s ability to generate future cash flow.​
Entity’s ability to pay dividends and obligations.​
Reasons for the difference between net income and net cash provided (used)
by operating activates.​
Cash investing and financing transactions during period.
Operating Activities- Income statement items.​
Investing Activities- Changes in investments and long term assets
activities.
Financing Activates- Changes in long term liabilities and stockholder
equity.
Distinguish among operating, investing, and financing
lOMoARcPSD|46174839
Class Activity E12-6 AND 12-2 HW
E12-3
Identify the relationship between net income and operating cash
flows during the maturity phase.
Using the indirect method, calculate net cash provided by operating
activities. HW 12-4
lOMoARcPSD|46174839
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Capital Expenditures- Cash Dividends
Calculate net cash provided by investing activities.
HW 12-3
Calculate free cash flow.
12-9
Free cash Flow= Cash Provided by Operating Activates-