Accounting T2

A classified balance sheet includes what asset and liability categories

-Current assests: cash, tade and recievables, prepaid expenses, investments, inventories, assets held for sale. -Long Term Investments- investments - Fixed Assets- computer hardware,software,furniture,leasehold improvements, office equipment, accumulate depreciation. -Intangible Assets -Current Liabilities -trade and other payables -accrued expenses -Current tax liabilities -Loans payable -Financial liabilities -Long Term Liabilities -loans payable, tax liabilities, non current liabilities -Shareholders Equity -Capital stock -paid in capital -retained earnings

Journal entry to show how assets are depreciated and how the asset and its ACCUMULATED DEPRECIATION appear on the balance sheet

-Reported under the asset Property, Plant, Equipment with a credit balance -Is a balance sheet (or real or permanent) account, its balance will carry over to the next accounting period. -

How to make adjusting entries for accruals

1. Accrued Expenses: Expenses incurred but not yet paid in cash or recorded. -Expense Liabaility 2. Accrued Revenues: Revenues for services performed but not yes received in cash. -Asset Revenue

How to make adjusting entries for deferrals

1. Prepaid expenses: Expenses paid in cash before they are used or consumed -Expense Asset 2. Unearned revenues: Cash received before services are performed. -Liability Revenue

Profit margin

=Net Income/ Net Sales(revenue)

Calculate current ratio

=current assets/current liabilites

Adjusted trial balance

A list of accounts and their trial balances after the company has made all adjustments.

The cash basis of accounting

Accounting basis in which companies record revenue when they receive cash and an expense when they pay cash

Accrual basis of accounting

Accounting basis in which companies records transactions that change a company's financial statements in the periods in which the event occurs.

Contra account

Accumulated Depreciation because its an asset account with a credit balance. Discloses both the original cost of the equipment and the total cost that has expired to date.

Why and when are adjusting entries made?

Adjusting entries are required every time a company prepares financial statements. The company analyzes each account in the trial balance to determine whether they are up to date for financial statement purposes. Each has one income statement account and one balance sheet account.

Contra account

An account offset against an asset account on the balance sheet

Accumulated depreciation

Asset account with a credit balance, reported on the balance sheet under Property, Plant, and Equipment

Balance sheet accounts

Assets; cash, A/R, buildings. Liabilites; notes payable, accounts payable, wages payable. Stockholders equity; common stock, retained earnings.

How is the dividends account closed?

Close revenue and expense accounts to Income Summary. Closed income summary and dividends to Retained Earnings.

Accounting cycle

Collecting and analyzing data from transactions and events, put transactions into general journal, posting entries to the general ledger, preparing an adjusted trial balance, adjusting entries trial balance, organizing the accounts into the financial statements, closing the books, preparing a post closing trial balance to check the accounts

Cost Principle

Dictates that companies record assets at their cost. If land increases in value it continues to be reported at original cost.

Matching Principle(Expense recognition principle)

Dictates that efforts(expenses) be matched with results(revenues)

Permanent account

Does not close at end of accounting year, carried over to next period. Balance sheet accounts such as Assets; cash, A/R, buildings. Liabilites; notes payable, accounts payable, wages payable. Stockholders equity; common stock, retained earnings.

Accrued expense

Expenses incurred but not yet paid or recorded at the statement date. Interest, taxes, and salaries are examples of accrued expenses.

What is the order of preparing financial statements?

Income statement, statement of retained earnings, balance sheet, and statement of cash flows.

What assets are not depreciated?

Land is not depreciated because it has an unlimited useful life, property leased or rented, personal items,

What is a posting-closing trial balance report

List permanent accounts and their balances after journalizing and posting of closing entries. Only contain permanent balance sheet accounts

Profit margin

Ratio that measures the net income and net sales of a company. Shows what percentage of sales are left over after all expenses are paid by the business

Balance Sheet

Reports assetsm liabilites, and shareholder equity of the company. All asset accounts such as cash, a/r. Liability accounts such as accounts payable, notes. Capital stock balance. Retained earnings from the statement of retained earnings

Income Statement

Reports revenues, expense, and the resulting net income. By transferring revenue, expenses, and capital gains or losses

Statement of Retained Earnings

Shows the retained earnings at the beginning and end of the accounting period. -beginning retained earnings, net income from income statement, and dividends

What accounts are affected with each adjusting entry?

Temporary accounts (service revenue, salaries expense, rent expense, utilities expense) Real accounts (cash, accounts receivable, rent receivable, accounts payable)

What accounts are made to equal to zero when closing entries are made?Which accounts still remain?

Temporary accounts are closed or reset at the end of the year, such as revenues, expenses, gains, losses, sole proprietors. Permanent accounts reamin such as asset accounts, liability accounts, owners equity accounts.

Nominal account

Temporary accounts such as the income statement accounts. Accounts that report revenue, expenses, gaines, and losses. Not carried over to accounting period

Depreciation

The allocation of the cost of an asset to expense over its useful life in a rational and systematic manner

Depreciable cost

The amount of cost that can be depreciated on an asset over time. Calculated by subtracting the salvage value of an asset from its cost.

Book value

The difference between the cost of any appreciable asset and its related accumulated depreciation

Revenue recognition principle

The principle that companies recognize revenue in the accounting period in which the performance obligation is satisified

Permanent accounts

These accounts are not closed -All asset accounts -All liability accounts -Stockholders equity

Temporary account

These are all closed -All revenue accounts -All expense accounts -Dividends

Why are closing entries necessary?

Transfers temporary account balances to the permanent stockholders equity account, Retained Earnings, by means of closing entries. Transfer of net income and dividends to retained earnings. Closing entries produce a zero balance in each temporary account

How to calculate the effect on net income when an adjusting entry is not made

Your netincome or netloss equals your total revenues minus your total expenses for an accounting period. If revenue is greater then expenses you have net income. If revenue are less then expenses, you have net loss.

What are accrued revenues

is income that has been earned but the revenue has not been received.