ACG 2021 Final
A cash discount received for prompt payment of a purchase on account
Purchase Discount
Secure valuable assets such as cash and restrict access to computer systems: ex (passwords, and firewalls)
Restrict Access
Companies recognize revenue in the accounting period in which it is earned. In a service enterprise, revenue is considered to be earned at the time the service is performed
Revenue Recognition Principle
Cash xxx Sales Revenue xxx Cost of Goods Sold xxx Inventory xxx
Sale of Merchandise in a Perpetual System
Revenues increase Net Income which increases Retained Earnings so revenues are recorded with credits
See Page 105
Inventory buyers do not also approve payments to supplier
Segregate Duties
They must if they want to issue it.
Why would companies be wiling to discount a bond?
balance sheet and income statement
adjusting entries are used on
Assets increase on the left: side of the account Liabilities increase on the right: side of the account Stockholders Equity accounts increase on the right side of the account
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Left is Debit (Dr) and Right is Credit (Cr)
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Accounts on the left side of the accounting equation increase on the left side of the account and accounts on the right side of the equation increase on the right.
Accounts increase on the same side they appear
Transactions recorded in the periods in which the events occur Revenues are recognized when earned, not when cash is received. Expenses are recognized when incurred, rather than when paid.
Accrual Accounting
Interest Expense xxxx Interest Payable xxxx
Accrued Interest
1. Asset Account 2. Liabilities Account 3. Equity Account 4. Revenues: 5: Expense Accounts 6: Dividends
6 Different Types of accounts
1. Analyze 2.Record 3. Summarize 4. Prepare Trial Balance 5. Report Fiananical Statement
Accounting Cycle
Cash Accounts receivable Notes receivable Prepaid accounts Supplies Equipment Buildings Land
Assets Accounts
the maximum number of shares of capital stock of a corporation that can be issued
Authorized Shares
1. Voting Rights 2. Dividends 3. Residual Claim 4. Preemptive Rights
Common Stock Benefits:
Depreciation Expense xxx Accumulated Deprecation xxxx
Deprecation
Cost- Accumulated Deprecation X 2/Useful Life
Double- Declining Balance
Give a separate cash register drawer to each cashier at the beginning of a shift
Establish Responsibility
The costs of assets or services used in generating revenues
Expenses
The payment made when bonds mature
Face Value
1. Income Statement 2. Statement of Retained Earnings 3. Balance Sheet 4. Statement of Cash flows
Financial Statements
An attempt to deceive others for personal gain
Fraud
sales revenues LESS: returns/allowances LESS: discounts total Net Sales LESS: cogs Gross profit
Gross Profit Percentage
Stockholders Equity: Contributed Capital - Preferred Stock - Common Stock -Additional Paid-In Capital Total Contributed Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss)
Stockholders Equity on the Balance Sheet
Cost- Residual Value X 1/Useful Life
Straight Line Method
Inventory xxxx Accounts Payable xxxx
Inventory Purchases
sales revenues LESS: returns/allowances LESS: discounts ____________________ total net sales
Net Sales
Accounts that track financial results from year to year by carrying their ending balances into the next year
Permanent accounts
The amount by which bond's issue price exceeds its face value
Premium
Treasury Stock- Credit Cash - Debit
Repurchasing Stock (Treasury Stock)
Amounts earned by selling goods or services to customers
Revenues
Expenses decrease New Income and Retained Earnings, so expenses are recorded with debits
See Page 105
Assets=Liabilities+Stockholders Equity
The basic accounting equation is
Accounts that track financial results for limited periods of time by having their balances zeroed out at the end of each accounting year
Temporary accounts
1. Analyze Transactions 2. Prepare Journal Entries and Post to Accounts 3. Prepare Unadjusted Trail Balance 4. Prepare Adjusting Journal Entires and Post to Accounts 5. Prepare Adjusted Trial Balance 6. Prepare Financial Statements 7. Prepare Closing Journal Entires and Post to Accounts 8. Prepare Post- Closing Trial Balance
The Accounting Process
financial instruments that outline the future payments a company promises to make in exchange for receiving a sum of money
Bonds
- debt financing activity - amount owed to bondholders
Bonds Payable
cost minus accumulated depreciation
Book Value
To record a cost as an asset than an expense
Capitalize
use _______ for increase in liabilities and stockholders equity accounts
Credit
the date on which cash is disbursed to pay dividend liability owed to each stockholder The distribution of cash and reduction of in liability are recorded on this date Dividends Payable- Debit Cash- Credit
Date of payment
use _____ for increase in assets ( and for decreases in liabilities and stockholders equity
Debit
increasing Dividends Payable and increasing a temporary account called Dividends
Declaration Date
The amount by which a bond's issue price is less than its face value
Discount
the cumulative of unpaid amounts must be paid before any common dividends can be paid
Dividends in arrears
Pay suppliers using renumbered checks and digitally documented electronic fund transfers
Document Procedures
to introduce another check on accuracy of accounting numbers
Double-entry Accounts
issuing or selling shares of stock for cash
Equity Financing
To record expenses in the same period as the revenues they generate, not necessarily the period in which cash is paid for them.
Expense recogntion principle
1. Establish Responsibility 2. Segregate Duties 3.Restrict Access 4. Document Procedures 5. Indecently Verify
Five Common Principles of Internal Conrol
1. Incentive 2. Opportunity 3. Rationalize
Fraud Triangle
Used to record the effects of each transaction; organized by date
General Journal
Preferred stockholders get priority when it comes to the payment of dividends. If a company is liquidated, preferred stockholders get paid before those who own common stock.
How does Preferred Stock differ from Common Stock?
Compare the cash balance in the company's accounting records to the cash balance reported by the bank and account for any differences
Independently Verify
Interest (I)= Principal (P) x Interest Rate (R) X Time
Interest
Interest Payable xxx Interest Expense xxx Cash xxx
Interest Paid
shares of stocks that have been distributed by the corporation
Issed Shares
Cash- Debit Common Stock- Credit Additional Paid in Capital - Credit
Journal Entry for issuing stock with Par Value Cash
Cash- Debt Discount on Bonds Payable- Debit Bonds Payable- Credit
Journal For Bonds Issued at Discount
Cash - Debit Bonds Payable- Credit Premium on Bonds - Credit
Journal for Bonds issued at Premium
Cash-Debit Sales Revenue- Credit Cost of Goods Sold- Debit Inventory- Credit
Journal for Perpetual System
Debit: the left side of an account of the act of entering an amount into the left side of an account Credit: the right side of an account of the act of entering an amount into the right side of an account
Know the debit and credit rules for assets, liabilities, and equity accounts
Used to summarize the effects of journal entries on each account; organized by dates
Ledger
Accounts payable Notes payable Accrued liabilities Unearned revenue
Liabilities Account
The date on which the bonds are due to be paid in full
Maturity Date
Record Date
No Journal Entry Required
Cash xxx Notes Payable xxx
Notes Payable Journal Entry
Notes Payable xxx Cash xxx
Notes Payment
shares that are currently held by stockholders ( not the corporation itself)
Outstanding Shares
(1) putting money into petty cash to establish a fund (2) paying money out to reimburse others (3) putting money back into petty cash to replenish the fund
Petty Cash
stock that has specific stock over common stock
Preferred Stock
issued shares that have been required by the company
Treasury Stock
An internal report that lists all accounts and their balances to check on the equity of total recorded debits and total recorded credits.
Trial Balance
purpose of closing the books (2)
Update the Retained Earnings account. Close the temporary accounts 1. Transfer net income (or loss) and dividends to Retained Earnings 2. Establish zero balances in all income statement and dividend accounts
Add: Deposits in Transit Subtract: Outstanding Checks
Updates to Bank Statement
Add: Interested Received Add: EFT Received Subtract: NSF Check Subtract: Bank Service Subtract: Error in Check
Updates to Company's Books
Adjusting Entries are made at the end of every accounting period
When are adjusting entries made?
The balance sheet summarizes the net changes in specific account balances over a period of time.
Which of the following is false regarding the balance sheet: A. The accounts shown on a balance sheet represent the basic accounting equation for a particular business B. The retained earnings balance shown must agree with the ending retained earnings balance shown on the statement of retained earnings C. The balance sheet summarizes the net changes in a specific account balance over a period of time. D. The balance sheet reports the amount of assets liabilities and stockholders equity of a business at a point in time
B. The Audit Report
Which of the following is not of the four basic financial statements: A. Balance Sheet B. The Audit Report C. The Income Statement D. The Statement of Cash flows
A. The income statement is sometimes called a statement of operations
Which of the following is true regarding the income statement: A. The income statement is sometimes called a statement of operations B. The income statement only report revenues, expenses, and liabilities C. The income statement only reports revenue for which cash was received at the point of sale D. The income statement reports the financial position of a business at a particular time
Retained earnings is an asset on the balance sheet
Which of the following regarding retained earnings is false: A. retained earnings is increased by net income B. retained earnings is a component of stockholders equity on the balance sheet C. Retained earnings is an asset on the balance sheet D. Retained earnings represents earnings not distributed to stockholders in the form of dividends.
If a bond offers something attractive such as high interest rate, bondholders may be willing to pay a premium to acquire it.
Why would bondholders be willing to pay a premium?
a liability is increased by ___ and decreased by ___
a credit a debit
an asset is increased by ___ and decreased by ___
a debit a credit
an equity is increased by ___ and decreased by ___
a debit a credit
two categories of adjusting entries
accruals and deferrals
expenses or revenues recognized at a date later than when the cash was originally exchanged ex) prepaid expenses, depreciation, unearned revenues
deferrals (and 3 types)
temporary accounts (4)
revenues expenses dividends income summary
temporary account balances are transferred to
the permanent stockholder's equity account (Retained Earnings)
Adjusting Entries
these entries are necessary because the trial balance may not contain up-to-date data - To update accounts due to resources used, amounts expired due to the passage of time, or amounts that may need to be recorded