Accounting Formulas

Net Income

= Revenues - Expenses

Retained Earnings

= Stockholder's Equity - Common Stock

assets equation

= liabilities + stockholder's equity

statement of stockholder's equity

Common Stock (investments by owners) + retained earnings (all income minus dividends)

statement of cash flows

Operating, investing, financing

Income Statement

Revenue and expenses over a period of time (revenues-expenses=net income) 1. Revenue 2. Expenses 3. Total Expenses 4. Net Income

Stockholder's Equity

SE = assets - liabilities Stockholder's Equity = Common Stock + Retained earnings

bank reconciliation

amount of cash shown in the bank statement differs from the amount recorded by the company

Accounting equation

assets = liabilities + stockholder's equity

Retained earnings equation

beginning retained earnings + net income - dividends

investing cash flow

cash flows from buying and selling investments and long term assets

operating cash flow

cash flows from revenue and expense activities

financing cash flow

cash flows from transactions with stockholders and with creditors (issue common stock and dividends and borrowing and repaying long term debt)

petty cash fund

cash on hand at the business that is available for quick access. used for minor purchases. cash is taken out and replaced with vouchers to be reimbursed

cash flow

change in cash for the year

components

control environment, risk assessment, control activities, information and communication and monitoring

expenses

cost of earning revenues

cash

currency, checks, money orders, accounts, and investments with short term maturity

Cash transactions recorded by company but not bank

deposits outstanding (add) checks outstanding (subtract)

Six types of accounts

dividends- payment to owners expense- costs of producing revenues assets- resources owned by company liabilities- amounts owed stockholder's equity- claim of owners revenues- sales of good and services

limitiations of internal controls

effective internal control procedures do not ensure success or survival

Balance Sheet

financial statement that presents the financial position of the company on a particular date (assets=liabilities + stockholder's equity) 1. Assets 2. Liabilities 3. Stockholder's Equity

internal controls

improves accuracy and reliability of accounting info and safeguard the company's assets

prepaid expenses

paid cash for the asset before you incur the expense

accrued expense

pay cash after you incur the expense and record a liability

accrued revenues

receives cash after earned the revenue and recorded an asset

unearned revenues

recieve cash and record a liability before you earn revenue

cash basis accounting

record revenues when cash is recieved and expenses when paid

accrual basis accounting

record revenues when earned and expenses when you have benefited we use accrual basis accounting RECORD ON LAST DAY OF THE PERIOD

Revenue

sales of goods and services

Cash Transactions Known By Bank, not company

service charge (subtract) interest earned (add) cash collections (add) NSF (bad checks) (subtract)

responsibiltiies for internal controls

the CEOs and autiors