ACCY 201

How to calculate interest on a note receivable

Principle of note X Annual interest rate X time (expressed in fraction)

Portion of net income of a corporation that is retained by the corporation rather than distributed to the shareholders as dividends

Retained Earnings

The cumulative net income (and loss) not distributed as dividends to its stockholders

Retained earnings

Increase equity from sales of products and services to customers EX.: sales of products, consulting services provided, facilities rented to others, and commissions from services

Revenue

Gross profit formula

Revenue - Cost of Goods Sold

Additional costs of plant assets that do not materially increase the asset's life or productive capabilities

Revenue Expenditures

The corporation issuing a bond will pay to the bondholders one half of the annual interest at the end of each six month period as long as eh bond is outstanding

Semiannual interest

1. A written promise to pay a specified amount on a definite future date within one year or the company's operating cycle 2. Most notes payable bear interest to compensate for use of the money until payment is made

Short term notes payable

Double declining formula

1. 100% / useful life 2. 2 X straight line rate 3. Double declining rate X beginning period book value

What is the double entry accounting system?

1. At least two accounts are involved, with one debit and one credit 2. The total amount debited must equal the total amount credited

Steps in the closing process

1. Identify accounts for closing 2. Record and post the closing entries 3. Prepare a post closing trial balance

What does Stockholder's equity consist of?

1. Paid-in capital 2. Retained earnings

How does a merchandiser record the sale of merchandise

1. Revenue received in the form of an asset from the customer 2. Cost of goods sold incurred for merchandise sold to the customer

units of production formula

1. cost - salvage value / total units of production 2. Depreciation per unit X units produced in period

Assets = liabilities + Equity

Accounting Equation

What are known liabilities accounted for

Accounts payable, notes payable, payroll, sales taxes, unearned revenues, and leases

Matches the ESTIMATED loss from uncollectible accounts receivable against the sales they helped produce

Allowance Method

1. Record depreciation up to the date of disposal 2. Record the removal of the disposed asset's account balance including its accumulated depreciation 3. Record any cash received or paid in the disposal 4. Record any gain or loss

Steps in the disposal Process

Charges the same account of expense to each period of the asset's useful life

Straight line Depreciation

Represents a ledger account and is a tool to understand the effects of one or more transaction

T-Account

COGS formula

Beginning inventory + inventory purchases - end inventory

Retained Earnings formula

Beginning retained earnings + Net income during the period - dividends paid

A business is accounted for separately from other business entity, including it's owner. Business has to stand on it's own

Business entity

Additional costs of plant assets that provide benefits extending beyond the current period

Capital Expenditures

A list of all ledger accounts and includes an identification number assigned to each account

Chart of accounts

Transfer the end of period balances in revenue, expense, and dividends accounts to the permanent retained earnings account.

Closing entries

End of an accounting period after financial statements have been completed. It prepares accounts for recording the transactions and events of the next period

Closing principle

Straight Line depreciation formula

Cost - salvage value / useful life in periods

Accounting information is based on actual cost. Measured on a cash or equal to cash basis

Cost Principle

The cost of merchandise sold to customers during a period. Often the largest single expense on a merchandiser's income statement

Cost of Goods Sold

Recover a bad debt account

Debit accounts receivable- account name, credit bad debts expense. Then, debit cash, credit accounts receivable- account name

Write off a bad debt account

Debit bad debt expense, credit accounts receivable- account name

Record bonds at a discount

Debit cash and discount on bonds payable, credit bonds payable

record bonds at a premium

Debit cash, credit bonds payable and premium on bonds premium

Normal Balance for Assets

Debit for increase, credit for decrease

Recording petty cash

Debit petty cash, Credit cash

Reimburse Petty cash

Debit whatever expense account and cash over/short, credit cash

Accelerated depreciation yields larger depreciation expenses int eh early years of an asset's life and less depreciation in later years

Declining Balance Method

Process of allocating the cost of a plant asset to expense in the accounting periods benefiting from it's use

Depreciation

Records the loss from an uncollectible account receivable when it is determined to be uncollectible

Direct write off method

The amount of income earned per share of a company's outstanding common stock

Earnings per share

Owner's claim on assets, what is left over for the owner

Equity

Matching Principle Prescribes that a company record the expenses it incurred to generate the revenue reported. The principles of matching and revenue recognition are key to modern accounting

Expense Recognition Principle

Decrease equity from costs of providing products and services to customers. EX: Are costs of employee time, use of supplies, advertising, utilities, and insurance fees

Expenses

Exchanges of value between two entities, which yield changes in the accounting equation

External Transactions

1.Assumes that inventory items are sold in the order acquired 2. When sales occur, the costs of the earliest units acquired are charged to cost of goods sold. This leaves the costs from the most recent purchases in ending inventory

FIFO

Inventory is not included in the buyer's inventory until it has reached it's destination

FOB destination

Inventory is included in the buyer's inventory when items are shipped

FOB shipping point

Semiannual interest formula

Face amount of the bond X Stated annual interest rate X 6/12 of a year

Accounting information reflects a presumption that business will continue to operate instead of being closed or sold. This implies that property is reported at cost instead of liquidation value that assume closure

Going concern

Goods not counted in inventory if they cannot be sold. If goods can be sold at a reduced price, they are included in inventory at a conservative estimate of their net realizable value

Goods damaged or obsolete

Goods shipped by the owner, to another party. A consignee sells goods for the owner. The cosigner continues to own the consigned goods and reports them in its' inventory

Goods on Consignment

The profit a company makes after deducting the costs associated with making and selling it's products, or the costs associated with providing its services

Gross Profit

Exchanges within an entity, which may or may not affect expenses when used

Internal transactions

Occurs when a company issues bonds with a contract rate less than the market rate.

Issuing bonds at a discount

When the contract rate of bonds is higher than the market rate, the bonds sell at a price higher than par value

Issuing bonds at a premium

Gives a complete record of each transaction in one place. Shows debits and credits for each transaction

Journal

Process of recording transactions in a journal

Journalizing

Method of assigning costs assumes that the most recent purchases are sold first

LIFO

the collection of all accounts and their balances for an information system

Ledger

Total amount of cash and other assets the corporation receives form its stockholder in exchange for stock

Pain-in capital

A fund used to make small payments for things such as: postage, courier fees, minor repairs, and low cost supplies

Petty cash fund

Tangible assets used in a company's operations that have a useful life of more than one accounting period

Plant assets

Process of transferring journal entry information to the ledger

Posting

Charges a varying amount to expense for each period of an asset's useful life depending on it's usage

Units of production

Record estimated bad debts

debit bad debts expense, credit allowance for doubtful accounts

Normal balance for liabilities

debit for decrease, credit for increase

Normal balance for revenues

debit for decrease, credit for increase

normal balance for common stock

debit for decrease, credit for increase

Normal balance for expense

debit for increase, credit for decrease

normal balance for dividends

debit for increase, credit for decrease

Basic earnings per share formula

net income - preferred dividends / weighted average common stock outstanding