ACG 2021 Block 1
Which accounts are permanent accounts and show up on the balance sheet?
Assets, Liabilities, Stockholders Equity, Common Stock, Retained Earnings
The two accounts used in the adjustment of long-term assets
-Depreciation Expense -Accumulated Depreciation
Liabilities Accounts
Accounts Payable Notes Payable Unearned Revenue Salaries Payable Interest Payable Utilities Payable Dividends Payable Income Tax Payable FICA Tax Payable Unemployment Tax Payable Sales Tax Payable Contingent Liability Warranty Liability Bonds Payable
Expenses Accounts
Advertising Expense Amortization Expense Bad Debt Expense Cost of Goods Sold Delivery Expense Depreciation Expense Entertainment Expense Income Tax Expense Insurance Expense Interest Expense Legal Fees Expense Payroll Tax Expense Postage Expense Property Tax Expense Rent Expense Salaries Expense Repairs and Maintenance Expense Research and Development Expense Service Fee Expense Supplies Expense Utilities Expense Warranty Expense Loss
How to format/find the Balance Sheet
Assets (Including cash) = Liabilities + Stockholders' Equity
Accounting Equation
Assets = Liabilities + Stockholder's Equity
Expanded Accounting Equation
Assets = Liabilities + Stockholder's Equity Stockholder's Equity is broken down into Common Stock + Retained Earnings. Retained Earnings is then broken down into Revenues - Expenses - Dividends
Whats emphasized on a classified balance sheet?
Assets and Liabilities are separated into current (within a year) and long-term (longer than a year)
Asset Accounts
Cash Accounts Receivable Petty Cash Notes Receivable Interest Receivable Supplies Inventory Prepaid Advertising Prepaid Insurance Prepaid Rent Investments Land Land Improvements Buildings Equipment Natural Resources Patents Copyrights Trademarks Franchises Goodwill
How to find/format the Statement of Cash Flows
Cash Flows from operating activities + Cash Flows from investing activities + Cash Flows from financing activities = Change in cash
Straight Line Depreciation Expense =
Depreciation Expense = Cost of Asset / Useful Life (i.e. years, months, days)
Order of making financial statements
Income Statement > Statement of Stockholder's Equity/Retained Earnings > Balance Sheet > Statement of Cash Flows
Which piece of information comes out from each financial statement and is used for the next?
Income Statement produces the Net Income > Net Income is used to find the Retained Earnings in the Statement of Stockholder's Equity > The Stockholder's Equity is used in the Balance Sheet > Cash from the Balance sheet is used for the Statement of Cash Flows
What is considered Financing Activities?
Issuing stock and borrowing
Difference between "notes" and "accounts" (i.e. notes payable/receivable, accounts payable/receivable)
Notes payable/receivable are more formal than accounts payable/receivable. Accounts are usually more of a short-term loan
What is the formula to calculate the interest accrued?
Principal*Annual Interest Rate*Time (in years)
What is considered Investing Activities?
Purchasing and selling long-term assets
What does the accrual-basis revenue recognition and matching principles say
Record revenues in the period in which the goods or services are provide to customers Recognize the expenses in the same period as the revenue they help generate
BookValue =
The cost of the asset - accumulated depreciation
Normal Balance for Common Stock
credit
Normal Balance for Liabilities
credit
Normal Balance for Retained Earnings
credit
Normal Balance for Revenues
credit
Normal Balance for Stockholder's Equity
credit
Normal Balance for Assets
debit
Normal Balance for Dividends
debit
Normal Balance for Expenses
debit
What are closing entries
entries that transfer balances of all temporary accounts (revenues, expenses, and dividends) to the balance of the retained earnings account
What are the main points of accrual basis accounting?
recognize revenue when it is earned record expenses with their related revenues
What is the matching principal
recognizing expenses in the same period as the revenues they help generate
What is the revenue recognition principal
recording revenue in the period in which we earn it
What is Accrual-basis Accounting
recording revenue when we earn them and recording expenses with related expenses, regardless of when cash is received or paid
What is Cash-basis Accounting
recording revenues at the time cash received and expenses at the time cash is paid
What are temporary accounts
revenues, expenses, and dividends are closed out at the end of each accounting period and transferred to Retained Earnings so that the new period begins with a zero (0) balance for these accounts
Revenue Definition
the amounts earned from selling products or services to customers
Operating Cycle def.
the average time between purchasing or acquiring inventory and receiving cash proceeds from its sale
What are permanent accounts
the balance sheet accounts where the balances are carried forward from period to period
Expenses Definition
the costs of providing products and services
what is accumulated depreciation
the cumulative amount of depreciation expensed against a particular asset, such as a vehicle
what are retained earnings
the cumulative amount of net income earned over the life of the company that has not been distributed to stockholder's as dividends Retained Earnings = Beginning Retained Earnings + Net Income - Dividends
what is the "book value"
the historical cost of an asset, such as equipment, less the accumulated depreciation
Stockholder's Equity definition
the owner's claim to the resources
what is "posting"
the process of transferring debit and credit information from the journal to individual accounts in the general ledger
What is FASB
they create the GAAP
What is the SEC
they enforce the GAAP
What types of accounts need to be adjusted?
1.) Prepayments: -PREPAID EXPENSES- recognize expense based on usage or passage of time -LONG-TERM TANGIBLE ASSETS (depreciation)- the process of allocating the cost of long-term assets to expense over estimated useful lives -DEFERRED/UNEARNED REVENUE -recognize any revenue that's been earned 2.) Accruals: -ACCRUED EXPENSES - search for expenses that have been incurred but not recorded. Examples include payables - utilities, interest owed, salaries -ACCRUED REVENUES - search for revenue earned but not yet recorded. Examples include accounts receivable and interest receivable
What is the formula for adjusting the supplies account?
Beginning supplies - Ending supplies = Supplies Expense
What is considered Operating Activities?
Cash receipts and payments from selling goods and services
Stockholder's Equity Accounts
Common Stock Preferred Stock Additional Paid-in Capital Retained Earnings
How to find Statement of Stockholder's Equity
Common Stock + Retained Earnings = Stockholder's Equity Retained Earnings = Beginning RE + Net Income - Dividends
How to find Income Statement
Revenues - Expenses = Net Income
Net Income
Revenues - Expenses = Net Income
Which accounts are temporary accounts?
Revenues, expenses, dividends these are closed out on retained earnings
Revenues Accounts
Service Revenue Sales Revenue Interest Revenue Dividend Revenue Equity Income Gain
Which accounts in the lecture example were checked off to be adjusted at the end of the period and why?
Supplies - to account for supplies that have been used/expensed Prepaid Rent - to transfer the amount from the rent of the month that has passed from prepaid rent to rent expense Equipment - account for depreciation Deferred Revenue - to account for any services that you've provided that would turn deferred revenue into revenue Notes Payable - to make sure if you owe interest, you're incurring the interest Salaries - if payday falls out side of the month/accounting period, you have to figure out how much you owe your employees
What is the normal balance for the accumulated depreciation account?
The normal balance for accumulated depreciation will be opposite from its companion account for example: For equipment, the accumulated depreciation account will be credit since equipment's is debit
what is a journal in accounting
a chronological record of all transactions affecting a firm
what is the trial balance
a list of all accounts and their balances at a particular date, showing the total debits and credits
Asset definition
a resource that you own. Cash is an asset. Supplies are an asset.
what is the General Ledger
all the accounts used to record the company's transactions
Liability definition
amounts that you owe