Accounting
Matching principle for COGS
cash - C & Inv - D Inv - C & COGs -D
SE includes
cc and Retained earnings
Se decreases in
debit
loblaws FISCAL YEAR ends and shares have market value of 95K at this date
debit (decrease income statement) UNREALIZED LOSS on investments by $5000 credit (decreases assets) STIS by $5000
step 2: write/off A/R
debit (decrease) allowances for uncollectibles (this increases assets) credit (decrease) A/R (decreases your assets) HOWEVER NO CHANGE MADE TO BALANCE SHEET AND INCOME STATEMENT DUE TO STEP 1 (STEP 1 ACTED AS A BUFFER BECAUSE YOU GAVE ALLOWANCE FOR THE BANKRUPTCY)
loblaws sells the shares at $98K
debit (increase assets) cash to 98K debit (decrease I/S) REALIZED LOSS OF SALE OF INVESTMENT by $4K credit (decrease assets) STIS 102K (highest recent mkt value of investments -> from unrealized gain on investments account)
step 1: sense the bad guys
debit (increase) bad debt expense (decreases net income) & credit (increase) allowances for uncollectibles (but this decreases assets specifically A/R) -> [using either POS or AOA] ONLY STEP THAT WILL AFFECT INCOME STATEMENT (net income AND assets decrease)
loblaws buys shares paying 100,000 cash
debit STIS (assets) by 100K credit cash by 100K
loblaws FISCAL YEAR ends and shares have market value of 102K at this date
debit STIs (increase) by $2000 credit UNREALIZED GAIN on investments (increases income statement) by $2000
loblaws receives cash dividend of 800
debit cash 800 credit dividend REVENUE 800 (increases)
accrued revenues later
debit/increases cash (A) credit/decreases receivable (A)
prepaid expenses first
debit/increases prepaid expense (A) credit/decrease cash (A)
accrued revenue first
debit/increases receivable (A) credit/increases revenue (I/S)
accrued expenses later
decrease/debit expense (I/S) credit/increase Payable (L)
COGS
expense, I/S
purchased investment for $15K. two weeks later, investment appreciates and can be sold at mkt value 20K. this is a realized gain?
false, havent sold yet.
aging of accounts
find ending balance and work backwards to find bad debt -care a lot about allowance for uncollectibles
a/r net
gross A/R - allowance for uncollectibles
accrued expenses first
increase/debit expense (I/S) credit/decrease cash (A)
Expanded accounting equation
liabilities+[CC+beginning RE+(incomes-expenses)-dividends]
LOCOM
lower of cost or market. -if you want to sell for $17 but market price is $3 so your net realizable value is $9, then you have to write down your COGS into ($8) and Inv ($8)
LIFO method
oldest costs in inventory (A) recent costs in COGS
FIFO method
oldests costs in COGS recent costs in inventory (A)
accruals
paid or received cash LATER
deferrals
paid or received cash in ADVANCE prepaid expenses or unearned revenue
adjusting entry accounts
prepaid expense, depreciation, accrued expense, accrued revenue, unearned revenue
maturity value of a notes receivable
principal (amount borrowed intially) + interest
perpetual inventory system
purchases are directly debited to inventory sales have two entries: record sale value of inventory and record COGS
straight-line depreciation method
purchasing price / # MONTHS OR YRS
in a deflation, LIFO costs
are lower (prices drop)
Fifo is better for
balance sheet because most recent inventory stays
trading investments on financial statements
balance sheet- STIS are current assets income statement- investments earn Interest or Dividend revenue. All gains/losses reported here
issuing a loan
1. debit (increase) note receivable & credit (decrease) cash 2. debit (increase) interest receivable & credit (increase) interest revenue
on april 3 business purchased PPE on account and find out have depreciation expense of 275 per month
1. debit PPE gross (increase asset) & credit A/P (increase liability) 2. credit accumulated depreciation (decreases assets) &debit depreciation expense (increase expenses)
steps to closing an account
1. find your net income (rev-exp) 2. find retained earnings ending balance
using aging of accounts method, estimate that total uncollectible accounts are $3800. the allowance for uncollectibles prior to adjustment has credit balance of 1, 100. amount to adjust is...
$2700
Days sales' receivables
(BB of receivables + EB of receivables)/2/(total revenue for the year/365))
inventory turnover
(COGS)/avg inventory higher the ratio is better, indicates faster getting rid of inventories
prepaid expense later
(adjusting) -debit/increases expense (I/S) -credit/decrease prepaid expense (A)
Gross margin
(gross profit)/net sales higher the margin, higher the profit
permanent accounts
-B/S -assets liabilities se
how to estimate allowance for uncollectibles
-POS -AOA
prepaid expenses
-asset -rent, supplies
Unearned revenues later
-debit/decrease unearned revenue (L) -credit/increase revenues (I/S)
unrealized gains or losses on STI's are reported on the [] using []
-income statement -the other income account
Unearned revenues first
-liability -debit/increase cash (A) -credit/decreases unearned revenues (L)
step 3: whoops
1. credit (increase) allowance for uncollectibles & debit (decrease assets) A/R 2. credit (decrease) A/R & debit (increase) Cash NO CHANGE IN INCOME STATEMENT OR B/S
accounts receivables have a particularity when selling products on account
A/R increases (debit asset) & Sales revenue increases (credit I/S)
carrying amount of a CAPITAL asset
CAD = cost (aka gross value of PPE) - accumulated depreciation -net amount of a capital asset
AVG cost
COGS available for sale/ #units available for sale
Assets decrease in
Credit
Liabilities increase in
Credit
Revenues increase in
Credit
SE increases in
Credit
Assets increase in
Debit
Expenses increase in
Debit
smart corp bought STI in april for 10K. sold in may for 12. will have realized gain not on I/S, t/f?
False, it will hit I/S.
interest equation
I= principle value x rate (decimals) x (amt held the bond for up to record / 12)
Revenues and expenses fall under
Income statement
which accounts need to be closed
RED - revenues expense and dividends from INCOME STATEMENT to retained earnings at the end of AN ACCOUNTING PERIOD
acid test ratio
acid test= (cash + STI + current receivables) / total current liabilities
percentage of sales
sales revenue * bad debt expense (aka uncollectible account expense rate) rate= bad debt expense
how to find cost of PPE
sum of all the costs incurred to bring the asset to its LOCATION and USE
Understating a contra asset account
understates the related expense on the income statement and overstates the net value of the asset, total assets and owner's equity on the balance sheet summary.