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