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