Accounting 2311 - Mid-Term

Internal Control System - Purpose (Administrative & Financial Controls)

"Policies and procedures designed to provide reasonable assurance that objectives are achieved with respect to 1. The effectiveness and efficiency of the operations of the organization. 2. The reliability of the organization's financial reporting. 3. The organization's compliance with applicable laws and regulations."

Function of PCAOB

"Public Company Accounting Oversight Board (PCAOB) Established in 2002 with authority to set and enforce auditing and ethics standards for public companies and their auditing firms; affiliated with the SEC."

Net Income Formula

=Avg total assets X ROI

Supplies Expense Formula

=Beginning balance + all purchases = total available - ending balance

Working Capital Formula

=Current assets - current liabilities

Current Ratio Formula

=Current assets/Current liabilities

Transaction Given - Ex.4-1 Accuring interest earned on short term securities

=Principal X Rate X Time

Bonus: Calculate Working Capital

=current assets - current liabilities

Working Capital - 2 elements

??? Current Asset; Current Liability ???

Dividends

A distribution of earnings to the owners/stockholders of a corporation.

Going Concerned Concept

A presumption that the entity will continue in existence for the indefinite future.

Role of SEC (Securities & Exchange Commission)

A unit of the federal government that is responsible for establishing regulations and ensuring full disclosure to investors about companies and their securities that are traded in interstate commerce.

Which concept already noted is supported by making Accurals

Accrual Concept

Accounting Equation

Assets = Liabilities + Stockholders' equity (A = L + SE).

How Must you report the Value of Inventory on Balance Sheet

At the amount of original purchase. as a credit on asset side and as a debit under accounts payable on liability side

Calculate Margin; Turnover & ROI using Dupont

Beginning Balance + Net Income or -Net Loss - Dividens = Ending Balance

Retained Earnings Formula

Beginning balance +/- (Net income gain or loss) - dividends = ending balance

Acid Test Formula

CURRENT ASSETS - INVENTORY = __________________________________ CURRENT LIABILITIES

Current Assets

Cash and those assets likely to be converted to cash or used to benefit the entity within one year of the balance sheet date.

Title of Chief Accounting Officer

Controller

Retained Earnings

Cumulative net income that has not been distributed to the owners/ stockholders of a corporation as dividends.

3 Measures of Liquidity

Current Ratio; Acid Test Ratio; Working Capital

Discount for Early Payment Formula

Discount = Amount Borrowed - (%xAB)

Give Journal Entires: Acuring interest payable @ month end

Dr. Interest Expense Cr. Interest Payable

Give Journal Entires: Recognising Expensing of Supplies @ month end

Dr. Supplies Expense Cr. Supplies

Give Journal Entires: Accruing unpaid salaries @ month end

Dr. Wages Expense Cr A/P or Wages Payable

Primary standard sitting body for accounting

Financial Accounting Standars Board (FASB)

Primary difference in focus between Financial and Managerial Accounting

Financial Accounting: Accounting that focuses on reporting an entity's financial position at a point in time and/or its results of operations and cash flows for a period of time. Managerial Accounting: Accounting that uses economic and financial information to plan and control many activities of the entity and to support the management decision-making process.

Accounting Process - 4 pieces

Financial Accounting; Bookkeeping; Managerial Accounting/Cost Accounting; Auditing-Public Accounting

3 Inventory Accounts used by MANUFACTORING firms

Finished Goods Inventory; Work in Process Inventory; Raw materials Inventory

Bonus: Dupont

Margin (income/sales) X Turnover (sales/avg total assets)

Dupont ROI Formula

Margin (income/sales) X Turnover (sales/avg total assets)

Transaction Given - Ex.4-1 Asks how it will impact Accounting Equation ie: buying merchandise on account

Merchandise costing $20 was purchased for inventory; $10 cash was paid, and $10 of the cost was charged on account

Return on Equity Formula

Net income = __________________________________ average stockholders equity

Expenses

Outflows or other using up of assets or incurring a liability during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's major operations.

Generally Accepted Accounting Principles

Pronouncements of the Financial Accounting Standards Board (FASB) and its predecessors that constitute appropriate accounting for various transactions used for reporting financial position and results of operations to investors and creditors. Since July 2009, the FASB Codification has represented a single source of U.S. GAAP.

Most universally accepted Measure of Investment Profitability

ROI Return on Investment

Bonus: High Level ROI

ROI=Margin X Turnover Income Margin = __________________________________ Sales Sales Turnover = __________________________________ Average Total Sales

Cash Equivalent

Short-term, highly liquid investments that can be readily converted into cash with a minimal risk of price change due to interest rate movements; examples include U.S. Treasury securities, bank CDs, money market funds, and commercial paper.

Matching Concept

The concept that expenses incurred in generating revenues should be deducted from revenues earned during the period for which results are being reported.

Additional Paid-In Capital

The excess of the amount received from the sale of stock over the par (or stated) value of the shares sold.

Why is Pre-Paid Asset usually a current asset

The expenses that have been paid in the current fiscal period but that will not be subtracted from revenue until a subsequent fiscal period

Statement of Cash Flows - Purpose

The financial statement that explains why cash changed during a fiscal period. Cash flows from operating, investing, and financing activities are shown in the statement.

Income Statement - Purpose

The financial statement that summarizes the entity's revenues, expenses, gains, and losses for a period of time and thereby reports the entity's results of operations for that period of time.

Concept of Integrity

The personal characteristic of honesty, including being forthright in dealings and communications with others.

Bank Reconciliation Analysis - Purpose

The process of bringing into agreement the balance in the Cash account in the company's ledger and the balance reported by the bank on the bank statement.

Auditing

The process of examining the financial statements of an entity by an independent third party with the objective of expressing an opinion about the fairness of the presentation of the entity's financial position, results of operations, changes in financial position, and cash flows. The practice of auditing is less precisely referred to as public accounting.

Why are adjusting entries made to Finaincial Statements

They are required to achieve a matching of revenue and expense so that the financial statements reflect accurately the financial position and results of operations of the entity

Why is Depreciation Expense added back to Net Income on Statement of Cash Flows

To adjust the net income figure so that it is not reduced by Depreciation Expense

Time Frame of Other Statements

all statements are for current year at close of fiscal period; condensed comparative balance sheet for last few fiscal year closings

Paid in Capital

amount investors have put up

How must you report the value of Accounts Recievable on Balance Sheet

credit because it is money owed to company where as accounts payable is a debit because it is money company owes.

Balance Sheet Time Frame

current year at close of fiscal period

Annual Report to Shareholders contains

financial statements and the notes to the financial statements, as well as management's extensive discussion and analysis

4 kinds of Accounts shown on Income Statement

net sales, cost of goods, gross profit, interest expense

Accrual Accounting - Purpose

recognizes revenues and expenses as they occur

Statement of Changes in Owner's Equity - Purpose

statement of changes in capital stock and/or statement of changes in retained earnings

Full Disclosure - Principle

the financial statements and notes should include all necessary information to prevent a reasonably astute user of the financial statements from being misled.

High Level ROI Formula

Income = __________________________________ investments

Bonus: ROE

Income = __________________________________ Average Stockholders Equity

Revenues

Inflows of cash or increases in other assets, or the settlement of liabilities during a period, from delivering or producing goods, rendering services, or performing other activities that constitute the entity's major operations.

What is benefit of comparing Trend Analysis & Industry Data

It means that almost everything is relative, so comparison of individual and group trends is important when making judgments about performance--- trend analysis is useful tool for analysis of results over an extended period of time.

Transaction Given - Ex.4-1 When costs are rising does LIFO or FIFO show grater profit?

LIFO

Who uses Accounting information

Management; Investors/Shareholders; Creditors/Suppliers; Employees; SEC