Final Accounting
account receivable
"buy now, pay later" giving companies right to collect future cash
Gross Margin Ratio
(Revenue - COGS) / Revenue x 100
straight-line method of depreciation (Tangible)
(cost - salvage value) / useful life
double declining balance method
(cost-accumulated depreciation) x 2/useful life
Debits and credits
-Debits increase assets while credits decrease assets. - Debits decrease liabilities + equity, credits increase liabilities + equity
Issue and bondholers
-Issuer is the borrower - Bondholder is the lender
Discounts
2/10 (10 is days) 2% within 10 days n/30 (30 is net) List price <return> = total total x .02 = Answer
Days Sales in AR
365/AR turnover
Internal controls
A company's plans to (1) safeguard the company's assets and (2) improve the accuracy and reliability of accounting information. Control environment + activities, risk assessment, information and communication, monitoring.
Writing off entries
ADA AR
Balance Sheet
Assets (cash+land) = Liabilities(Notes Pay., Acc. payable, utilities pay.) + Stockholders' Equity(Rev-exp)(RE, CS, Service Rev, Dividends)
Cost of inventory for sale
BB of inventory + inventory purchased during the period = COGS
bond discount
Bond price <Face value> - MR > SR (6%). (5%)
Bond Premium
Bond price > Face value -MR(stated int. rate) < SR (straight-line)
Bond issued at Par
Bond price is equal to Face value. Ex: BP= 100, FV = 100 MR(5%). SR(5%)
Writing off inventory
COGS (DEBIT) Inventory (Credit)
Inventory Turnover
COGS/Average Inventory
Statement of changes in equity
CS bb. RE. bb + + NI - - Div EB EB
Working capital assets
Current assets: cash, going to be turned to cash, within 1 year, or consumed in operation. Ex: supplies, cash, A/R, Inventory, prepaid expenses
Bond Price (face value)
Determined by the market rate of interest, same as effective interest rate, this is the amount bond is sold at (issued) today.
FIFO
First In, First Out. The cost of items purchased first is reported on income statement and those purchased last is reported on the balance sheet.
Markup on cash
GM / COGS
Markup on sales
GM/ Sales
4 steps of accounting
Gather, record, report, analyze
GAAP
Generally Accepted Accounting Principles. The standards and rules that accountants follow while recording and reporting financial activities. Made by FASB who develop and issue financial accounting standards.
Amortization "Intangible"
Goodwill, Copyright, patents, trademark (Intangible: cant be seen or touched). Journal entry : Amort Exp Intangible
Return on Assets (ROA)
Net Income/Total Assets
Return on Equity
Net Income/Total Equity
What is the purpose of Financial Accounting
Provide information helpful in operating and evaluating the performance of organizations. Accounting is a language because it communicates.
Accruel
Recognition of events before exchanging cash.
amortization schedule
Reconciles the bond price to the face value of the bond. Achieving by amortizing the discount or premium portion of bond.
Income Statement
Revenues - Expenses = Net Income
Multi-Step Income Statement
Sales - Cost of Goods Sold = Gross Profit - Operating Expenses = oper income +/- other (int. rev, exp, gain, loss) = Pre-tax inc - tax = NI
Ratio of AR Turnover
Sales/ AR
Interest payments
Semi-annually. Special features: Convertible bonds, the liability can be converted with permission of bondholder into CS
Operational assets (long term)
Tangible (see, feel, touch) Ex: Buildings, equipment, land.
Operating Cycle
The period of time between the purchase of inventory and the collection of any receivable from the sale of the inventory.
natural resources "Depletion"
Units of production (cost-salvage/units) Ex: water, coal mines. Journal entry: Depletion Exp Natural resource
callable bonds
allows issuer to pay off bond debt before maturity
face value (par value)
amount due on maturity date
Call price
amount issuer will pay to bondholder for pay off bond debt before maturity, usually higher than face value of bond
Net realizable value
amount of receivable companies estimate they will collect
weighted average method
average cost per unit/ units sold
Allowance for Doubtful Accounts
companies estimate amount of uncollectible receivables
units of production method
cost-salvage/units
current ratio
current assets - current liabilities.(low ratio suggest that the company may have difficulty paying its short-term obligations. high ratio means a company isnt maximizing its earning potential because investments in liquid assets usually dont earn as much $ as investments from other assets)
Recording Depreciation Expense
debit depreciation expense, credit accumulated depreciation
bond certificate
describe a company's obligation to pay interest and to repay the principal
Market rate of interest (effective)
interest rate that is applied to similar bonds being sold in bond market
Stated interest rate
interest rate used to calculate interest payments made to bondholer. I = Principle x Rate (stated int.) x Time (out of 1 year)
P/E Ratio (Price Earnings Ratio)
market price per share/earnings per share
% change
new-old/old x 100
Accrued
not cash (record expense and pay later)
Statement of Cash Flows
operating (exp. and rev), investing (long term, land), financing (liabilities & equity, loans)
FOB shipping point
ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller
FOB destination
ownership of the goods remains with the seller until the goods reach the buyer
interest
principal x rate x time
perpetual inventory system
purchased merchandise increases inventory account, sold merchandise decreases inventory account.
Goodwill
reputation of company. Purchase price <Fair market value>
specific identification method
the actuals cost of the goods reported on the income statement and the balance sheet.
LIFO
the cost of items, last in (Income statement) first out (balance sheet)
Financial leverage
the use of debt in a firm's capital structure
debt to assets ratio
total liabilities/total assets
stock split
used to reduce market price of stock Ex: 150(x2) common shares issued @$130(/2)
