General Studies/AccountingandFinance

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Balanced Accounts

(Debit Account Balances = Credit Account Balances)

Financial Statements

Accounting reports prepared periodically to inform the owner, creditors, and other interested parties as to the financial condition and operating results of the business.

Cash Forecast

(projection or budget) is simply an estimate that you prepare of the cash coming in and going out of a business during a period of time.

Receiving Report

-A document originated by the buying business listing the quantities and condition of the goods and/or services received from a supplier.

Amortization

. The paying off of debt in regular installments over a period of time. 2. The deduction of capital expenses over a specific period of time (usually over the asset's life). More specifically, this method measures the consumption of the value of intangible assets, such as a patent or a copyright. Investopedia explains Amortization Suppose XYZ Biotech spent $30 million dollars on a piece of medical equipment and that the patent on the equipment lasts 15 years, this would mean that $2 million would be recorded each year as an amortization expense. While amortization and depreciation are often used interchangeably, technically this is an incorrect practice because amortization refers to intangible assets and depreciation refers to tangible assets. Amortization can be calculated easily using most modern financial calculators, spreadsheet software packages such as Microsoft Excel, or amortization charts and tables.

Return on Debt

1. A measure of a company's performance or net income as related to the amount of debt it has issued. 2. The amount of profit generated for each dollar that a company holds in debt. 3. A necessary factor when using the adjusted present value (APV) discounted cash flow method for valuing levered assets. The APV method is often used in a leveraged buyout as a way of valuing a firm that has a changing capital structure. Return on debt (ROD) is a complex financial modeling skill and not a commonly used financial reporting factor. Companies that carry significant amounts of debt relative to capital and/or assets are more at risk during an economic downturn when earnings are likely to decline and credit measures may be tightened.

Capital Contribution

A XXXXX is a XXXX, in the form of money or property, to a business by an owner, partner, or shareholder. The XXXX increases the owner's equity interest in the business. In the case of a shareholder, the XXXX does not increase the amount of outstanding shares, but it adds to the owner's basis in the shareholder's basis. XXXX are not counted as business income, unless the XXXX are in the form of a loan that is expected to be repaid.

Depreciation

1. A method of allocating the cost of a tangible asset over its useful life. Businesses XXXX long-term assets for both tax and accounting purposes. 2. A decrease in an asset's value caused by unfavorable market conditions. 1. For accounting purposes,XXXX indicates how much of an asset's value has been used up. For tax purposes, businesses can deduct the cost of the tangible assets they purchase as business expenses; however, businesses must depreciate these assets in accordance with IRS rules about how and when the deduction may be taken based on what the asset is and how long it will last. XXXX is used in accounting to try to match the expense of an asset to the income that the asset helps the company earn. For example, if a company buys a piece of equipment for $1 million and expects it to have a useful life of 10 years, it will be depreciated over 10 years. Every accounting year, the company will expense $100,000 (assuming straight-line depreciation), which will be matched with the money that the equipment helps to make each year. 2. Currency and real estate are two examples of assets that can depreciate or lose value. During the infamous Russian ruble crisis in 1998, the ruble lost 25% of its value in one day. During the housing crisis of 2008, homeowners in the hardest-hit areas, such as Las Vegas, saw the value of their homes depreciate by as much as 50%.

Debits and Credits rule

1. Assets increase by DEBITS. 2.Expenses increase by DEBITS. 3.Owner's Equity increase by CREDITS. 4.Revenue increase by CREDITS. 5.Liabilities increase by CREDITS.

Purchase

1. To buy a product or service. 2. A product or service that has been bought by an individual or business.

Preparing Bank Reconciliation

1.Prepare a list of deposits in transit. Compare the deposits listed on your bank statement with the bank deposits shown in your cash receipts journal. On your bank reconciliation, list any deposits that have not yet cleared the bank statement. Also, take a look at the bank reconciliation you prepared last month. Did all of last month's deposits in transit clear on this month's bank statement? If not, you should find out what happened to them. 2.Prepare a list of outstanding checks. In your cash disbursements journal, mark each check that cleared the bank statement this month. On your bank reconciliation, list all the checks from the cash disbursements journal that did not clear. Also, take a look at the bank reconciliation you prepared last month. Are there any checks that were outstanding last month that still have not cleared the bank? If so, be sure they are on your list of outstanding checks this month. If a check is several months old and still has not cleared the bank, you may want to investigate further. 3.Record any bank charges or credits. Take a close look at your bank statement. Are there any special charges made by the bank that you have not recorded in your books? If so, record them now just as you would have if you had written a check for that amount. By the same token, if there are any credits made to your account by the bank, those should be recorded as well. Post the entries to your general ledger. 4.Compute the cash balance per your books.Foot the general ledger cash account to arrive at your ending cash balance. 5.Enter bank balance on the reconciliation. At the top of the bank reconciliation, enter the ending balance from the bank statement. 6.Total the deposits in transit. Add up the deposits in transit, and enter the total on the reconciliation. Add the total deposits in transit to the bank balance to arrive at a subtotal. 7.Total the outstanding checks. Add up the outstanding checks, and enter the total on the reconciliation. 8.Compute book balance per the reconciliation. Subtract the total outstanding checks from the subtotal in step 6 above. The result should equal the balance shown in your general ledger. If your bank reconciliation doesn't balance, you need to find the error or errors. Here are the possible causes of a bank balance error: ■Total outstanding checks added incorrectly. Double check your addition of the total outstanding checks. ■Total deposits in transit added incorrectly. Double check your addition of deposits in transit. ■Bank balance written down incorrectly. Did you start with the correct amount at the top of your reconciliation? Double check by comparing it to the month end balance on your bank statement. ■Failed to record all items clearing the bank statement. Look at your bank statement carefully. Are there any items, such as miscellaneous bank charges or automatic deposits or withdrawals, that were not recorded in your books? ■Journals added incorrectly. Double check your addition of cash receipts and cash disbursements. ■Failed to record a check or deposit. Did you record all checks and deposits in your journals? This should have been apparent when you were preparing your lists of deposits in transit and outstanding checks. ■Incorrectly recorded an amount. Compare each item on the bank statement with your journal entry for that item. Did you enter the correct amount?

Cash Crunch

A "XXXX occurs when a company is running low enough on cash so that it starts to have an impact on their operations. A "XXXX" doesn't necessarily mean that a company is going bankrupt - instead, it can simply mean that they need to convert some of their non-liquid assets into cash. Companies need cash to purchase equipment, pay employees, pay suppliers, etc. If a company is going through a "XXXX", then they may have trouble paying these crucial cogs in their business. How might a company address a XXXX? Many companies will turn to the debt markets in order to raise cash. In addition, companies could also choose to unload assets or even sell a part of their company in order to raise needed cash. Having said all of that, many companies will turn to the debt market in order to address any cash concerns. The problem for some companies is that taking on debt can be just too expensive if they don't have a favorable credit rating.

Cash Flow Forecast Benefits

A XXXX helps identify possible future cash shortages and allows you the time needed to take corrective action(s). No it doesn't have to be prepared using a fancy cash management or spreadsheet computer program although in my humble opinion these tools if used properly make the job easier and less time consuming. Preparing the forecast whether manually or with the help of a computer program does require you to analyze your business' financial records and future plans in order to come up with any meaningful estimates and assumptions used for preparing the XXXX. As with most things, your XXXX tool is only as good as the data and assumptions used in preparing the forecast.

Compound Entry

A XXXX is just an entry that contains more than one debit and one credit.

Budgeting

A budget is a plan to ensure that you have the money for your future business activities which allows you to make confident financial decisions by relying on solid figures that would otherwise have been based around guesswork and instincts. A budget is a planned outcome of the future that the business wants to achieve. In a nutshell, budgeting is simply planning and the process of creating a budget is simple if you have access to appropriate and accurate information and the right tools.

Cash Flow

A businesses' XXXX is simply the money (cash) flowing in and out of the business during a period of time. The major inflow of cash to a business results from the sales to customers and the immediate payment (cash sale) or the later payment (sales made on credit) resulting from these sales. Other cash inflows may result from investors contributing cash, bank or other loans made to the business, and the sale of equipment and other fixed assets. Major cash outflows are purchases of inventory, manufacturing costs for products, and payroll. Some other outflows are repayment of loans and interest and purchases of equipment and other fixed assets.

Inventory

A company's XXXX is all of its merchandise intended for sale to its customers in the normal course of business. XXXX are considered current assets in that they usually are sold within a year or within a company's operating cycle.

Purchase order

A document originated by the purchaser (buyer) requesting the supplier to ship goods or perform services.

Sales order

A documented originated by the seller listing the goods and/or services ordered by a customer and other information such as prices and delivery dates

Statement of Retained Earnings

A financial statement outlining the changes in retained earnings for a specified period. The statement of retained earnings is prepared in accordance with generally accepted accounting principles (GAAP). The statement of retained earnings reconciles the beginning and ending retained earnings for the period, using information such as net income from the other financial statements. This statement can appear as a separate statement or as an inclusion on either a balance sheet or an income statement. Also, the statement of retained earnings can be known as a statement of owner's equity, equity statement or statement of shareholders' equity.

Prepaid Liability

A liability incurred when a payment is received prior to a company providing the full benefit of the product or service to be rendered. An example is a deposit payment from a customer who will receive a product or service at a later date sometimes referred to as a customer deposit liability account.

Debt to Equity Ratio

A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. Note: Sometimes only interest-bearing, long-term debt is used instead of total liabilities in the calculation. Also known as the Personal Debt/Equity Ratio, this ratio can be applied to personal financial statements as well as corporate ones. A high XXXX generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing. If this were to increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being spread among the same amount of shareholders. However, the cost of this debt financing may outweigh the return that the company generates on the debt through investment and business activities and become too much for the company to handle. This can lead to bankruptcy, which would leave shareholders with nothing. The XXXX also depends on the industry in which the company operates. For example, capital-intensive industries such as auto manufacturing tend to have a debt/equity ratio above 2, while personal computer companies have a debt/equity of under 0.5.

Sales to Cash Flow Ratio

A measure of a company's marketing efficiency, calculated by dividing sales per share by cash flow per share.

Working Capital

A measure of both a company's efficiency and its short-term financial health. The XXXX ratio is calculated as: CURRENT ASSETS/ CURRENT LIABILITIES- Indicates if the company has enough short term assets in order to cover its liabilities. If the ratio is less than one then they have negative working capital. A high XXXX ratio isn't always a good thing, it could indicate that they have too much inventory or they are not investing their excess cash. Positive working capital means that the company is able to pay off its short-term liabilities. Negative working capital means that a company currently is unable to meet its short-term liabilities with its current assets (cash, accounts receivable and inventory). Also known as "net working capital", or the "working capital ratio". If a company's current assets do not exceed its current liabilities, then it may run into trouble paying back creditors in the short term. The worst-case scenario is bankruptcy. A declining working capital ratio over a longer time period could also be a red flag that warrants further analysis. For example, it could be that the company's sales volumes are decreasing and, as a result, its accounts receivables number continues to get smaller and smaller. Working capital also gives investors an idea of the company's underlying operational efficiency. Money that is tied up in inventory or money that customers still owe to the company cannot be used to pay off any of the company's obligations. So, if a company is not operating in the most efficient manner (slow collection), it will show up as an increase in the working capital. This can be seen by comparing the working capital from one period to another; slow collection may signal an underlying problem in the company's operations

Free Cash Flow

A measure of financial performance calculated as operating XXXX minus capital expenditures. XXXX (XXX) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. XXXX is important because it allows a company to pursue opportunities that enhance shareholder value. Without cash, it's tough to develop new products, make acquisitions, pay dividends and reduce debt. XXXX is calculated as: EBIT(1-Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - Capital Expenditure It can also be calculated by taking operating cash flow and subtracting capital expenditures. Investopedia explains XXXX (FCF) Some believe that Wall Street focuses myopically on earnings while ignoring the "real" cash that a firm generates. Earnings can often be clouded by accounting gimmicks, but it's tougher to fake XXXX. For this reason, some investors believe that XXXX gives a much clearer view of the ability to generate cash (and thus profits). It is important to note that negative XXXX is not bad in itself. If XXXX is negative, it could be a sign that a company is making large investments. If these investments earn a high return, the strategy has the potential to pay off in the long run. http://www.youtube.com/watch?v=oX6oO6HbH8c

Cost Accounting

A method of accounting in which all costs incurred in carrying out an activity or accomplishing a purpose are collected, classified, and recorded. This data is then summarized and analyzed to arrive at a selling price, or to determine where savings are possible. In contrast to financial accounting (which considers money as the measure of economic performance) cost accounting considers money as the economic factor of production.

Quick Ratio (acid test)

A more conservative method of liquidity Cash equivalents+trade receivables/(net) current liabilities

Return on Investment (ROI)

A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio. The return on investment formula: ROI = [(Payback - Investment)/Investment)]*100 In the above formula "gains from investment", refers to the proceeds obtained from selling the investment of interest. XXXX is a very popular metric because of its versatility and simplicity. That is, if an investment does not have a positive ROI, or if there are other opportunities with a higher ROI, then the investment should be not be undertaken. Keep in mind that the calculation for XXXX and, therefore the definition, can be modified to suit the situation -it all depends on what you include as returns and costs. The definition of the term in the broadest sense just attempts to measure the profitability of an investment and, as such, there is no one "right" calculation. For example, a marketer may compare two different products by dividing the gross profit that each product has generated by its respective marketing expenses. A financial analyst, however, may compare the same two products using an entirely different XXXX calculation, perhaps by dividing the net income of an investment by the total value of all resources that have been employed to make and sell the product. This flexibility has a downside, as XXXX calculations can be easily manipulated to suit the user's purposes, and the result can be expressed in many different ways. When using this metric, make sure you understand what inputs are being used.

Positive and Negative Cash Flow

A positive XXXX results when the cash coming in exceeds (is greater) than the cash going out during a period. The opposite case which you want to avoid is a negative XXXX where the cash going out exceeds (is greater) than the cash coming in.

Subsidiary Ledger

A record containing the detail for a control account in the general ledger.

Purchase Return and Allowances Journal

is a special journal that is used to record the returns and allowances of merchandise purchased on account

Cash Flow

A revenue or expense stream that changes a cash account over a given period. Cash inflows usually arise from one of three activities - financing, operations or investing - although this also occurs as a result of donations or gifts in the case of personal finance. Cash outflows result from expenses or investments. This holds true for both business and personal finance. 2. An accounting statement called the "statement of cash flows", which shows the amount of cash generated and used by a company in a given period. It is calculated by adding noncash charges (such as depreciation) to net income after taxes. Cash flow can be attributed to a specific project, or to a business as a whole. Cash flow can be used as an indication of a company's financial strength. 1. In business as in personal finance, cash flows are essential to solvency. They can be presented as a record of something that has happened in the past, such as the sale of a particular product, or forecasted into the future, representing what a business or a person expects to take in and to spend. Cash flow is crucial to an entity's survival. Having ample cash on hand will ensure that creditors, employees and others can be paid on time. If a business or person does not have enough cash to support its operations, it is said to be insolvent, and a likely candidate for bankruptcy should the insolvency continue. 2. The statement of a business's cash flows is often used by analysts to gauge financial performance. Companies with ample cash on hand are able to invest the cash back into the business in order to generate more cash and profit.

Trial balance

A worksheet listing of all the accounts appearing in the general ledger with the dollar amount of the debit or credit balance of each. Used to make sure the books are "in balance" -total debits and credits are equal.

Cash Disbursements

AKA- Payment Journals. is a special journal that is used to record all cash that is paid out by a business except for payroll. Businesses with just a few employees could also use this journal to record their payroll checks; however, I recommend that you use a special payroll journal in order to have all your payroll information in one place. XXXX must: 1.All our checks written to suppliers are recorded (posted) in the XXXXJournal and the Supplier's Account Payable Subsidiary Ledger. At the end of a period (month), the totals from the Cash Disbursements Journal are also recorded (posted) in the General Ledger Accounts. 2.The XXXX Journal lists all checks, in check number order, paid during the month. It posts total checks written as a credit entry to the Cash Account. All payments to suppliers that have an Accounts Payable Subsidiary Ledger Account are Debited to the Accounts Payable Control Account and Credited to our Cash Account.

Perpetual Inventory

Accounting and Bookkeeping Procedures For Perpetual Inventory System Sale of Products-Recording of Revenue Earned and Associated Taxes and Cost Of Goods Sold Of course when we sell a product we need to record the increase in our assets either Cash or Accounts Receivable and the corresponding increase in our revenue Sales and the increase to our Sales Tax Liability. Recording the revenue and associated tax liability is done the same way as if we had used the Periodic Inventory Method of maintaining our Retail Inventory. What's different from the Periodic Inventory System is that we also record the Cost of the Goods Sold and the resulting decrease in our Merchandise Inventory Account at the same time (time of the Sale).

Perpetual Inventory

Non-Cash Item

Accounting: Financial statement item (such as amortization or depreciation) included in computing a firm's net income on an accrual basis, but which does not affect the inflow or outflow of cash. 2. Banking: Check, draft, or other negotiable instrument that cannot be credited to a customer's account until it completes the bank's clearing cycle.

Liabilities

Accounts Payable-Creditor's claims against the business's property arising from the business's purchase of goods and/or services on account. Notes Payable-Formal written promises to pay definite sums of money owed at specified times. Mortgage Payable-Notes payable which are secured by a lien on land, buildings, equipment, or other property of the borrower (your company).

Control Accounts Types

Accounts Receivable Accounts Payable. 1. Control-Plant Equipment,Vehicles, Office Equipment 1. Subsidiary-Detailed "Equipment" Records for each piece of "equipment." 2. Control-Inventory 2. Subsidiary-Detailed Item/Product Record for each item/product 3. Control-Notes and Loans owed to others 3. Subsidary-Detailed Loan Record for each loan we owe . 4.Control- Notes and Loans owed to us. 4. Subsidiary-Detailed Loan Record for each loan owed to us

Normal Balance of accounts

Accounts have XXXX on the side where the increases in such accounts are recorded. Asset accounts have XXXX on debit side. Expense accounts have XXXX on debit side. Liability accounts have XXXX on credit side. Equity accounts have XXXX on credit side. Revenue accounts have XXXXon credit side. In the financial statements, accounts are reported on the sides where they have XXXX. Assets + Draws + Expenses = Liabilities + Owner's Equity + Revenue Normal Debit Balance Accounts = Normal Credit Balance Accounts In this rearranged form of our fully expanded accounting equation, all the types of accounts that have a normal debit balance are listed on the left side of the equal sign and all the types of accounts that have a normal credit balance are listed on the right side of the equal sign.

Closing the books

Additional Owner Contributions, Revenues, Expenses, and Draws eventually are all merged together and become a part of the Ending Owner's Equity Balance. If you've heard the phrase Closing The Books, believe it or not, this is all that's basically involved in Closing The Books Assets = Liabilities + Ending Owner's Equity • Revenues - Expenses = Profit or Loss • Beginning Owner's Equity + Owner's Contributions + Revenue - Expense - Draws = Ending Owner's Equity

Periodic Method (advantages/ Disadvantages)

Advantages: • Simple to use. • Less record keeping is required-but don't be fooled ! Disadvantages: • Determining cost to assign to your ending inventory can be quite a hassle. Purchase orders and invoices normally contain many different products and their associated unit costs. Determining what cost(s) to use for valuing ending inventory may require a substantial effort. • Less overall management control-theft, etc. • Information is not available for determining optimal inventory levels. • Stock outs may occur. • Information is not readily available for determining profitable customers and product lines. • Information is not readily available for preparing financial statements. The periodic method is acceptable for low dollar value products and items where the cost of maintaining detail records is greater than the benefits derived. An example would be a hardware store's nuts, bolts, screws, and, nails.

Financial Statements (types):

Balance Sheet Income Statement. Capital Statement (Equity/Owners). Statement of Changes in Financial Position/ Cash Flow Statement.

Health of a business

Balance Sheet Profitability Cash Flow

Perpetual Method (advantages/ Disadvantages)

Advantages: • Better Overall Control. • Allows you to monitor your inventory levels and provides information for helping determine optimum inventory levels and ordering requirements. • You know what you have on hand at all times-better customer service. • No need to estimate or count inventory when preparing financial statements. • Helps prevent stock out conditions. • Information is available for determining profit by customer and product lines. Disadvantages: • Detailed records required. As a general rule, the perpetual method should be used for high dollar value products such as jewelry, cars, boats, lawn mowers, mink coats, etc.

COGS equation and inventory count 2

An Adjusting Entry derived from our count, valuation, and calculations (work sheet) must be made to adjust our Merchandise Inventory Account to our calculated value (cost) and record the Cost of the Items Sold during the period in our Cost of Goods Sold Account. The General Journall is used to record the Inventory and Cost of Goods Sold adjusting entries when the Periodic Inventory Method is used. Entries Needed To Record (Adjust) Merchandise Inventory and Cost Of Goods Sold The first entry will transfer the balance from our Purchases Account to our Merchandise Inventory Account. DESCRIPTION DEBIT CREDIT Merchandise Inventory 70,000 Purchases 70,000 The second entry will adjust our Ending Inventory Balance in our Merchandise Inventory Account and record our Calculated Cost of Good Sold amount in our Cost Of Goods Sold Account. DESCRIPTION DEBIT CREDIT Cost Of Goods Sold 72,500 Merchandise Inventory 72,500

Accounting Cycle

An XXXX is the sequence of repetitive bookkeeping tasks and procedures that are performed each period. Once you get in the groove as a bookkeeper, you basically perform the same tasks each month (period).

Accrued Expenses

An accounting expense recognized in the books before it is paid for. It is a liability, and is usually current. These expenses are typically periodic and documented on a company's balance sheet due to the high probability that they will be collected. XXXX are the opposite of prepaid expenses. Firms will typically incur periodic expenses such as wages, interest and taxes. Even though they are to be paid at some future date, they are indicated on the firm's balance sheet from when the firm can reasonably expect their payment, until the time they are paid. An example would be accruing interest that is building up on a bank loan.

Capitalize

An accounting method used to delay the recognition of expenses by recording the expense as long-term assets. In general, capitalizing expenses is beneficial as companies acquiring new assets with a long-term lifespan can spread out the cost over a specified period of time. Companies take expenses that they incur today and deduct them over the long term without an immediate negative affect against revenues. If a company capitalizes regular operating expenses, it is doing so inappropriately, most likely to artificially boost its operating cash flow and look like a more profitable company. Because a company can't hide its expenses forever, such a practice will fail in the long run. It is important not to confuse capitalize with capitalization.

Depletion

An accrual accounting method that companies use to allocate the cost of extracting natural resources such as timber, minerals and oil from the earth. XXXX is calculated for tax-deduction and bookkeeping purposes. Unlike depreciation and amortization, which mainly describe the deduction of expenses due to the aging of equipment and property, XXXX is the actual physical depletion of natural resources by companies. Entities that meet the IRS definition of having an economic interest in the property are eligible to claim deductions for XXXX. For accounting and financial reporting purposes, XXXX is meant to assist in accurately identifying the value of the assets on the balance sheet. There are two types of XXXX: percentage XXXX and cost XXXX. The IRS requires the cost method to be used with timber. It requires the method that yields the highest deduction to be used with mineral property, which it defines as oil and gas wells, mines, and other natural deposits (including geothermal deposits). Cost XXXX is calculated by taking the property's basis, total recoverable units and number of units sold into account. Percentage depletion looks at the property's gross income and taxable income limit.

Current Asset 2

An asset such as receivables, inventory, work in process, or cash, that is constantly flowing in and out of an organization in the normal course of its business, as cash is converted into goods and then back into cash. In accounting, any asset expected to last or be in use for less than one year is considered a XXXX. Also called circulating XXXX

Operating Expenses

An expense incurred in carrying out an organization's day-to-day activities, but not directly associated with production. XXXX include such things as payroll, sales commissions, employee benefits and pension contributions, transportation and travel, amortization and depreciation, rent, repairs, and taxes. These expenses are usually subdivided into selling expenses and administrative and general expenses. Also called non-manufacturing expenses. Rent - Building • Rent - Equipment • Utilities • Repairs and Maintenance • Insurance • Car and Truck Expenses • Travel • Entertainment • Postage • Office Supplies • Advertising • Marketing / Promotion • Professional Fees • Training and Development • Bank Charges • Credit Card Fees Other Payments Determine and Estimate any other payments that you anticipate will occur during your forecast period. • Owner's Draws / Dividends Include estimated amounts for any anticipated owner draws or payments of dividends to stockholders. • Current Debt Payments If you currently have any notes such as borrowings for equipment purchases you also need to include these payments (both principal and interest) as a Cash Payment in your Cash Forecast. • Additional Equipment Needs Speaking of equipment, if you do need additional equipment, whether you plan on borrowing or paying cash, you need to include the Cost of the Equipment as a Cash Payment in your Cash Forecast. • Income, State, and other Business Taxes Shucks, you wouldn't want to forget your friendly governments would ya ? You need to prepare estimates for any future income taxes, state business taxes such as franchise and excise taxes, and other business taxes that your specific type of business may be subject to. • Any Other Miscellaneous Type of Cash Payment. Include amounts for any other cash payments.

Direct Cost

An expense that can be traced directly to (or identified with) a specific cost center or cost object such as a department, process, or product. XXXX (such as for labor, material, fuel or power) vary with the rate of output but are uniform for each unit of production, and are usually under the control and responsibility of the department manager. As a general rule, most costs are fixed in the short run and variable in the long run. Also called direct expense, on cost, operating cost, prime cost, variable cost, or variable expense, they are grouped under variable costs.

Leasehold improvement

An improvement of a leased asset that increases the asset's value. The expense of a leasehold improvement is carried as an asset that declines in value over time, as the value is depreciated over the life of the lease or the improvement.

Petty Cash Fund

Another name that is sometimes used to refer to XXXX is an "imprest fund". This is just a fancy name that describes a special fund that is set up to handle special payments. The special payments in this instance are small cash payments for unexpected expenditures or payments where access to a check is not readily available. the only times you debit or credit the XXXX XXX Account is when you initially set up the fund or increase or decrease the balance of the fund.

Cash Flow Projection

Another term often used to refer to a cash forecast is a XXXX. Whether we use the term XXXX forecast, XXXXbudget, or XXXX projection we're talking about the same business tool used for analyzing our cash. A XXXX (projection or budget) is simply an estimate of the cash coming in and going out of a business during a period of time.

Non-current Assets

Any asset that is expected to be held for the whole year, not sold or exchanged, such as real estate, machinery, or a patent

Marketable Securities

Any equity or debt instrument that it readily salable and can be converted into cash, or exchanged with ease. Stocks, bonds, short-term commercial paper and certificates of deposit are all considered marketable securities because there is a public demand for them and because they can be readily converted into cash. Whereas shares in private corporations are illiquid, marketable securities can be converted to cash with great ease. Shares of IBM and government bonds are excellent examples of marketable securities. Marketable securities provide investors with the liquidity of cash and the ability to earn a return when the assets are not being used

Debit Equation

Assets + Draws + Expenses = Liabilities + Owner's Equity + Revenue Debit Balance Accounts = Credit Balance Accounts In this equation all the normal debit balance accounts are on the left side of the equal sign and all the normal credit balance accounts are on the right side of the equal side. This equation is sometimes used to help understand Debits and Credits which we'll be discussing in our next lesson.

Net worth

Assets-Liabilities= XXXX

Balance Sheet

Assets: 1.Cash (positive cash). 2. Current Assets (excluding cash). 3. Non-current Assets. Total Assets: Liabilities: 1.Short Term: Debts and obligation due in less than 12 months. (short term loans, overdrafts). 2.Current Liabilities (accounts payables/ excludes short term liabilities and overdrafts). 3.Long Term Liabilities: Debt and obligations due over 12 months. (mortgages, leases, bank loans). Totals Liabilities:

Basic Accounting Equation

Assets= Liabilities + Capital or Shareholders Equity (in the case of a corporation).

Expanded Accounting Equation

Assets= Liabilities + Capital or Shareholders Equity + Revenue - Expenses (A= L + SHE + Rev - Expenses)

Balance Sheet/ Continued

Assets= Resources and potential future value. Expenses= Consumed or expired good and services/ Always debits and never a credit for it. Ordered Equipment= Title has not been transferred. Therefore, an entry is not made in the system.

Average Collection Period

Average number of days for which receivables are outstanding during an accounting period.

Cut off date 1 (Early in the month)

Bank Statement will have some deposits and some checks listed that are not recorded in your check book for your current month (month you want to reconcile).These checks and deposits are recorded in your check book in the following month. How to handle: Use Bank's Cutoff Date as your Reconciliation "As Of" Date Or Adjust the Bank's Statement Balance to the balance that would be shown if the Cut Off Date had been the End Of The Month. To do this all you need to do is identify and total the checks processed that are applicable to your next month and also identify and total any deposits that were processed that are applicable to your next month. It's then a simple matter of mathematics to determine your bank statements balance adjusted as of the end of the month. Bank Balance Less: Deposits Posted Applicable To The Next Month Plus: Checks Processed Applicable To The Next Month Adjusted Bank Balance As Of The End Of The Month

Preparing financial statements

Beginning + adds = Ends - deductions.

Average inventory

Beginning Inventory + Ending Inventory/ 2

Current Owner's Equity Capital

Beginning Owner's Equity (Capital) + Owner's Investments + Revenues - Expenses - Draws

Expenses Breakdown

COGS-Cost of good sold (in the case of a retailer, wholesaler or manufacturer). These are the goods (intermediate goods in the case of a manufacturer) bought by the business which will be turned into final goods for the consumer (in case of a manufacturer). Operating Expenses: Rent Utilities Supplies Maintenance Insurance Professional Services Advertising

Balance Sheet (Assets Breakdown/ Cash & Cash Equivalents) I

Cash On Hand Cash Register Drawer(s) Funds Undeposited Cash ■ Petty Cash ■ Bank Checking Accounts General Payroll ■ Savings Accounts ■ Money Market Accounts Short-Term Investments include readily marketable securities that can easily be sold and converted back into cash. These type of investments normally result from a business in the lucky position of having excess cash available. The invested should be temporary in nature and not made to exercise control over another business or satisfy any other requirements and/or agreements. Reported at current market value by using an allowance for unrealized market gains and losses. Short-Term Investments ■ Certificates of Deposit ■ Stocks ■ Bonds ■ Other Short Term Investments ■ Valuation Allowance for Market Value Fluctuations

Important

Cash is a critical business asset.

Assets type:

Cash- everything liquid including traveler's checks. Current Assets-Prepaids, supplies, inventory, accounts receivable, notes receivable. Fixed/ Non-current assets-Property, plant, equipment, land, furntiure. Cash-Monetary items that are available to meet current obligations of the business. It includes bank deposits, currency & coins, checks, money orders, and traveler's checks. Accounts Receivable-Business claims against the property of a customer arising from the sale of goods and/or services on account. Notes Receivable-Formal written promises given by customers or others to pay definite sums of money to the business at specified times. Inventory-Expenditures for items held for resale in the normal course of a business's operations. Office Supplies-Expenditures for maintaining a supply of on hand supplies such as typewriter, copier, and computer paper, pens, pencils, and special forms. Land-Expenditures for parcels of the earth. It includes building sites, yards, and parking areas. Buildings-Expenditures for structures erected on land and used for the conduct of business. Equipment-Expenditures for physical goods used in a business, such as machinery or furniture. Equipment is used in a business during the production of income. Furniture includes items needed in a business office such as tables, desks, chairs, and cabinets

Liabilities

Claims by creditors to the property (assets) of a business until they are paid. Example: accounts payble, notes payable

Steps in closing the books

Close Drawing Account to Capital Account See Entry (a) • Close All Revenue and Expense Accounts To Income Summary Account See Entries (b) thru (o) • Close Income Summary Account to Capital Account See Entry (p)

Accounts Payable Subsidiary Ledger

Control account in the subsiadiary ledger with the details about the accounts who money is owed by the company. Specialized journals that support the XXXX SL: 1. Purchase Journals. 2. Cash disbursements Ledger.

Current Ratio

Current Assets/Current Liabilities http://www.youtube.com/watch?v=6-xS7LKIvyE

Sales of Product/ Perpetual Method

Debit Cash/Accounts Receivable Account Credit Sales Account Credit Sales Tax Payable Account Debit Cost Of Goods Sold Credit Inventory Control Account

Sales of Products/ Periodic Method

Debit Cash/Accounts Receivable Account Credit Sales Account Credit Sales Tax Payable Account No Entry Made To Record Cost Of Goods Sold and Reduce Inventory Value

Adjusting Entries/ Periodic Method

Debit Inventory Account Credit Purchases Account Debit Cost Of Goods Sold Account Credit Inventory Account

Purchase of Products/ Perpetual Method

Debit Inventory Control Account

Purchase of Products/ Periodic Method

Debit Purchases Account

Petty cash fund forms

Discuss Records and Forms Here Petty Cash Book or Worksheet Petty Cash Voucher Petty Cash Count Sheet Petty Cash Approval Forms

Cut off Date 3 (end of the month)

Effect: This is the situation you normally run across. Your Check Book for the month will have just a few transactions (checks and deposits) that will not appear on the Bank Statement. These transactions will have to be included in your Outstanding Check List For The Month and your Deposits In Transit Listing For The Month. How to handle: No Action Required.

Cut off Date 2 (Middle of the Month)

Effect: Your Check Book for the month will have quite a few transactions (checks and deposits) that will not appear on the Bank Statement. These transactions will have to be included in your Outstanding Check List For The Month and your Deposits In Transit Listing For The Month. How to handle: Use Bank's Cutoff Date as your Reconciliation "As Of" Date Or Include the checks not listed in your Outstanding Check List and the deposits not listed in your Deposits In Transit List. These will probably contain quite a few checks and deposits. Or As we discussed in the Early In The Month Section, adjust the Bank's Statement Balance to the balance that would be shown if the Cut Off Date had been the End Of The Month.

Inventory formula

Ending Inventory (Our Original Formula) Ending Inventory = Beginning Inventory + Purchases - Cost Of Sales Beginning Inventory Beginning Inventory = Ending Inventory - Purchases + Cost Of Sales Purchases Purchases = Ending Inventory - Beginning Inventory + Cost Of Sales Cost Of Sales Cost Of Sales = Beginning Inventory + Purchases - Ending Inventory

Owner's Equity (continued):

Equity (owner's stake in the business): 1. Capital Contributions (If any or start up). 2. Shareholder Distribution 3.Shareholder Equity. 4.Retained earnings. Total shareholder's equity, provisions and liabilities.

Prepayment

Expenditures made in a period which are not charged to a period expense account until they are used up. The expenditure is originally recorded as an Asset and charged to a period's Expense Account when a portion or all of the benefit has been used.

Debit and credits Rules

Expenses and draws are ALWAYS debits. Revenue and Equity are ALWAYS credits.

Worksheet

Forms which are used to summarize all the information necessary to complete the end-of-period financial reports and prepare other financial analysis.

Capital Expenditure.

Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. This type of outlay is made by companies to maintain or increase the scope of their operations. These expenditures can include everything from repairing a roof to building a brand new factory. The amount of XXX a company is likely to have depends on the industry it occupies. Some of the most capital intensive industries include oil, telecom and utilities. In terms of accounting, an expense is considered to be a XXXX when the asset is a newly purchased capital asset or an investment that improves the useful life of an existing capital asset. If an expense is a XXXX, it needs to be capitalized; this requires the company to spread the cost of the expenditure over the useful life of the asset. If, however, the expense is one that maintains the asset at its current condition, the cost is deducted fully in the year of the expense.

Preparing a cash flow projection

Gather up your historical financial information, develop and state your assumptions, and select the time period(s) covered. • Estimate sales and their collections for the time periods you want to cover by period. • Identify and estimate amounts and the period collected for other sources of cash. • Identify and estimate amounts for all items that you have to pay for and when (period). • Enter and formally summarize information on worksheet(s).

Purchase Acct./COGS/Inventory Acct.

General Ledger Accounts used to help keep up with products and aid in calculating the cost of products sold.

Balance Sheet

Gives an overview of the general health of the business. It is done usually at the end of every month. Equity. What you own. What you owe. What you have left over. Assets are organized in order of liquidity. Starting off by the assets that are the most liquid down to the assets that are the least liquid.

Cash Disbursements Features

Header with the Name of the Journal and Page • Debit and Credit Columns to record the amount of the transaction • Check Number (Reference) Column to record the check number of all checks issued • Date Column to record the date of the transaction • Description Column to record the name of the payee/supplier (who written to), and any other explanation or additional information about the transaction • Entry Number used as a reference to a specific transaction on the journal's page • Posting Reference to provide information when a Subsidiary Ledger also needs to be updated. This tells us whether the Subsidiary ledger has also been posted (updated). • Columns for each regularly occurring types of payment, expense, or expenditures and a section for other expenditures/payments.

Cash Receipt Features

Header with the Name of the Journal and Page • Entry Number used as a reference to a specific transaction on the journal's page • Date Column to record the date of the transaction • Description Column to record the customer's name or account and any other explanation or additional information about the transaction • Posting Reference to provide information when a Subsidiary Ledger also needs to be updated. This tells us whether the Subsidiary Accounts Receivable Ledger has also been posted (updated). • Debit Column for our Cash and Credit Columns for our Accounts Receivable Control Account and Cash Sales. • Special Other Credits Column with its related Posting Reference and Amount Columns. We use these three columns to record any other transactions resulting from receiving cash. Some examples are collection of a Note Receivable or borrowing money from a bank (Note Payable). In other words, we use these columns for any transactions that don't have their own special credit column.

Purchase Journal Features

Header with the Name of the Journal and Page • Entry Number used as a reference to a specific transaction on the journal's page • Date Column to record the date of the transaction • Description Column to record the name of the payee/supplier (who written to), and any other explanation or additional information about the transaction • Invoice Number Reference Column to record our supplier's invoice number • Posting Reference to provide information when a Subsidiary Ledger also needs to be updated. This tells us whether the Subsidiary Accounts Payable Ledger has also been posted (updated). • Debit Columns for all regularly occurring types of expenses or expenditures and a Credit Column for our Accounts Payable Control Account • Special Other Debits Column with its related Posting Reference Column We use these three columns to record debits for any transactions that don't have their own debit account special column.

Merchandise

Household, personal use, or commercial goods, wares, commodities, bought and sold in wholesale and retail. Merchandise that has been sold but not yet delivered is a sale and should not be included in your count. Merchandise that you have received and have title to but have not processed such as goods waiting to be unloaded or in a holding area waiting to be processed in should be processed and included in your inventory count. A procedure for identifying what has and has not been counted such as tags on the merchandise counted or any other method or procedure that tells you whether the goods have been counted should be used. This makes sure that goods aren't omitted from the count or included more than once.

Cash Flow Forecasting Benefits

Identify Business or Seasonal Fluctuations (peaks and valleys in your sales). • Ensure that cash is available to handle employee's payroll. • Ability to foresee and handle Note Repayments. • Ability to foresee, handle and make timely payments to Suppliers. • Be alerted to Short-Term Borrowing Needs. • Plan for Long-Term Financing Needs. • Plan for Reducing your Outstanding Loan Balances. • Plan for Needed Equipment Purchases (Capital Expenditures). • Take Advantage of Supplier Early Payment Discounts. • Plan Inventory Levels and related Purchases. • Monitor Customer Payments and Revise Customer Credit Policies and Terms if needed. • Determine what to do with "Excess" Cash if your fortunate enough to have this "problem". In other words, how much you have that you can invest and increase your earnings. Short-Term - one week to one month (you could if you wanted to even forecast one day) • Medium-Term - one month to one year • Long-Term - one year or longer

Steps in the Accounting Cycle

Identify and analyze transactions that need to be recorded • Journalize (record) the transactions in the proper journal • Post from the journals to the General Ledger and Subsidiary Ledgers • Prepare a Worksheet/Schedule of each Subsidiary Ledger and verify that the total balance of the Subsidiary ledger agrees with the balance of the General Ledger Control Account. • Prepare A Trial Balance/Adjusting Entry Worksheet Enter Trial Balance Information from General Ledger Review accounts and other information to determine if any Adjusting Entries are necessary Perform any necessary Counts of Inventories Enter any needed Adjusting Entries in our Worksheet and calculate our Adjusted Balances • Prepare Income Statement From Our Worksheet • Prepare Worksheet For Closing Entries Enter Closing Entries to transfer the balances of the Revenue and Expense Accounts to Income Summary Account Enter Closing Entry to transfer the balance of Income Summary Account to the Owner's Capital Account Enter Closing Entry to transfer the balance of the Owner's Drawing Account to the Owner's Capital Account • Prepare Balance Sheet and Capital Statement from our Worksheet • Record our Adjusting Entries in our formal General Journal • Record our Closing Entries in our formal General Journal • Post our formal entries from our General Journal to our General Ledger • Prepare a Post Closing Trial Balance Worksheet

Perpetual Inventory

If you use the Perpetual Method you have to maintain detail records pertaining to each and every purchase and sale of inventory. Detailed Records Maintained With A Perpetual System • Merchandise Inventory Subsidiary Ledger is maintained on Inventory Stock Record Cards (Manual System) or Computer Software that monitors your inventory or a complete computer accounting/bookkeeping software product that includes Inventory Management. The total costs of all the subsidiary ledger cards should equal the balance maintained in the Merchandise Inventory-Control Account. • Count and Costing Sheets used when performing a Physical Inventory Count Wait a minute, why do I need to actually count my inventory when I'm using the Perpetual Inventory System ? Shucks the answer is easy. We're human and unfortunately we make mistakes (not me). As I stated earlier our Perpetual Inventory System is only as good as the people who maintain it. We use the physical count to verify the accuracy of our perpetual records and make any required adjustments resulting from errors. Source Documents Used To Maintain The Inventory: • Purchase Orders and Invoices from Suppliers are used to record (update our detail stock records) the quantities and the cost of the items received • Our Sales Invoices along with information from our subsidiary ledger cards (cost information) are used to record (update our detail subsidiary ledger (stock records) the quantities and costs of the items sold

Timing Differences

In accounting, the amount of time between the point at which an asset or transaction affects a company's finances for reporting purposes and the point at which it affects it for tax purposes. This is especially important in depreciation: tax depreciation and reporting depreciation are sometimes calculated differently.

Cash Flow Statement

In financial accounting, a XXXX statement, also known as statement of XXXXX or funds flow statement,[1] is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and cash out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet.[1] As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. International Accounting Standard 7 (IAS 7), is the International Accounting Standard that deals with cash flow statements. People and groups interested in cash flow statements include:

Adjustments

In the case of a car: Depreciation Expense- Debit on the expense account for the Income Statement account. and Accumulation Expense- Contra Asset Account (under Fixed assets *car* for this case) and credit as an increase. This is a double entry of expense and accumulation in order to deduct the cost of the vehicle due to "wear and tear" or loss of value due to time and use of the asset over a period of time. Adjusting Entries are usually prepared at the end of each accounting period not just at year end

Cash Flow Forecasting

In the context of corporate finance, XXXX is the modeling of a company or entity's future financial liquidity over a specific timeframe. Cash usually refers to the company's total bank balances, but often what is forecast is treasury position which is cash plus short-term investments minus short-term debt. Cash flow is the change in cash or treasury position from one period to the next.

Cash Equivalents.

Investment securities that are short-term, have high credit quality and are highly liquid. Also referred to as "XXXX". XXXX are one of the three main asset classes, along with stocks and bonds. These securities have a low-risk, low-return profile. XXXX equivalents include U.S. government Treasury bills, bank certificates of deposit, bankers' acceptances, corporate commercial paper and other money market instruments.

Posted

It means the transaction has been recorded in the appropiate journals, ledger, etc.

Perpetual Inventory

Journal Used: Cash Sale would be recorded in the Cash Receipts Journal as a debit to our Cash Account, a credit to our Sales Account, and a credit to our Sales Tax Liability Account Charge(On Account) Sale would be recorded in the Sales Journal as a debit to our Accounts Receivable Control Account, a credit to our Sales Account, and a credit to our Sales Tax Liability Account To record the Cost of the Items Sold and the reduction in the value of the Merchandise Inventory, you can use the Cash Receipts or Sales Journal where you recorded the revenue resulting from the sale to record the cost portion of the entry or create a Special Cost Of Goods Sold Journal and use it to record the cost of the items sold. Purchase Items The Merchandise Inventory Control Account is the account used to maintain a summary of the cost of merchandise bought to be sold (Purchases) to your customers and the costs of the merchandise sold and transferred to the Cost of Goods Sold Account. The balance of this Control Account, after all the transactions for the period have been posted, represents the current balance of our inventory.

Specialized Journals

Journals used to initially record special types of transactions such as sales, cash disbursements, and cash receipts in their own journal

Sales made on credit

Later payments for good and/or services provided by a business. They are still recorded as a revenue, and they are considered a current asset (accounts receivable).

Purchase Account

Ledger account in which all inventory purchases are recorded; used generally with periodic inventory method. Is an account used only to record the cost of merchandise bought to be sold to your customers. The Purchase Account is a temporary account that is adjusted at the end of an accounting period (month/year). Always remember that inventory is the biggest expense a business that sells products can have in a month/year.Entry Needed To Record The Purchase Transaction: Assumptions: Purchase of merchandise inventory for resale in the amount of $600 was made Example: DEBIT Purchases 600 CREDIT Cash or Accounts Payable 600

Cash Management 2

Maintain an accurate check book, register or cash summary record. • Make daily bank deposits and deposit your receipts intact (don't pay bills with cash out of your cash receipts). • Make all disbursements by check whenever possible. • Prepare Monthly Bank Reconciliations. • Establish procedures for handling cash and insuring that all cash is properly accounted for and timely deposited in your bank. • Establish relationships with banks and other lending resources so you already have in place a source you can go to for help if you experience a temporary cash shortage. • Strive to pay your suppliers and creditors on time. By building a good credit record and establishing a good relationship they are more inclined to work with you if you encounter a temporary cash shortage. • Establish Credit Terms and Policies applicable to your trade or business and investigate and continue to monitor customers that you sell to and grant credit terms. Notice I said continually monitor your customers credit status. Do you know why ? Few things in life stay the same. Just because a customer had great credit when you approved them does not necessarily mean that their business can't experience a down turn. If that happens their problems might also cause your business some problems in collecting what they owe you. • If you have quite a few cash related transactions each day, you may want to prepare a daily cash status report. If you don't have a lot of daily banking transactions, you may just want to prepare the report on a weekly basis. • Analyze your cash needs and prepare Cash Forecasts / Budgets to help identify possible future cash shortages and allows you the time needed to take corrective action(s).

Setting up a chart of accounts

Manual or Computer System. • Financial information and reports needed to manage your business. • Financial reporting requirements and to whom. • Information needed to prepare tax returns. • Information needed for any special regulatory reporting requirements. • Type of business. Size and complexity of the business. • Staff size and capabilities. • Need for a simple or more complex Coding System

Cost of Sales

Manufacturing: The sum of direct material, direct labor, and factory overheads incurred in making a product. 2. Retail: The purchase price of merchandise. Also called cost of goods sold.

Finished Goods

Materials or products which have received the final increments of value through manufacturing or processing operations, and which are being held in inventory for delivery, sale, or use.

Perpetual Inventory System

Method for keeping up with products and calculating the cost of products that were sold in a period. Up-to-date inventory records are maintained at all times. A detailed record is maintained for each product that keeps up with the quantities and cost of each purchase and the quantities and cost associated with each sale. An actual count is usually done at the end of the year in order to check the accuracy and correct any errors in the detailed records

Adjusting Entries/ Perpetual Method

No Adjusting Entries Needed To Record Cost Of Goods Sold and Adjust Ending Inventory

Ending Inventory

Remaining inventory that is available for purchase after the account period has ended.

Preparing a Sales Forecast

Organize your sales into groups or categories such as product lines that have similar characteristics and gross margin percentages. If you don't already know, a gross margin percentage is your gross profit (sales less cost of goods sold) divided by sales. • If you don't already have one, prepare a monthly sales analysis by category for at least three years. If you haven't been in business for three years, or don't feel that your prior years are indicative of the future, you should at least use your business's previous year's sales amounts as a starting point for your estimated sales forecast. By using last year's sales amounts at least you'll be considering such factors as seasonal fluctuations and trends when preparing your sales forecast. • Research and find current information and trends applicable to your particular type of business. • Research and check out what your competition is doing. • Think about and analyze variables that affect your level of sales (sales volume). ◦ Analyze Prices that you charge and what prices your competition is charging and determine whether you need to increase or decrease your prices. ◦ The current capacity of your business and any plans for increasing or decreasing your capacity. A store with 5000 square feet only has room to stock so many products. ◦ Product availability and the status and financial condition of your suppliers. ◦ The magnitude of your sales area (local or national) ◦ Current and future marketing plans.

Codes

Organize, identify or represent something.

Payment Terms

Payment At The Time Of Sale Cash or Net Cash • Payment at The Time Of Delivery COD-Cash On Delivery • Payment is Due Upon Receiving the Invoice Due Upon Receipt • Number of Days Due From the Invoice Date Net 30 days-payment is due 30 days from the invoice date Net 60 days-payment is due 60 days from the invoice date • End Of Month Terms n10/EOM-all purchases made in a given month are due by the 10Th of the following month • Terms with Discounts 2/10, Net 30-2% discount allowed if paid within 10 days from the date of the invoice; otherwise full amount due within 30 days from the date of the invoice.

Operating Cash Flow to Sales Ratio

Percentage measure of a firm's ability to convert sales into cash, and an important indicator of its creditworthiness and productivity. A high number means the firm will be able to grow because it has sufficient cash flow to finance additional production, a low number indicates the opposite. Formula: Cash flows from operating-activities x 100 ÷ Sales revenue

Posting

Process of transferring balances from bookkeeping records called journals to a "final" bookkeeping record called the general ledger

Beginning Inventory

Products or services that a business starts with during a new fiscal year.

Cash Management 3

Profits and Cash Flow are both critical elements needed for a business to survive and be successful ! Good Cash Management is also just as important as making a profit. Great cash management is even better. If cash receipts are greater than cash disbursements during a period, the business has what is called a positive cash flow. On the other hand, if cash disbursements are greater than cash receipts during the period the business has what is called a negative cash flow. Creating a Cash Forecast requires you to make reasonable estimates about what will happen in the future.

Sales Forecast

Projection of achievable sales revenue, based on: 1. Historical sales data. 2. Analysis of market surveys and trends. 3. Salespersons' estimates. Also called sales budget, it forms the basis of a business plan because the level of sales revenue affects practically every aspect of a business. See also sales target.

Accounting Equation 2

Property (Assets)= Property Rights (claims against them by creditors or owners).

Balance Sheet (Asset Breakdow/ Fixed Assets) III

Property, Plant, and Equipment Assets of a durable nature that are used to provide current and future economic benefits to the business. These accounts will normally have a sub ledger that contains a record for each parcel of land, building, or piece of machinery and equipment along with depreciation calculations and amounts. ■ Land ■ Buildings ■ Accumulated Depreciation - Buildings (Contra Account) ■ Building Improvements ■ Accumulated Depreciation - Building Improvements (Contra Account) ■ Machinery and Equipment ■ Accumulated Depreciation - Machinery and Equipment (Contra Account) ■ Office Equipment ■ Accumulated Depreciation - Office Equipment (Contra Account) ■ Computer Equipment ■ Accumulated Depreciation - Computer Equipment (Contra Account) ■ Vehicles ■ Accumulated Depreciation - Vehicles (Contra Account) ■ Furniture and Fixtures ■ Accumulated Depreciation - Furniture and Fixtures (Contra Account) ■ Leasehold Improvements ■ Accumulated Amortization - Leasehold Improvements (Contra Account) ■ Computer Software ■ Accumulated Amortization - Computer Software (Contra Account) ■ Other Property, Plant, or Equipment ■ Accumulated Depreciation - Other Property, Plant, or Equipment ■ Other Noncurrent Assets All assets that are noncurrent and that do not fit neatly into any of the other categories. ■ Long Term Owner Loans & Advances ■ Long Term Employee Loans & Advances ■ Notes Receivable - Long-term principal portion of Long-term Notes ■ Security Deposits ■ Intangible Assets ■ Patents ■ Organization Costs ■ Goodwill ■ Accumulated Amortization (Contra Account)

Credit Sales

Purchases made by a consumer that do not require a payment made in full at the time of purchase

Cash Outflow

Purchases of Products for wholesale and retail types of businesses that sell products. • Payroll and Fringe Benefits. • Manufacturing Costs for businesses that make and sell products. • Federal and State Taxes and Licenses.

Balance Sheet (Assets Breakdown/ Current Assets) II

Receivables Included in this category are Accounts Receivable (open account customer balances resulting from sales) and customer Notes (principal and interest resulting from sales) that are formalized agreements and evidenced in writing. Short term temporary loans and advances are also included. An allowance for estimated uncollectible amounts is also provided. ■Accounts Receivable This account will normally have a sub ledger that contains a record for each customer or client. ■ Allowance For Bad Debts (Contra Account) Used to record customer accounts that may not be collected. ■Trade Notes Receivable - Current principal portion ■ Interest Receivable ■ Other Receivables ■ Short Term Owner Loans and Advances ■ Short Term Employee Loans & Advances ■ Short Term Travel and Expense Advances ■Inventory The accounts set up in the inventory section depend on the type of business. Is the business a service, retailer, wholesaler or manufacturer ? For retailers and wholesalers an inventory sub ledger is usually maintained to keep track of each individual product. Manufacturing types of businesses usually and Service types of businesses occasionally maintain sub legers for projects, jobs, and processes. ■ Manufacturer ■ Raw Materials ■ Manufacturing Supplies ■ Work In Process ■ Direct Labor ■ Direct Material ■ Manufacturing Costs ■ Direct Labor ■ Direct Material ■ Manufacturing Overhead - Actual ■ Indirect Labor ■ Supervision Salaries ■ Fringe Benefits ■ Manufacturing Supplies ■ Small Parts ■ Perishable Tools ■ Utilities ■ Depreciation ■ Rent ■ Leases ■ Repairs & Maintenance ■ Insurance ■ Property Taxes ■ Overhead Costs Applied ■ Finished Goods ■ Retailer or Wholesaler ■ Merchandise Inventory ■ Store Supplies ■ Service ■ Work In Process - Projects / Jobs ■ Completed / Unbilled Projects / Jobs ■ Common To All ■ Office Supplies ■ Prepaid Expenses Prepaid Expenses are assets created by the early payment of cash or assuming a liability. They expire and are charged to expenses based on the passage of time, usage, or other factors. All Prepaid Expenses could be recorded in a single account or separate accounts could be used for each different type. ■ Prepaid Insurance ■ Prepaid Rent ■ Prepaid Advertising ■ Prepaid Interest ■ Other Prepaid Expenses ■ Other Current Assets This category includes other current assets that do not neatly fit into any of the other categories. The amounts must be deemed collectible in a relatively short period of time (operating cycle). ■ Notes Receivable - Current principal portion of Long-term Notes ■ Other Current Assets ■ Long-Term Investments Investments that are intended to be held and not converted into cash for an extended period of time (longer than the operating cycle). Reported at current market value by using an allowance for unrealized market gains and losses. ■ Stocks ■ Bonds ■ Other Long Term Investments ■ Valuation Allowance for Market Value Fluctuations

Analyze and Record Transactions

Recognize that a transaction (event) has occurred and what source documents such as sales invoices (tickets), invoices from suppliers, contracts, checks written or checks received , provide documentation (proof) that a transaction has occurred. 2. Understand how the transaction (event) affects the business-the type of transaction and whether it needs to be recorded in the formal bookkeeping records. 3. Determine what accounts are affected and whether the transaction increases or decreases the account balance. 4. Use the business's Chart of Accounts when necessary to determine the account numbers that represent these accounts. 5. Use the debit and credit rules to determine if the accounts are debited or credited. 6. Determine what Journal should be used to record the transaction. 7. Do It-Record the transaction.

Matching Concept

Recording the revenues earned during a period and matching (offsetting) the revenues with the expenses incurred in generating this revenue

Accrual Basis

Records income in the period earned and all expenses in the period incurred.

Pre-Tax Income

Reported income before the deduction of income taxes. XXXX income is sometimes considered a better measure of a firm's performance than aftertax income because taxes in one period may be influenced by activities in earlier periods. Also called earnings before taxes XXXX

Sub Categories of Owner's Equity or Capital

Revenue (Income)- Increase of owner's equity due to operations of the business (selling of goods and services). Expenses-Decrease of owner's equity resulting from business ops. Decrease in owner's equity (capital) resulting from the cost of goods, fixed assets, and services and supplies consumed in the operations of a business. Investment-keeping up with increases in owner's equity (Ma Capital) resulting from additional amounts invested in the business. Owner's Draw-Decreases of owner's equity resulting from from owner withdrawals for living expenses and other personal expenses/

Types of cash Inflow

Revenue (cash and charge sales), investors contributing cash, bank or other loans made to the business, and the sale of equipment and other fixed assets.

Revenue

Sale of Products-Amounts earned from the sale of merchandise. Sale Of Services-Amounts earned from performing services. Rental Income-Amounts earned from renting properties. Interest Income-Amounts earned from investments

Common types of business transactions

Sale-Sell goods and/or services Cash Sale-customer pays at the time of sale The business gets cash or a check from their customer and gives up a product or service to their customer. On Account Sale-business allows the customer time to pay The business gets a promise to pay from their customer and gives up a product or service to their customer. Purchase goods and/or services Cash Purchase-business pays the supplier at the time of purchase The business gets a product or service from their supplier and gives up cash or a check to their supplier. On Account Purchase-supplier allows the business time to pay The business gets a product or service from a supplier and gives up a promise to pay to their supplier. Pay Supplier Charge Purchases -pay suppliers for products and/or services that we promised to pay for later (charge). The business gets the amount of their promise to pay the supplier reduced and gives up cash or a check. Receive Customer Charge Payments -receive payments from a customer that promised to pay us later (charge sale). The business gets cash or a check from their customer and gives up (reduces the amount of) their customer's promise to pay. Borrow Money (Loans) The business gets cash or equipment and gives up a promise to pay. Repay a Loan The business gets the amount of their promise to pay reduced and gives up cash or a check. Draw The business gets the owner's claim to the business assets reduced and gives up cash or a check. Payroll The business gets services from their employees and gives up a check. These common types of business transactions are the underlying basis for the use of specialized journals.

Sales Return and Allowances Journal

is a special journal that is used to record the returns and allowances of merchandise sold on account.

Periodic Inventory System

Simple method for keeping up with products and calculating the cost of products that were sold in a period.

Types Specialized Journal

Some Special Journals a business will normally have are: • Cash Receipts Journal • Cash Disbursements Journal (Check Register) • Payroll Journal • Sales Journal • Purchase Journal • General Journal

Income Summary Account.

Special Temporary "Equity" Account used for closing and transferring our Revenue and Expense Account ending balances. We could close out our income and expense accounts for the period by transferring the account balances directly to our Capital Account (Owner's Equity). Instead we use this Special Account as an "informal income statement" and only transfer one summary amount to our Capital Account. The difference between the debit and credit balance in our Income Summary Account is actually profit if the credit balance accounts (sales/revenue) are greater than the debit balance accounts and a loss if the debit balance accounts (expenses) are greater than the credit balance accounts

Expenses

Supplies-Expenditures for incidental materials needed in the conduct of business, such as office supplies. Salaries-Expenditures for work performed by employees. Payroll Taxes-Expenditures for taxes based on wages paid to employees. Advertising-Promotional expenditures, such as newspapers, handbills, television, radio and mail. Utilities-Expenditures for basic services needed to function in the modern world, such as water, sewer, gas, electricity and telephone. Most businesses track the amount spent for each type of utility service. Building Rental-Expenditures paid to an owner of property (building) for use of the property. A rental agreement called a lease contains the terms. Maintenance & Repairs-Expenditures paid to repair and or maintain buildings and/or equipment

Assets

The properties used in the operation or investment activities of a business. Intanginble- Invoices, sales receipts, loans due to owner, , accounts receivable, notes receivable. Tangible-Equipment, property, plants, cars, trucks, etc.

Interest income

The term that companies use on their income statement for reporting the interest earned on cash temporarily held in savings accounts, certificates of deposits, or other investments. Because the interest wasn't part of the original investment, they record it separately, as interest income.

Accumulated Depreciation

The XXXX of an asset up to a single point in its life. Regardless of the method used to calculate it, the XXXX of an asset during a single period is added to the previous period's XXXX to get the current XXXX. An asset's carrying value on the balance sheet is the difference between its purchase price and XXXX. A company buys an asset for $5,000 that has a five-year lifespan and zero salvage value. The company uses straight-line depreciation, and the asset depreciates at a rate of $1,000 per year. In year one, depreciation will be $1,000, as will accumulated depreciation, and carrying value of the asset will be $4,000. In year two, depreciation will be $1,000, accumulated depreciation will be $2,000 ($1,000 from the current year + $1,000 accumulated from previous years) and carrying value will be $3,000. Each subsequent year will follow the same process.

Accrue

The ability for something to accumulate over time. In finance, "XXX" is most commonly used when referring to interest, income and expenses of an individual or business. Interest in your savings account XXXs so that over time the total amount in your account grows. In practice, the word "XXX" is often synonymous with the concept of XXXX accounting, which has become the standard accounting practice for most companies. This form of accounting measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur, which gives a better picture of the company's financial health.

Consigment

The action of consigning goods. 2. A Specific shipment of goods sent by a consignor to a named consignee. occurs when a supplier maintains title/ownership of the goods but you have custody of the goods and are allowed to sell them and pay for the goods as they are sold. On the other hand, if you have supplied other businesses with consigned goods you need to count or make arrangements to have a count performed and include your consigned goods in your inventory.

Actual Cash Value

The amount equal to the replacement cost minus depreciation of a damaged or stolen property at the time of the loss. It is the actual value for which the property could be sold, which is always less than what it would cost to replace it. Sometimes, insurance companies use XXXX to determine the amount to be paid to a policyholder after loss or damage to the insured property. In the case of an automobile that is totaled in an accident, for example, the insurance company would typically pay the XXX of the vehicle after determining its replacement cost and subtracting factors such as depreciation and wear and tear. Under replacement-cost coverage, the insurer would pay the amount required to replace the covered item with a like-kind new one.

Merchandise Inventory

The amount of products or services not been sold and will stay on a company's books.

Owner's Drawing Account

The contra owner's equity account used to record the current year's withdrawals of business assets by the sole proprietor for personal use. This is a temporary account with a debit balance. It will be closed at the end of the year to the owner's capital account. Owner XXXX are not used to figure the profit or loss of the business. Note: The XXXX could be equal, less than, or more than the profit / loss of the business

Cash Management

The corporate process of collecting, managing and (short-term) investing cash. A key component of ensuring a company's financial stability and solvency. Frequently corporate treasurers or a business manager is responsible for overall cash management. Successful cash management involves not only avoiding insolvency (and therefore bankruptcy), but also reducing days in account receivables (AR), increasing collection rates, selecting appropriate short-term investment vehicles, and increasing days cash on hand all in order to improve a company's overall financial profitability. Investopedia explains Cash Management Successfully managing cash is an essential skill for small business developers because they typically have less access to affordable credit and have a significant amount of upfront costs they need to manage while waiting for receivables. Wisely managing cash enables a company to meet unexpected expenses in addition to handling regularly-occurring events like payroll

Salvage Value

The estimated value that an asset will realize upon its sale at the end of its useful life. The value is used in accounting to determine depreciation amounts and in the tax system to determine deductions. The value can be a best guess of the end value or can be determined by a regulatory body such as the IRS. The XXXX is used in conjunction with the purchase price and accounting method to determine the amount by which an asset depreciates each period. For example, with a straight-line basis, an asset that cost $5,000 and has a salvage value of $1,000 and a useful life of five years would be depreciated at $800 ($5,000-$1,000/5 years) each year. Within the tax system, when a person donates a car he or she receives a tax deduction. The value of this deduction depends on the salvage value of the car. This salvage value is determined to be the current fair market value that could be obtained had the car been sold on that day rather than donated.

Capital Statement

The financial report that summarizes all the changes in owner's equity (capital) that occurred during a specific period

Statement of Changes in Financial Position/Cash Flow Statement.

The financial statement that reports the sources and uses of cash or working capital for a specific period of time, normally a year.

Income Statement

The financial statement that summarizes revenues and expenses for a specific period of time, usually a month or a year. This statement is also called a Profit and Loss Statement or an Operating Statement.

Balance Sheet

The financial statement which shows the amount and nature of business assets, liabilities, and owner's equity (capital) as of a specific point in time. It is also known as a Statement Of Financial Position or a Statement Of Financial Condition

Cash Sales

The major inflow of cash to a business results from the sales to customers and the immediate payment

Gross Profits

The net sales minus the cost of goods and services sold. In accounting, XXXX or XXXX profit is the difference between revenue and the cost of making a product or providing a service, before deducting overhead, payroll, taxation, and interest payments. Note that this is different from operating profit (earnings before interest and taxes).

Gross Profits

The net sales minus the cost of goods and services sold. In accounting, gross profit or sales profit is the difference between revenue and the cost of making a product or providing a service, before deducting overhead, payroll, taxation, and interest payments. Note that this is different from operating profit (earnings before interest and taxes).

Owner's Equity or Owner's Capital

The owner's rights to the property (assets) of the business; also called proprietorship and net worth. XXXX (Capital) represents the owner's claim to the good stuff (assets).

Bank Reconciliation

The process of bringing the checkbook and bank statement balances into agreement

Operating Profit

The profit earned from a firm's normal core business operations. This value does not include any profit earned from the firm's investments (such as earnings from firms in which the company has partial interest) and the effects of interest and taxes. Also known as "earnings before interest and tax" (EBIT). Calculated as: Operating Profit= Operating Revenue-Operating Expenses.

Common Stock

This is a SHE account since it increases or decreases equity from the shareholders or owners of the company or corporation. The holders of common stock can reap two main benefits from the issuing company: capital appreciation and dividends. Capital appreciation occurs when a stock's value increases over the amount initially paid for it. The stockholder makes a profit when he or she sells the stock at its current market value after capital appreciation.

Income Summary Account

To close and transfer our Revenue and Expense Account Ending Balances

Payroll

Total amount required to pay workers and employees during a week, month or other period. 2. Paysheet which records wage rates, deductions, and net pay.

COGS equation and inventory count

Two Step Approach: Beginning Inventory + Purchases = Total Cost of Goods Available for Sale Total Cost of Goods Available for Sale - Ending Inventory = Cost of Goods Sold Combined Approach: The above steps combined into one equation: Beginning Inventory + Purchases - Ending Inventory = Cost Of Goods Sold Example: Assumptions: Beginning Inventory Valued at a cost of $10,500 and obtained from our Inventory Account Purchases at a cost of $70,000 were made during the period and obtained from our Purchases Account Ending Inventory was counted and valued at a cost of $8,000 as of the end of the period Beginning Inventory Value 10500 Add:Purchases (Transfer To Inventory Account From Purchases Account) 70000 Total To Account For-Available For Sale After Purchase Transfer 80500 Subtract:Ending Inventory Value (Based On Our Count) 8000 Cost of Goods Sold During The Period (Transfer to Cost Of Goods Sold Account From Inventory Account)

Insolvency

What Does XXXX Mean? When an individual or organization can no longer meet its financial obligations with its lender or lenders as debts become due. XXXX can lead to XXXX proceedings, in which legal action will be taken against the XXXX entity, and assets may be liquidated to pay off outstanding debts. Before an XXXX company or person gets involved in XXXX proceedings, it will likely be involved in more informal arrangements with creditors, such as making alternative payment arrangements. XXXX can arise from poor cash management, a reduction in the forecasted cash inflow or from an increase in cash expenses

General Ledger II

What Information does a General Ledger Page contain ? •Name of Account and Account Number •Date of Posting •Description-additional notes about the entry if needed •Posting Reference-journals name (abbreviation) , page, and entry reference •Amounts of the debits or credits transferred •Current Balance of the Account

Journal (Book of Original Entry) II

What type of information is included in the Journal Record ? •Entry Number •Date of each transaction •Names and/or the account numbers of the accounts to be debited or credited •Amounts of the debits and credits •Posting Reference-Account Number in the General Ledger •Explanation or description of the entry The journals contain all the chronological (by date) information necessary to record debit and credit amounts in the accounts of the General Ledger. General Journal entry anatomy: Entry number: GJ-1-1 (General Journal-Page1-Entry1

Unearned Revenue

When an individual or company receives money for a service or product that has yet to be fulfilled

Working Capital

Working Capital-net difference between current assets and current liabilities. Working Capital = Current Assets - Current Liabilities

Cash and Cash Equivalents

XXX and XXXX are the most liquid assets found within the asset portion of a company's balance sheet. XXXX are assets that are readily convertible into cash, such as money market holdings, short-term government bonds or Treasury bills, marketable securities and commercial paper. XXXX are distinguished from other investments through their short-term existence; they mature within 3 months whereas short-term investments are 12 months or less, and long-term investments are any investments that mature in excess of 12 months. Another important condition a XXXX needs to satisfy is that the investment should have insignificant risk of change in value; thus, common stock cannot be considered a cash equivalent, but preferred stock acquired shortly before its redemption date can be.

Depreciation Expense

XXXX is the process by which a company allocates an asset's cost over the duration of its useful life. Each time a company prepares its financial statements, it records a XXXX-XXXX to allocate a portion of the cost of the buildings, machines or equipment it has purchased to the current fiscal year. The purpose of recording XXXX depreciation as an XXXXX is to spread the initial price of the asset over its useful life. For intangible assets - such as brands and intellectual property - this process of allocating costs over time is called amortization. For natural resources - such as minerals, timber and oil reserves - it's called depletion.

Net Income

XXXX is the residual income of a firm after adding total revenue and gains and subtracting all expenses and losses for the reporting period. XXXX can be distributed among holders of common stock as a dividend or held by the firm as an addition to retained earnings.

Estimated Purchases Payment Schedule

You'll use your Estimated Purchases Amounts Schedule By Period along with your Purchases Credit Terms and Payment Patterns Analysis that was prepared earlier to prepare your Estimated Purchases Payment Schedule and to determine in what future periods these estimated purchases have to be paid for (the period of the actual cash payment for these purchases).

Invoice

a business document showing the names and addresses of the buyer and the seller; the date and terms of the sale; the description, quantity, unit price, and total price of goods purchased or sold and the method of delivery. Selling business refers to this document as a Sales Invoice. Buying business refers to this document as a Supplier Invoice

Chart of Accounts

a list of all of the individual accounts that are available in the general ledger. It list all of the major account types and balance sheet and income statement accounts and its purpose. It contains the account's name, a brief description of the account, and usually an account number assigned to aid in recording and tracking transactions.

Accounts

a record in the general ledger to which amounts are posted; typical accounts include Cash, Accounts Receivable, Accounts Payable, Sales, Wages Expense, and so on.

Real Account

accounts for liability, asset and equity that are included on the balance sheet and are not closed at the end of each accounting period.

Temporary Accounts

accounts that are closed at the end of the accounting year so that they begin the new year with a zero balance; e.g. income statement accounts and the owner's drawing account.

Permanent Accounts

accounts whose balances carry forward to the next accounting year; e.g. balance sheet accounts

Owner's Equity Account

along with liabilities—can be thought of as a source of the company's assets. Owner's equity is sometimes referred to as the book value of the company, because owner's equity is equal to the reported asset amounts minus the reported liability amounts. Owner's equity may also be referred to as the residual of assets minus liabilities. These references make sense if you think of the basic accounting equation: Assets = Liabilities + Owner's Equity and just rearrange the terms: Owner's Equity = Assets - Liabilities "Owner's Equity" are the words used on the balance sheet when the company is a sole proprietorship. If the company is a corporation, the words Stockholders' Equity are used instead of Owner's Equity. An example of an owner's equity account is Mary Smith, Capital (where Mary Smith is the owner of the sole proprietorship). Examples of stockholders' equity accounts include:

Fixed Asset

also known as a non-current asset or as property, plant, and equipment (PP&E), is a term used in accounting for assets and property which cannot easily be converted into cash. This can be compared with current assets such as cash or bank accounts, which are described as liquid assets. In most cases, only tangible assets are referred to as fixed.

Control Account

an account in the general ledger with summary information. The supporting details are contained in a subsidiary ledger

Contra Account

an account with a balance that is opposite of the normal balance; e.g. Accumulated Depreciation is a contra asset account because its credit balance is the opposite of the normal debit balance for an asset account. Comment:An account can occasionally end up with a balance that is not its normal balance. A good example would be a business "strapped" for cash that ends up with a credit balance in its cash account by writing out checks for more funds than they have on deposit in the bank. This credit balance signifies that the account is overdrawn, and instead of being classified as an asset, which it normally is, is now a temporary liability (amount owed to bank).

Debit

an amount entered on the left side of an account; will increase the account balances of assets, expenses, losses; will decrease the account balances of liabilities, stockholders' equity, revenues.

Credit

an amount entered on the right side of an account; will cause the account balances of revenues, liabilities, stockholders' (owner's) equity, and gains to increase; will cause the balances of assets and expenses to decrease

Passive Income

an income received on a regular basis, with little effort required to maintain it.

Deposit in Transit

are deposits made by a business or individual that have not yet been credited to your account by the bank. Usually, this results from making a deposit for a day late in the afternoon or evening. When referred to when preparing a bank reconciliation, the Deposits In Transit are the deposits that have been recorded in the business's records but have not yet been recorded in the bank's records.

Direct Deposit

are deposits that are sent to and directly deposited in your bank. The bank usually sends a notice to their customers to alert them that the deposit has been made on their behalf. A common example that many businesses should be familiar with is the daily transmittal (deposit) of all their customer's credit card sales processed by their credit card provider.

Treasury Notes

are government securities that are issued with maturities of 2, 3, 5, 7, and 10 years and pay interest every six months.

TIPS (Treasury Inflation Protected Securities)

are marketable securities whose principal is adjusted by changes in the Consumer Price Index. TIPS pay interest every six months and are issued with maturities of 5, 10, and 30 years.

Outstanding Checks

are simply checks written by a business or individual that have not yet been processed and cleared by the bank. In other words, they are checks written that have not yet gotten to the bank.

Internal Controls

as they apply to Cash are just the policies, activities, and safeguards that are in place to provide assurance that Cash is properly being protected, managed and controlled.

Merchandise Inventory

consists of goods purchased for the specific purpose of reselling these goods to others. Vehicles are XXXX for a used car dealer; but, are a assets classified as Vehicles & Equipment for other businesses. XXXX includes only goods that are owned, on hand, and held for sale to customers.

General Ledger

contains all of the balance sheet and income statement accounts. More specifically, it's an overall picture of all the transactions that have taken place. All entries are expressed in terms of debits and credits. Finally, in every moment in time, with every XXXX, the total of your debits is equal to the total of all your credits In short, XXXX is just a book containing the summarized financial transactions and balances of the accounts for all of a business's assets, liabilities, equity, revenue, and expense accounts. G/L- A formal set of T accounts which organizes and lists all the MAJOR accounts. For each item (account) in our General Ledger, we record the increases and decreases for a period (usually a month) and calculate its ending balance. The ending balance of the account is easily determined by adding the increases and subtracting the decreases from the account's beginning period balance. Ending Acct Bal. = Beginning Balance + Increases - Decreases Using our bookkeeping terms debits and credits, we come up with the following equations: Debit Balance Accounts Equation • Ending Account Balance for Normal Debit Balance Accounts = Beginning Balance + Debits(Increases) - Credits(Decreases) Credit Balance Accounts Equation • Ending Account Balance for Normal Credit Balance Accounts = Beginning Balance + Credits(Increases) - Debits(Decreases)

Double Entry

each bookkeeping or accounting entry will involve at least two accounts: at least one account will be debited, one account will be credited.

Closing Entries (Closing the books)

entries to transfer the balances from the temporary accounts to the owner's (stockholders') equity account

Deposit Slip

is a document used to summarize and record checks and cash received that are deposited in the bank.

Check

is a document used to transfer funds from one business or individual to another business or individual. The check is made payable to the payee (individual or business receiving the funds) and is signed by the payer (individual or business paying the funds). The check is "drawn on" a bank or financial institution where the payer maintains their checking account and the funds are transferred from.

Leverage

is a general term for any technique to multiply gains and losses.[1] Common ways to attain leverage are borrowing money, buying fixed assets and using derivatives.[2] Important examples are: A public corporation may leverage its equity by borrowing money. The more it borrows, the less equity capital it needs, so any profits or losses are shared among a smaller base and are proportionately larger as a result.[3] A business entity can leverage its revenue by buying fixed assets. This will increase the proportion of fixed, as opposed to variable, costs, meaning that a change in revenue will result in a larger change in operating income.[4][5] Hedge funds often leverage their assets by using derivatives. A fund might get any gains or losses on $20 million worth of crude oil by posting $1 million of cash as margin.[6]

Deposit Book

is a record that contains the blank and completed deposit slips used for preparing the individual daily deposit slips. Usually the slips are treated so that a "carbon" copy is provided. The original is used for making the deposit in the bank.

Check book

is a record that is used to keep up with the balance in your bank account and in which you record all your deposits, payments, and deductions that either increase or decrease your bank balance.

COGS Account

is a special account that records the cost of the goods that were sold to your customers. If the Periodic Inventory System is used, this Account is adjusted with an adjusting journal entry.

Petty Cash

is a special fund that is set up to handle special payments. The special payments are small cash payments for unexpected expenditures or payments where access to a check is not readily available.

Cash Payment

is a special journal that is used to record all cash that is paid out by a business except for payroll. Columns are set up for types of transactions that occur frequently enough to warrant a separate column. Some examples are Accounts Payable (Payments on Purchases and Services Charged) and Cash Purchases. Types of Transactions Recorded: ◦ Cash paid for expenses ◦ Cash payments to our suppliers on account or cash purchases ◦ Cash purchase of supplies ◦ Any other cash payment

Purchase Journal

is a special journal that is used to record all purchases and various expenses and other charges from suppliers that a business has an open account with (supplier allows the business to charge purType of Transactions Recorded: ◦ Purchase of any expense on account ◦ Purchase of supplies on account ◦ Purchase of equipment on account ◦ Purchase of any other asset on account chases).

Purchase Journal

is a special journal that is used to record all purchases and various expenses and other charges from suppliers that a business has an open account with (supplier allows the business to charge purchases). The entries recorded in this journal are a debit to expense accounts or the purchases account and a credit to the accounts payable control account (a credit is also posted to the supplier's Accounts Payable Subsidiary Account). Purchase Journal Musts: 1.All supplier invoices are recorded (posted) in the Purchase Journal and the Supplier's Account Payable Subsidiary Ledger. 2.At the end of a period (month), the totals from the Purchase Journal are also recorded (posted) in the General Ledger Accounts To remember: The Purchases/Accounts Payable Journal lists all invoices and documents for purchases and expenses incurred during the month. All invoices are Debited to our Purchase and Expense Accounts and Credited to our Accounts Payable Control Account. Purchases: (Purchases) to keep up with the products that we purchase to resell to our customers. In most retail businesses this is normally one of their largest expenditures and more frequent type of transaction.

Cash Receipt Journal

is a special journal that is used to record all receipts of cash. Columns are set up that indicate the sources of the cash. Two of the major sources of cash for a business are Cash Sales and Collections of Customer Charge Sales. These and other categories that have a lot of activity (transactions) have their own column. Types of Transactions Recorded: ◦Cash product sales / fees ◦Cash collected on customer accounts ◦Any other receipt (source) of cash

Payroll Journal

is a special journal that is used to record and summarize salaries and wages paid to employees and the deductions for taxes and other authorized employee withholding amounts Type of Transaction Recorded: ◦ Cash payments to employees for salary & wages

Sales Journal

is a special journal where sales of services and merchandise made on account (business's customer is allowed to charge purchases) are recorded. Type of Transaction Recorded: ◦ Product Sales/Fees billed to customers who we have granted credit (charge sales)

General Journal

is actually only used to record unusual or infrequent types of transactions. If a transaction doesn't "fit" in any of the other special journals then record it in this journal.

Purchase Account

is an account used only to record the cost of merchandise bought to be sold to your customers. The XXXX is a temporary XXXX that is adjusted at the end of an accounting period (month/year). Actually, you could record your Purchases of Products for Resale directly in your Products For Resale Inventory Account but by using the Purchases Account it provides you with a quick total of the amount you spent buying products during a period. Since purchasing products to sell is probably the biggest expenditure a business that sells products will incur during a period (month/year), we accountants (bean counters) feel it is worthy of an account of its own named Purchases

Journal (or Journals in the case of specialized journals a.k.a book of original entry)

is an accounting record that is used to record the different types of transactions using various source documents

Current Asset

is an asset on the balance sheet which can either be converted to cash or used to pay current liabilities within 12 months. Typical XXXXX include cash, cash equivalents, short-term investments, accounts receivable, inventory and the portion of prepaid liabilities which will be paid within a year.

Actual Count

is periodically performed in order to determine the value of the inventory.

Accounting

is the art of analyzing, recording, summarizing, reporting, reviewing, and interpreting financial information.

Cash

is the balance of your bank accounts, savings accounts, money market accounts, certificates of deposit, currency on hand, undeposited receipts, and even your business' petty cash fund. Note that some forms of cash may have restrictions on how fast the funds are available for you to actually spend. Even your regular bank accounts may have what are called uncollected funds which means you may have to wait a few days before you can actually spend this money.

Cut off Date

is the date that the bank determines and uses to prepare your bank statement as of a specified date. All your banking transactions (deposits, checks, and other adjustments) that the bank has processed that have occurred prior to and including this date are included in your current monthly bank statement. All transactions that occur after this date are included in your next month's bank statement.

As of Date

is the date you pick to reconcile your bank balance with your check book balance.

Depreciation

is the expired portion of an Asset's (equipment used in a business) Original Cost. The logic behind the concept is quite simple. If you purchased a piece of equipment for $100,000 in a month, the expenditure provides benefit to not only the current month, but also future months and even future years. The cost (expenditure for the equipment) is originally recorded as an Asset and charged to a period's Expense Account when a portion or all of the benefit has been used

Bookkeeping

is the process of recording and classifying business financial transactions (activities). In simple language-maintaining the records of the financial activities of a business or an individual. XXXX's objective is simply to record and summarize financial transactions into a usable form that provides financial information about a business or an individual.

Debt to Capital Ratio

measurement of a company's financial leverage, calculated as the company's debt divided by its total capital. Debt includes all short-term and long-term obligations. Total capital includes the company's debt and shareholders' equity, which includes common stock, preferred stock, minority interest and net debt. Debt/ Shareholder's equity + debt Companies can finance their operations through either debt or equity. The debt-to-capital ratio gives users an idea of a company's financial structure, or how it is financing its operations, along with some insight into its financial strength. The higher the debt-to-capital ratio, the more debt the company has compared to its equity. This tells investors whether a company is more prone to using debt financing or equity financing. A company with high debt-to-capital ratios, compared to a general or industry average, may show weak financial strength because the cost of these debts may weigh on the company and increase its default risk. Because this is a non-GAAP measure, in practice, there are many variations of this ratio. Therefore, it is important to pay close attention when reading what is or isn't included in the ratio on a company's financial statements.

Treasury Bonds

pay interest every six months and mature in 30 years

Cash outflow

purchases of inventory, manufacturing costs for products, and payroll. Some other outflows are repayment of loans and interest and purchases of equipment and other fixed assets.

Treasury Bill

re short-term government securities with maturities ranging from a few days to 52 weeks. Bills are sold at a discount from their face value.

Balance Sheet Accounts

real or permanent accounts; asset, liability, and equity accounts.

Retained Earnings

refers to the portion of net income which is retained by the corporation rather than distributed to its owners as dividends. Similarly, if the corporation takes a loss, then that loss is retained and called variously retained losses, accumulated losses or accumulated deficit. Retained earnings and losses are cumulative from year to year with losses offsetting earnings. Retained earnings are reported in the shareholders' equity section of the balance sheet. Companies with net accumulated losses may refer to negative shareholders' equity as a shareholders' deficit. A complete report of the retained earnings or retained losses is presented in the Statement of Retained Earnings or Statement of Retained Losses.

Accounts Receivable Ageing

report used to age and analyze how old the amounts are that customers owe a business and what amounts are late and may need attention.

Accounts Payable Ageing

report used to age and analyze how old the amounts are that you owe to your suppliers and what amounts are late and may need attention.

Inventory for resale account

represents the quantities and value (cost) of the goods on hand and available for resale.

Acid Test Ratio

stringent indicator that determines whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory. The acid-test ratio is far more strenuous than the working capital ratio, primarily because the working capital ratio allows for the inclusion of inventory assets. (Cash + Accounts Receivable + Short Term Investments)/ Current Liabilities. Companies with ratios of less than 1 cannot pay their current liabilities and should be looked at with extreme caution. Furthermore, if the acid-test ratio is much lower than the working capital ratio, it means current assets are highly dependent on inventory. Retail stores are examples of this type of business. The term comes from the way gold miners would test whether their findings were real gold nuggets. Unlike other metals, gold does not corrode in acid; if the nugget didn't dissolve when submerged in acid, it was said to have passed the acid test. If a company's financial statements pass the figurative acid test, this indicates its financial integrity.

Income Statement Accounts

temporary accounts; revenue, expense, gain, and loss accounts.

Source Documents

the original sources of information that provide documentation (proof) that a transaction has occurred such as sales invoices (tickets), invoices from suppliers, contracts, checks written and checks received , promissory notes, and various other types of business documents. These documents provide us with the information needed to record our financial transactions in our bookkeeping records. If you recall a transaction is any event or condition that must be recorded in the books of a business because of its effect on the financial condition of the business, such as buying and selling. A business deal or agreement.

Cash Flow Problem

they didn't have the funds on hand that they needed to pay their bills or employees when due. The cash coming in is out of synch with the cash going out. What are some possible causes ? Customers not paying on time, a big customer check returned by your bank as not paid (bad check), an increase in sales (which is great but needs to be planned for), seasonal fluctuations in sales, poor customer credit policies, and the business operating at a loss all are factors that can contribute to a cash shortage or also called a "cash crunch".

Types of businesses

◦ Retailer ◦ Wholesaler ◦ Manufacturer ◦ Service ◦ Nonprofit ◦ Government

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