Accounting

Matching principle for COGS

cash - C & Inv - D Inv - C & COGs -D

SE includes

cc and Retained earnings

Se decreases in

debit

loblaws FISCAL YEAR ends and shares have market value of 95K at this date

debit (decrease income statement) UNREALIZED LOSS on investments by $5000 credit (decreases assets) STIS by $5000

step 2: write/off A/R

debit (decrease) allowances for uncollectibles (this increases assets) credit (decrease) A/R (decreases your assets) HOWEVER NO CHANGE MADE TO BALANCE SHEET AND INCOME STATEMENT DUE TO STEP 1 (STEP 1 ACTED AS A BUFFER BECAUSE YOU GAVE ALLOWANCE FOR THE BANKRUPTCY)

loblaws sells the shares at $98K

debit (increase assets) cash to 98K debit (decrease I/S) REALIZED LOSS OF SALE OF INVESTMENT by $4K credit (decrease assets) STIS 102K (highest recent mkt value of investments -> from unrealized gain on investments account)

step 1: sense the bad guys

debit (increase) bad debt expense (decreases net income) & credit (increase) allowances for uncollectibles (but this decreases assets specifically A/R) -> [using either POS or AOA] ONLY STEP THAT WILL AFFECT INCOME STATEMENT (net income AND assets decrease)

loblaws buys shares paying 100,000 cash

debit STIS (assets) by 100K credit cash by 100K

loblaws FISCAL YEAR ends and shares have market value of 102K at this date

debit STIs (increase) by $2000 credit UNREALIZED GAIN on investments (increases income statement) by $2000

loblaws receives cash dividend of 800

debit cash 800 credit dividend REVENUE 800 (increases)

accrued revenues later

debit/increases cash (A) credit/decreases receivable (A)

prepaid expenses first

debit/increases prepaid expense (A) credit/decrease cash (A)

accrued revenue first

debit/increases receivable (A) credit/increases revenue (I/S)

accrued expenses later

decrease/debit expense (I/S) credit/increase Payable (L)

COGS

expense, I/S

purchased investment for $15K. two weeks later, investment appreciates and can be sold at mkt value 20K. this is a realized gain?

false, havent sold yet.

aging of accounts

find ending balance and work backwards to find bad debt -care a lot about allowance for uncollectibles

a/r net

gross A/R - allowance for uncollectibles

accrued expenses first

increase/debit expense (I/S) credit/decrease cash (A)

Expanded accounting equation

liabilities+[CC+beginning RE+(incomes-expenses)-dividends]

LOCOM

lower of cost or market. -if you want to sell for $17 but market price is $3 so your net realizable value is $9, then you have to write down your COGS into ($8) and Inv ($8)

LIFO method

oldest costs in inventory (A) recent costs in COGS

FIFO method

oldests costs in COGS recent costs in inventory (A)

accruals

paid or received cash LATER

deferrals

paid or received cash in ADVANCE prepaid expenses or unearned revenue

adjusting entry accounts

prepaid expense, depreciation, accrued expense, accrued revenue, unearned revenue

maturity value of a notes receivable

principal (amount borrowed intially) + interest

perpetual inventory system

purchases are directly debited to inventory sales have two entries: record sale value of inventory and record COGS

straight-line depreciation method

purchasing price / # MONTHS OR YRS

in a deflation, LIFO costs

are lower (prices drop)

Fifo is better for

balance sheet because most recent inventory stays

trading investments on financial statements

balance sheet- STIS are current assets income statement- investments earn Interest or Dividend revenue. All gains/losses reported here

issuing a loan

1. debit (increase) note receivable & credit (decrease) cash 2. debit (increase) interest receivable & credit (increase) interest revenue

on april 3 business purchased PPE on account and find out have depreciation expense of 275 per month

1. debit PPE gross (increase asset) & credit A/P (increase liability) 2. credit accumulated depreciation (decreases assets) &debit depreciation expense (increase expenses)

steps to closing an account

1. find your net income (rev-exp) 2. find retained earnings ending balance

using aging of accounts method, estimate that total uncollectible accounts are $3800. the allowance for uncollectibles prior to adjustment has credit balance of 1, 100. amount to adjust is...

$2700

Days sales' receivables

(BB of receivables + EB of receivables)/2/(total revenue for the year/365))

inventory turnover

(COGS)/avg inventory higher the ratio is better, indicates faster getting rid of inventories

prepaid expense later

(adjusting) -debit/increases expense (I/S) -credit/decrease prepaid expense (A)

Gross margin

(gross profit)/net sales higher the margin, higher the profit

permanent accounts

-B/S -assets liabilities se

how to estimate allowance for uncollectibles

-POS -AOA

prepaid expenses

-asset -rent, supplies

Unearned revenues later

-debit/decrease unearned revenue (L) -credit/increase revenues (I/S)

unrealized gains or losses on STI's are reported on the [] using []

-income statement -the other income account

Unearned revenues first

-liability -debit/increase cash (A) -credit/decreases unearned revenues (L)

step 3: whoops

1. credit (increase) allowance for uncollectibles & debit (decrease assets) A/R 2. credit (decrease) A/R & debit (increase) Cash NO CHANGE IN INCOME STATEMENT OR B/S

accounts receivables have a particularity when selling products on account

A/R increases (debit asset) & Sales revenue increases (credit I/S)

carrying amount of a CAPITAL asset

CAD = cost (aka gross value of PPE) - accumulated depreciation -net amount of a capital asset

AVG cost

COGS available for sale/ #units available for sale

Assets decrease in

Credit

Liabilities increase in

Credit

Revenues increase in

Credit

SE increases in

Credit

Assets increase in

Debit

Expenses increase in

Debit

smart corp bought STI in april for 10K. sold in may for 12. will have realized gain not on I/S, t/f?

False, it will hit I/S.

interest equation

I= principle value x rate (decimals) x (amt held the bond for up to record / 12)

Revenues and expenses fall under

Income statement

which accounts need to be closed

RED - revenues expense and dividends from INCOME STATEMENT to retained earnings at the end of AN ACCOUNTING PERIOD

acid test ratio

acid test= (cash + STI + current receivables) / total current liabilities

percentage of sales

sales revenue * bad debt expense (aka uncollectible account expense rate) rate= bad debt expense

how to find cost of PPE

sum of all the costs incurred to bring the asset to its LOCATION and USE

Understating a contra asset account

understates the related expense on the income statement and overstates the net value of the asset, total assets and owner's equity on the balance sheet summary.