Corporation stock Ownership in shares of Separate legal entity organized under state corporation law No personal liability Easier to raise funds Chapter 1 Sole Proprietorship Owned by one person Often small service type of business Personally liable for debts Tax advantages ACG 2021 EXAM I Partnership Owned by two or more Often retail and service type business Personally liable for debts Tax advantages v Internal Users Management Human Resources Finance Marketing External Users IRS Investors Labor Unions Creditors SEC Security Exchange Commission Customers Managerial Internal v Financial External Business Entities Service Businesses Merchandising Manufacturing Ex Doctors Ex Retail Ex Carpentry 4 Financial Statements Income Statement 1 2 Balance Sheet 3 Retained Earnings Statement 4 Statement of Cash Flows Income Statement Revenues Expenses Net income Balance Sheet Assets Liabilities Owner s equity Assets cash accts recievable supplies land buildings equipment Liabilities payable accounts revenue Owner s Equity common stock retained earnings Statement of Cash Flows Cash inflow Cash outflow Net cash flow 2 sources of equity Contributed by owners common stock Earned by operations retained earnings Retained Earnings Statement Beg retained earnings Net income Dividends End retained earnings Sections of the statement of cash OIF Like a pig Operating the business Investing in assets Financing the businesses Cash inflows cash receipts Cash outflows cash payments ALWAYS involves assets ALWAYS involves liabilities or equity O I F Operating Investing Financing Inflows sales services commissions fees and interest dividends Outflows inventories salaries interest taxes and operating expenses Inflows selling long term assets marketable securities and collecting loans Outflows purchasing long term assets marketable securities and lending to others Inflows issuing stock and borrowing money Outflows purchasing treasury stock repaying debt and paying dividends Assets Liabilities Stockholder s equity Common Stock Retained Earnings Beg retained earnings Net Income Dividends End retained earnings Revenues Expenses Chapter 2 Cash Basis Accounting Accrual Accounting NOT in accordance with GAAP Recognizes revenues and expenses in the period in which cash is collected or paid Revenues Expenses recognized when cash is received recognized when cash is paid Recognizes revenues and expenses in the period in which they occur regardless of cash collection Revenues Expenses recognized when earned recognized when incurred GAAP Generally Accepted Accounting Principles Only followed in the US Accrual accounting is used IFRS International Financial Reporting Standards Used by most of the World Revenue Recognition Principle Service Performed Customer Requests Service At Time Cash is Received Matching Principle expenses matched with revenues in the period when efforts are expended to generate revenues Let the expenses follow the revenues Characteristics of useful information Relevance Reliability Comparability Consistency Monetary unit Economic entity Time period Going concern Assumptions in Financial Reporting Principles of Financial Reporting Cost Full disclosure Constraints in Financial Reporting Materiality Conservatism Working capital Current assets Current liabilities Current ratio Current assets Current liabilities Assets current assets long term investments property plant and equipment and intangible assets Liabilities Stockholder s Equity current liabilities long term liabilities and stockholder s equity Chapter 3 The JOURNAL is where each transaction is recorded Then each component of the transaction is posted to the LEDGER which contains the entire group of accounts maintained by a company Individual asset accounts Equipment Land Supplies Cash Individual liability accounts Interest payable Salaries payable Accounts payable Notes payable Individual Stockholder s equity accounts Salaries expense Service revenue Common stock Retained Earnings Dividends DEBIT means LEFT CREDIT means RIGHT THEY MUST EQUAL Double entry accounting system Each transaction must affect two or more accounts to keep the accounting equation in balance Recording done by debiting at least one account and crediting another The Account record of increases decreases in a specific asset liability equity revenue expense or dividend item An account with a DEBIT balance will be INCREASED with a DEBIT and DECREASED with a CREDIT An account with a CREDIT balance will be INCREASED with a CREDIT and DECREASED with a DEBIT Assets Liabilities Equity Expenses Revenues Dividends In summation Assets Expenses and Dividends are increased with debits Liabilities Equity and Revenues are increased with credits Journalize the transactions 1 Analyze business transactions 2 3 Post to ledger accounts 4 Prepare a trial balance 5 6 Prepare an adjusted trial balance 7 Prepare financial statements 8 9 Prepare a post closing trial balance Journalize and post adjusting entries Journalize and post the closing entries Chapter 4 The Accounting Cycle Adjusting entries Ensures that the correct amounts are on the balance sheet and income statement Must be made by a company every time it prepares financial statements Each will include one income statement account and one balance sheet account Two categories Accruals Deferrals Accruing Interest Expense When money is borrowed interest is charged for the use of that money by using it over time Interest Principal x Rate decimal x Time in years Depreciation An asset that is used in the business ex buildings equipment furniture computers vehicles etc and will be used for more than a year must be expensed over the accounting periods that the asset will be used according to GAAP The portion of the cost allocated to any one accounting period is depreciation expense NOTHING to do with value Depreciation expense straight line method cost of asset salvage value the useful life Depreciable Cost the ultimate net cost of our asset hence the amount we want to take as an expense cost salvage value Accumulated Depreciation total depreciation expense taken to date The account of it is a contra account a contra asset contra meaning opposite so instead of an account having a debit balance it would have a credit balance and vice versa Balance sheet always shows the original cost of the asset less accumulated depreciation AKA the book value Adjusted Trial Balance Prepared after all adjusted entries are journalized and posted Proves the equality
View Full Document
Unlocking...