FINANCIAL ACCOUNTING FORMULAS REFERENCE SHEET Financial Statements 1 Income Statement 2 Statement of Retained Earnings 3 Balance Sheet 4 Statement of Cash Flows Income Statement Revenues Expenses NET INCOME ASSETS CURRENT ASSETS Cash Short Term Investments Accounts Receivable Inventory Prepaid Expenses Stock Investments Bonds Land Buildings Machinery Accumulated Depreciation INTANGIBLE ASSETS Patents Trademarks Copyrights Goodwill PROPERTY PLANT EQUIPMENT LONG TERM INVESTMENTS TOTAL ASSETS o o XX Carina Tenaglia ENDING RETAINED EARNINGS Statement of Retained Earnings Beginning Retained Earnings xx Add Net Income xx xx Less Dividends Statement of Cash Flows In Order OPERATING Activities from making selling product o Revenue supplies inventory A R expenses A P interest payable wages payable INVESTING to purchase resources for business to operate o Assets ex equipment investing FINANCING usually funds to help kick start business Borrowing debt financing and equity financing issuing selling stocks in exchange for cash Liabilities notes payable bonds payable common stock dividends Balance Sheet CURRENT LIABILITIES Accounts Payable Salaries Wages Payable Notes Payable Interest Payable Income Taxes Payable Current Maturities of Long Term Liabilities Notes Payable long term Loans Mortgage Payable Common Stock Retained Earnings Revenue Expenses Dividends LIABILITIES STOCKHOLDERS EQUITY STOCKHOLDERS EQUITY LONG TERM LIABILITIES TOTAL LIABILITIES S H E RATIO ANALYSIS Measuring Profitability Measuring Liquidity Measuring Solvency I V I D E N D S DR E P E N S E S CR S S E T S D A E EARNINGS PER SHARE Net Income Preferred Dividends Average of Common Shares Outstanding during Year WORKING CAPITAL Current Assets Current Liabilities NOTE GAAP uses ACCRUAL ACCOUNTING transactions recorded in period when they occur Ways to remember which accounts increase or decrease with debits Credits CURRENT RATIO Current Assets Current Liabilities We want the ratio to be HIGH DEBTS TO ASSETS RATIO Total Liabilities Total Assets We want the ratio to be LOW Debit Expenses Assets Dividends CR DR DR I A B I L I T I E S CR W N E R S E Q U I T Y E V E N U E O R L Credit Liabilities Equity Revenue CR DR The Accounting Cycle 1 Analyze business transactions 2 Put transactions into Journal Entries 3 Post to Ledger Accounts T Accounts 4 Prepare a Trial Balance Journalize Post Adjusting Entries 5 6 Prepare and Adjusting Trial Balance One on Balance Sheet and One on Income Statement Closing Entries Revenues Income Expenses 1 Summary 2 Dividends 3 Retained Earnings Calculating Interest Expense Interest Principal x Rate x Time CHAPTERS 5 9 BI P EI COGS Beginning Inventory Purchases Ending Inventory Cost of Goods Sold ENDING INVENTORY BI P COGS Cost of GAFS BI P Cost of Goods Available for Sale BI P COGS Inventory Beginning Inventory Purchases Ending Inventory COGS GROSS PROFIT Net Sales COGS PROFIT Net Income Net Sales MARGIN GROSS PROFIT Gross Profit RATE Net Sales Beginning Inventory Add Purchases Less Ending Inventory Goods Available for Sale Cost of Goods Sold Sales Revenue Less Sales Discounts Returns Allowances Net Sales Less COGS Gross Profit Less Operating Expenses Income From Operations Add Other Revenues Gains Less Other Expenses Losses Income Before Income Taxes Less Tax Expense Net Income Loss Perpetual System records COGS every time a transaction is made Periodic System This means we will make adjustments at the end of the period FIFO LIFO For SALES of merchandise We sell goods but CUSTOMER returns them Accounts Receivable Sales Revenue COGS Inventory Accounts Receivable Inventory COGS Inventory Cost Inclusions Freight FOB Shipping Price of Inventory Insurance in Transit Preparation Costs Installation Costs Recording and Posting For PURCHASES of merchandise AKA when WE buy then WE return xx Inventory xx Accounts Payable Accounts Payable xx Return Sales Returns Allowances This is what we normally use xx xx xx xx xx xx xx Inventory Purchase Return xx Sale xx When customers pay balance due w DISCOUNT Remember to calculate discount AFTER Sales Returns Allowances FIFO Oldest items sold first Lower COGS Higher o Net Income o Ending Inventory o Income Taxes xx Paying Balance Due Cash xx xx Sales Discount Accounts Receivable INVENTORY COSTING Newest items sold first Higher COGS Lower o Net Income o Ending Inventory o Income Taxes LIFO Units on Hand AVERAGE COST METHOD WEIGHTED AVERAGE Cost of Goods Available for Sale Use the Weighted Average Method All goods cost the same amount COGS and Ending Inventory of units weighted average BANK RECONCILIATIONS ITEMS CHANGING BALANCE ON BOOKS ITEMS CHANGING BALANCE PER BANK NSF Check Outstanding Checks Credit Memo Collection of Notes Deposits in Transit Receivable by the bank Bank Service Charge Miscellaneous Expenses o Ex Printing Checks Errors in writing checks recording sales revenue appear to look backwards on our statements Examples of Journal Entries Cash xx Accounts Receivable xx Accounts Receivable xx Credits and debits on the BANK account are shown from the Bank s perspectives Our perspective of these credits and debits may Reconciling the NSF Check Cash original entry xx NSF Check Allowance Method WRITING OFF BAD DEBTS Direct Write Off Method ADA Allowance for Doubtful Accounts WE DO NOT USE THIS UNDER GAAP ADA xx Accounts Receivable xx Bad Debt Expense xx Bad Debt Expense xx Accounts Receivable xx xx ADA The following is a SAMPLE from class but shows the amount that will actually be recorded for BDE in the red box o I ve highlighted the problem and the corresponding numbers in the T Account In the next year we provide 3 000 worth of services We also determine 300 of accounts receivable will be uncollectible and write off the account We collected 4 000 of accounts receivable Then we recovered 180 of the 1 000 we wrote off earlier in the year At the end of the year we estimate 292 of the accounts receivable will be uncollectible When actually recording the Bad Debt Expense Allowance for Doubtful Accounts Beginning Balance 192 Write Off 300 Recovery Write Off 180 Balance 72 Adjusting Entry 220 Balance 292 CRV is like taking the Book Value of Accounts Receivable Balance of Accounts Receivables ADA Balance REALIZABLE VALUE CASH NET Straight Line Depreciation CALCULATING DEPRECIATION DEPRECIATION EXPENSE Year 1 Useful Life Cost of Asset Salvage Value DEPRECIATION EXPENSE Cost of Asset Double Declining Balance DEPRECIATION x 2 EXPENSE Useful Life Year 2 3 4 etc DEPRECIATION 2
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