Accounting Final

-First statement prepared

-Reports bus. performance for the period

-Other names: Profit and Loss Statement and Statement of Operations

Revenue, Expenses, and Net Incomes (Net Loss)

-Rev. occur when the sale is made. Payment may or may not have been received

Exp. incurred when bus. receives goods and services

COGS rep. the EXPENSE a bus incurred to buy or make a product for resale

-Reports the value of a company's Asset, Liability, and Owner's Equity

-Provides a snapshot of the company at a particular point int time

-Prepared after the Statement of Retained Earnings

Assets =  Liabilities + Owners' Equity

- Basic Components: Assets, Liabilities, Owners' Equity

Assets economic resources owned by a company

Liabilities the company's debt or obligations

Assets = Liabilities + Owners' Equity

-Identify the specific acounts affected

  -Must be at least 2 accounts affected

-Classify the accounts

  -Assets, Liability, Owner's Equity, revenue, expense

-Determine the effect of the accounting event on the accounts

  -Increase, Decrease, no effect

-Summarize the accounting event using the accounting equation

-Check that the accounting equation is in balance

-Double entry bookkeeping entires are recorded by debiting one account and crediting another with the same amount

-Acctg. events are first recorded in the general journal in chronological order

-Book containing all accounts

-Each account has a separate page

- Also called a T-Account

-General ledger contains all assets, liabilities, and all equity related accounts (capital, expense, revenue)

-Certain end-of-period adjustments must be made when you close your books

-Made at the end of an accounting period

-Made in a general journal

-Some are made because there is a journal entry that "drives" it

-Some made because of the passage of time: not "driver"

-Insure that revenues are reported when earned and expenses reported when incurred

-Always increases revenue or and expense (not both at the same time)

-Rev. receive credit- A/R, Unearned Rev., Interest Rec.

-Exp. receive debit- Salary Exp., U/Exp., Interest/ Exp.

-Rev.- required because comeone paid you before you did any work (unearned rev.) or you did work before you billed (A/R and Int/Rec.)

  -Prepaid Exp. is an ASSET!!!

  -Unearned rev. is a LIABILITY!!!

-Exp.- required because you already paid before using(prepaid exp., insurance, rent, supplies) or used before being billed or paying for(accrued wages payable, accrued interest payable)

-Some assets have long useful lives that overlap several acctg. periods

-Depreciation assets- not really "utilized", through wear and tear or time they become "impaired"

-Reduction in the value of an asset due to usage, passage of time, wear and tear

-Ex. buildings, equip., furniture, fixtures, computers, outdoor lighting, parking lots, cars, and trucks- last for more than a year

-Transfer of a portion of assets's cost from the balance sheet to the income statement during each year of the asset's life

-Recorded in each acctg. period during which the asset is used

-Accounts used- depreciation exp. and accumulated depr.

-Depr. Exp.- an exp. that appears on the INCOME STATEMENT

-Acc. Depr.- Contra Asset appear on BALANCE SHEET

- (Cost - Residual Value)/(Useful life) = Depreciation expenses for each period

Cost=what paid for asset

Useful life=estimated amount of time asset will generate revenue for the firm

Residual Value=what the estimated FMV will be at the end of the useful life

1. Income Statement- measures results of operations during a period of time

2. Statement of Retained Earnings

3. Balance Sheet-shows financial condition at a specific date

4. Statement of cash flows-shows sources and uses of cash

Assets economic resources owned by a company

-Current and non-current assets

-Current-assets that will be used or turned into cash within one year

  -Cash, A/R, Inventory,Short-term investments, supplies and prepaids

  -Non-Current- buildings, land, equip. and patents

Liabilities the company's debt or obligations

-Current and long-term

-Current-obligations that will be paid in cash or satisfied by providing service within a year

-Long-term- will not be paid withing a year

Stock holders' Equity-contributed capital and retained earnings

Contributed capital- amount of cash provided by the shareholders

Retained earnings-total earnings that have not been distributed to owners

Reports how net income and dividends affected a company's financial position during the period

-Comes after income statement

-Have to know retained earnings in order to compute the ending balance

-Needed to clear out rev. and exp. accounts in the general ledger

-transfer the net income to OE account

-done after the financial statement is constructed

-Rev. prepare one journal entry that debits all the rev. accounts

-Exp. prepare journal entry that credits all the expense accounts

-Transfer income summary balance to a capital account

  -prepare a journal entry that clears out the income summary accounts

-Close the dividend account

  -prepare a journal entry that credits the dividend account and debits the owner's equity account

-Post entry totals to general ledger

1.Rev.

  Income Summary

2.Income Summary

  Exp.

3.Income Summary

  Retained Earnings

4.Retained Earnings

  Dividends

-Current assets must exceed current liabilities

  Current ratio = current assets/current liabilities

Assets expect to use up or convert to cash within 1 year

Liabilities obligation due within 1 year

-Dif. between current and quick is inventory, prepaid exp., supplies

-Measures ability to meet current obligtion with "quick" assets

-More reliable measurement of liquidity considered only cash and assets that are quickly converted to cash

Quick ratio (Acid test ratio) = quick assets/current liabilities

  -quick assets = cash + acct. rec. + marketable securities

Measures company's ability to meet is obligations, both current and noncurrent and risk as an investment

Debt to Equity ratio = total liabilities/total owners' equity

Higher ratio=higher level of "risk" to creditors

Measures the gross profit of the company's product and examines relationship between sales and COGS

Gross margin ratio = gross margin/rev. * 100

1.Safeguard assets

2.Promote operational effeciency

3.Provide accurate and reliable info.

4.Encourage managment and employees to comply with laws and regulations

-Someone given authority by bus. to approve transaction

-Company can hold that person accountable for its implementation

-No one person is assigned duties that include a combination of 4 activities:

Authorization, execution, custody, and recording

-Prevents from performing more than one part of any transaction

-prepare time of transaction, complete info., and customer approval

-pre-numbered to control missing documents and enable tracing

-limit access to assets to prevent unauthorized use, theft or damage

-control access to documents

-verification or performance by someone who was not originally responsible for preparing the data

-may be someone internal to the organization or a customer or vendor

- Bank (-) Outstanding checks, (+) Deposit in transit, (-+) Errors made by the bank

-Books (-) Service charge, (+) Interest earned, (-) NSF checks, (-+) Errors made by the company

1. Find what you have recorded that the bank doesn't and adjusted bank balance

  a. Compare checks written in check register to those shown on the bank statement

  b. Compare deposits made in the check register tot hose shown on the bank statement

1. Find out items the bank has recorded that the company doesn't and adjusted book balance

  a. Find bank service charges or interest paid

  b. Locate any non-sufficient checks

Step 3- adjusted bank and book balance should be equal

Step 4- adjustments made in step 2 will require and entry in your checkbook register because you don't know about them

Shipping point-sales occur at shipping point, buyer has to cover freight insurance

Destination-sales takes place at the buyer's place, seller owns goods while in transit, sale occurs at point of destination

When? Recognized when it is earned and realized

Amount? Amount of cash received or cash equivalent value of the increase in net worth from transaction

Sales-recorded at their gross amount

Sales Returns and Allowances-contra rev., physically returned

- represents returns by customers and price allowance granted to customers

-sales return and allowance recorded separately so management can make decision about quality, kepp merchandise with price reduction

Journal entry from a credit customer

Sales return and allowances

  A/R

Sales discount- contra rev. used to record cash discounts taken by customer

-recorded separately because management needs to know the amount of discounts taken by customer 2/10 n/60

Journal entry to record customer's payment within discount period

Cash

Sales discount

  A/R

Specific points in time

Purchases are recorded

Purchase record cost of inv. purchased

Purchase discount temporary acct. to record purchase discount taken

Purchase returns and allowances record cost of inv. returned or allowances given by suppliers

Running balance of cost of inventory

Inventory account

All actives affecting inventory are recorded in inventory account

Purchase and return of inventory are recorded at the undiscounted amounts;

Discounts taken are recorded separately

Purchase discount is recorded if and only if it is taken

Purchases and returns of inventory are recorded at the NET of discount amount

Discount lost are recorded separately

Discount lost is recorded if the company fails to take the discount

1.Specific unit cost

2.Weighted average cost

3.First-in, first out (FIFO)

4.Last-in, first out (LIFO)

LIFO-Increasing prices-higher COGS,lower End Inc.,lower Net inc.

FIFO-Increasing prices-lower COGS,higher End inv.,higher Net inc.

LIFO-Decreasing prices-lower COGS,higher End inv.,higher Net inc.

FIFO-Decreasing prices-higher COGS,lower End inv.,lower Net inc.

First costs into inventory are first costs assigned to cost of goods sold

COGS-oldest costs

EI-recent costs

Inventory costs increase-COGS lowest, gross profit highest

Inventory costs decreasing-COGS highest

Last costs into inventory are first costs assigned to cost of goods sold

EI-oldest costs

COGS-recent costs

Inv. costs increase-COGS highest, gross profit lowest

Inv. costs deacreasing-COGS lowest

Schedule prod. company decides what products and quantities should be manufactured and when

Obtain raw materials raw materials are requisitioned for the secured-storage location by an authorized person

Bill of materials-shows quantities of materials and parts necessary to make specific products; "RECIPE"

Operations list-shows the sequence of prod. operations (cutting, welding, grinding), originated by engineers who design a process to make effecient as possible

Prod. order identifies job or batch of prod. as it goes through the process-info. about items, schedules, originated by prod. schedulers

Materials Req. Authorizes type and amount of raw materials to be removed from storage, shifts responsibility to employees on prod. floor (aluminum for bottle caps)

Direct materials-cost of materials directly traceable to product and costly enough to warrant tracing them

Indirect materials-cost of production materials either can't be traced to product or cost isn't enough to warrant tracing (diamond dust in bottles)

Direct labor-cost of employees who manufacture product (thos who touch the product)

Indirect labor-cost of production employees who don't physically manufacture the product (janitor)

Raw materials-Cost of raw materials on hand, both direct and indirect materials, increase materials purchased, decrease materials issued into production

Finished Goods-Cost of products finished but not sold, increase goods finished and transferred in from work in process, decrease goods are sold

Materials-WIP-FGI-COGS

As company records actual overhead incurred and applied overhead to WIP likelihood that two events will not result in a zero balance in the MOH account at the end of the period

If over or under amout is small it's sent directly to COGS

Large maount one should prorate to the inventory accounts

UNDER

COGS

    MOH

COGS  XXX

  MOH    XXX

MOH  XXX

  COGS  XXX

Costs that don't change with day-to-day or week-to-week volume of sales or numbers of customers served

(rent, insurance, depreciation)

Variable-changes equally with sales direct relationship with sales (raw materials, supply, labor)

Fixed-constant in the short run, not vary with sales (can be effected by % of sales)

Seperate mixed costs into variable and fixed

Find highest and lowest levels of activities (X)

Identify costs corresponding to high and low activity (Y)

Solve for variable cost per unit of activity (b)

b=(highest cost - lowest cost)/(highest activity - lowest activity)

Take variable cost determined and apply to cost formula represented by highest or lowest level of activity to solve for total fixed cost (a)

Y=a+bx

Y-total cost, a-total fixed cost, b-variable cost per unit of activity, x-units of activity driver

Sales level at which operating income is equal

Sales above breakeven result in a profit

Sales below breakeven result in a loss

Total contribution margin equals total fixed costs

CM is central to CVP

Amount of money received whenever customer purchases a product or service

Once all fixed costs have been paid, the operation will be profitable and profit will increase by amount of CM from each sale

CM=Price-variable cost per unit

what is gross margin per unit after VC?

At how many sales volume, do we attain BE?

CR=CM/Price

CR=1-VR

VR=VC/Price

CM%=contribution margin/price

BEu+FC/CM

Total rev. =  selling price per unit * number of units sold

Total cost = (variable cost per unit * number of units sold) + fixed costs

Profit = Total rev. - Total cost