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UH / Accounting / ACCT 2331 / What is the amortization of intangible assets?

What is the amortization of intangible assets?

What is the amortization of intangible assets?

Description

School: University of Houston
Department: Accounting
Course: ACCT Principles I
Professor: Kiran parthasarathy
Term: Summer 2015
Tags:
Cost: 50
Name: Exam 2 Study Review
Description: Contains detailed review of Chapters 4-7, which will be included on Exam 2.
Uploaded: 10/17/2017
18 Pages 32 Views 4 Unlocks
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ACCT 2331 Exam 2 Review Monday, October 16, 2017 5:49 PM


What is the amortization of intangible assets?



Chapter Four

Internal Controls

• What is Fraud? 

Vocabulary/Headers Definitions

Journal Entries Stressed in Lecture

Fraud Triangle

1. Opportunity

2. Motivation

3. Rationalization

• Internal Controls attempt to take away the opportunity for fraud to occur


What does cost of goods sold mean?



Sarbanes-Oxley Act of 2002 

○ SEC must publish financial activity of publically traded companies •

Components of Internal Control

○ Control Environment: overall ethical tone

○ Risk Assessment: looking for internal or external potential risks ○ Control Activities:  policies and procedures


What is the purpose of a notes receivable?



Don't forget about the age old question of What is the classic stallings fiber-tempered pottery?

○ Monitoring: formal procedures for reporting

Preventative Controls:  separation of duties, physical controls, proper authorization,  employee management, e-commerce controls

• Detective Controls: reconciliations, performance reviews, audits

• We also discuss several other topics like What is the trade wind inversion?

Cash •

Collusion 

○ Two or more people acting together to circumvent internal controls

Total Cash Balance= checks received, savings, checking accts, cash equivalents,  credit/debit sales

Cash Controls

○ Cash receipts when receiving cash or cash equivalents

○ Cash disbursements: use of company card

Bank Reconciliation 

Bank and book may not match, this statement matches the balance of cash in  

the bank with the balance of cash in the book

Timing Difference

'

         ○ Cash disbursements: use of company card If you want to learn more check out What is the hydride shift?

Bank Reconciliation 

Bank and book may not match, this statement matches the balance of cash in  

the bank with the balance of cash in the book

Timing Difference

▪ When things aren't recorded at the same time, causes a difference STEP ONE : cash transactions in book, not bank

▪ Deposits Outstanding: deposits not yet added to balance

Checks Outstanding: checks you wrote not yet cashed by others and  

funds removed

STEP TWO: cash transactions recorded by bank, not book

▪ Collections by bank on company's account (will increase balance) ▪ Interest earned on savings balance (will increase balance) If you want to learn more check out What can limit population?

▪ Non-Sufficient Checks (will decrease balance)

▪ Debit card purchases (will decrease balance)

▪ Electronic Fund Transfers directly out of account (will decrease balance) ▪ Bank Service fees (will decrease balance)

STEP THREE:  update book

▪ Debit cash for items that increase balance

▪ Credit cash for items that decrease balance

BANK

BOOK

Per Bank Stm

Outstanding Deposits Outstanding Checks

XXX

+XXX

-XXX

Per Book Stm

Bank Collections

Interest Earned

NSF Checks

Debit Card Purchases EFTs

Service Fees

XXX

+XXX

+XXX

-XXX

-XXX

-XXX

-XXX

      Total

    XXX

       Total

      XXX

We also discuss several other topics like Is culture a uniquely human product?

Don't forget about the age old question of What is the process immediately after the 4 phases of mitosis, long known as the "5th phase" of mitosis?

Petty Cash Account  

Totals at end mmatch each oth

Used for small transactions by employees, account must be restocked with  

money

Establishing the Account

Petty Cash XXX

Cash XXX

Recoding the Expenditures

Expenses XXX

Petty Cash XXX

Replenish the Account

Petty Cash XXX

st r

Cas XXX

Recoding the Expenditures

Expenses XXX

Petty Cash XXX

Replenish the Account

Petty Cash XXX

Cash XXX

Statement of Cash Flows

Operating Activities 

○ Revenue and expense generating, daily business transactions •

Investing Activities 

○ Investments in long term assets

Financing Activities 

○ Borrowing or owner's investment

Chapter Five

Recognizing Accounts Receivable

Recording of Sales on Credit  

Accounts Receivable XXX

Service Revenue (or) Sales XXX

Non Trade Receivables

Receivables that originate from sources other than customers, (interest  

receivable, tax refunds, gains from loans to other entities)

Sales - Sales Returns - Sales Discounts - Sales Allowances = Net Revenue 

Trade Discounts 

Reduction in price of product or service taken BEFORE the price is  

recorded (senior discounts, military discounts)

Sales Returns/Allowances 

▪ Customer returns the product, and refund given

▪ Customer does not return product, and refund given

Sales Allowances XXX

Accts Receivable XXX ▪

Sales Discount 

▪ Reduction in total amount repaid if paid back within a certain period

2/10, n/30…… 2% discount if paid in 10 days, if not paid in 2 days, pay  

net within 30 days

▪ Cash XXX Sales Discounts XXX

Sales Discount 

▪ Reduction in total amount repaid if paid back within a certain period

2/10, n/30…… 2% discount if paid in 10 days, if not paid in 2 days, pay  

net within 30 days

▪ Cash XXX

Sales Discounts XXX

Accounts Receivable XXX

Valuing Accounts Receivable

• Net Realizable Value = AR - Estimated Uncollectable Accounts 

% of Receivables Method 

○ Uncollectable amount determined as a % of AR

Bad Debt Expense XXX

Allowance for Uncollectable Accts XXX

Aging Method 

As AR grows older, people are less likely to pay it off, and an increasing  

percentage of the Sale is estimated uncollectable

○ Use the aging schedule to determine the sum of EUA

Bad Debt Expense XXX

Allowance for Uncollectable Accounts XXX

Writing Off AR 

○ Ridding the AR of the amounts determined to be uncollectable

Allowance for Uncollectible Accounts XXX

Accounts Receivable XXX Collection of Accounts previously written off

Accounts Receivable XXX

Allowance for Uncollectable Accounts XXX ▪ Cash XXX

Accounts Receivable XXX ▪

If Allowances continuing over into the following period

One must predict the uncollectable accounts from this period that will take  

place in the following period

Notes Receivable

Recording a Note Receivable

Notes Receivable XXX

Service Revenue XXX

• Interest = Face Value * Annual Interest Rate * Fraction of the year • WHEN PAID IN THE SAME PERIOD

US 

THEM 

NR                          XXX

                                                               [when loaned] Cash                    XXX

Cash                          XXX NP                            XXX

NP                             XXX

•      

US 

NR                          XXX

                                                               [when loaned] Cash                    XXX

Cash                       XXX

                                                               [when paid] NR                          XXX

Interest Rev          XXX

• WHEN SPANNING DIFFERENT PERIODS

US 

NR                          XXX

                                                                             [when loaned] Cash                    XXX

Interest Receivable   XXX

                                                                              [at end of pd] Interest Revenue    XXX

Cash                       XXX

NR                               XXX

                                                                               [when paid] Interest Receivable  XXX

Interest Rev               XXX

THEM 

Cash                          XXX

NP                            XXX

NP                             XXX

Interest Expense     XXX

Cash                          XXX

THEM 

Cash                          XXX

NP                            XXX

Interest Expense    XXX

Interest Payable     XXX

NP                             XXX

Interest Payable     XXX

Interest Expense     XXX

Cash                          XXX

• Receivables Turnover Ratio = Net Credit Sales / Average Accts Receivable • Average Collection Period = 365 / Receivables Turnover Ratio

Adjusting for Estimates of Uncollectable Accounts ○ When % of AR, adjust TO 

○ When % of Sales, adjust BY 

Chapter Six COGS

Cost of Goods Sold (COGS) is an Expense account ○ Beginning Inventory 

+ Purchases 

= Goods Available for Sale 

- Ending Inventory 

= COGS 

Overhead

+ Purchases 

= Goods Available for Sale 

- Ending Inventory 

= COGS 

Overhead

○ Costs associated with the production of the item, but not materials (rent,  utilities, etc)

• Sales - COGS = Gross Profit

• Gross Profit / Sales = Gross Profit Ratio

Inventory

• Manufacturer's Inventory

○ Raw Materials

○ Work In Progress

○ Finished Goods

• Retailer's Inventory

○ Only Merchandise

• Service Companies

○ Utilize finished goods to provide a service

• Perpetual v. Periodic Inventory Systems 

• Inventory Methods

○ FIFO 

▪ Items purchased first, recorded as COGS first

○ LIFO 

▪ Items purchased last, recorded as COGS first

○ Average Cost 

▪ Total cost averaged, recorded as COGS

• Freight In and Freight Out Costs

• FOB Shipping Point 

○ Ownership transferred when items placed into transport

• FOB Destination 

○ Ownership transferred when items arrived at destination

• Inventory Turnover Ratio = COGS / Average Inventory

• Average Days in Inventory = 365 / Inventory Turnover Ratio

Lower of Cost or Market

• Inventory is placed on book as LCM 

• Whichever is lower, what you purchased the item at, or it's current market value • To adjust to LCM (when market value is lower than cost)

COGS XXX

Inventory XXX

• Inventory is placed on book as LCM 

• Whichever is lower, what you purchased the item at, or it's current market value • To adjust to LCM (when market value is lower than cost)

COGS XXX

Inventory XXX

Inventory Errors

• COGS over = Net Income low = Ending Inventory low

• COGS low = Net Income over = Ending Inventory over

Chapter Seven

Long Term Assets

• Depreciation: buildings, equipment, other long term assets with a "shelf life" • Whatever "goes into" an asset to make it ready for use is part of the value of the asset  (land with plumbing put in)

• Land does not change in value (Cost Principle), so changes in it's value go into another  account

• Selling Land

Cash XXX

Land XXX  Gains on sale of land XXX

[Original land value]

[increased value of land durin

○ Cash XXX Loss on sale of land XXX

Land XXX

• Basket Purchases 

[decreased value of land during o[Original land value]

○ Buying land/equipment/property together for one big lump sum

○ You must estimate what percentage of the total lump sum will be allocated for  each asset, and record them individually as such

• Goodwill 

○ Acquired when purchasing an entire business, paying for the preexisting reputatioCost Allocation

• You need to know the Cost, the Estimated Lifespan, and the Residual Value of the item • Cost / Lifespan = depreciation per unit time

• Depreciation Expense XXX

Accumulated Depreciation XXX

• Types of Depreciation 

○ Straight Line

▪ Depreciates the same amount every year

○ Partial Year

'

g ownership] nership]

n

    

Accumulated Depreciation XXX

• Types of Depreciation 

○ Straight Line

▪ Depreciates the same amount every year

○ Partial Year

▪ To account for only part of a year's depreciation

○ Double Declining Balance

▪ Depreciation is higher in early years of life than later years of life ○ Activity Based Depreciation

▪ Mileage on car, etc

Amortization of Intangible Assets

• Amortization of a Franchise

○ Amortization Expense XXX

Franchises XXX

• Amortization of a Patent

○ Amortization Expense XXX

Patents XXX

Disposal of an Asset

• SaleCash XXX

Accumulated Depreciation XXX

Equipment XXX

Gain on Sale XXX

[Equipment original value + Gains from sale = Cash Received + Depreciated  amount]

Cash XXX

Accumulated Depreciation XXX

Loss XXX

Equipment XXX

• Retirement

Accumulated Depreciation XXX

Loss XXX

Equipment XXX

• Exchange

Equipment (new) XXX

Accumulated Depreciation XXX

Cash XXX

Equipment (old) XXX

Gain XXX

• Return on Assets = Net Income / Average Total Assets

Accumulated Depreciation XXX

Cash XXX

Equipment (old) XXX

Gain XXX

• Return on Assets = Net Income / Average Total Assets

Impairment

• Step One: Test for Impairment.

○ The long term asset is impaired if future cash flows are less than its book value • Step Two: If impaired, record it as a loss.

○ Loss equals book value of asset in excess of fair value of the asset

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