Popular in Financial Accounting
Popular in Accounting
This 17 page Class Notes was uploaded by JillianRing on Monday September 28, 2015. The Class Notes belongs to ACG 2021 at Florida State University taught by Ronald Pierno in Summer 2015. Since its upload, it has received 58 views. For similar materials see Financial Accounting in Accounting at Florida State University.
Reviews for Chapter 1
Report this Material
What is Karma?
Karma is the currency of StudySoup.
Date Created: 09/28/15
Chapter 2 Further Look into Financial Statements Classified Balance Sheet groups similar assets liabilities together Assets Liabilities Stockholder s Equity Current Assets Current Liabilities Longtern Investments Longterm Liabilities Property plant equipment Stockholder s Equity Intangible Assets Assets Current Assets Company expects to convert to cash or use within one year Cash investments receivables inventories prepaid expenses Longterm Investments Stock investments real estate Property plant Equipment Land Equpiment Accumulated Depreciation equipment Intangible Assets Patents trademarks Liabilities Stockholder s Equity Current Liabilities pay within the next year or operating cycle whichever is longer Accounts payable salaries wages payable notes payable income taxes payable Longterm Liabilities current liabilities with long term obligations Mortgage payable notes payable Stockholder s Equity Common stock retained earnings Example IR amp Co provides a service to a customer and charges 400 The customer says she ll return next month to pay Assets Liabilities ComStk RE 400 AR 400 Serv Rev Dual Transactions Assets rt 400 AR Common Stock rt 400 Service Revenue Cash Flow 0 No cash was exchanged Next month when customer pays Cash with increase by the amount of the payment A R will decrease by the amount of the payment There is no revenue recognized next month Revenue is only recognized when service is preformed Current Ratio Current Assets Current Liabilities Chapter 1 Introduction to Financial Statements Forms of Business Organization 0 Sole proprietorship owned by one person small business 0 Partnership owned by two or more persons 0 Corporation ownership in shares of stock Users Uses of Financial Info 0 Internal Users 0 External Users 0 Business Activities 0 Financing I Two Primary sources of outside funds 1 Borrowing Money liabilities 0 To whom the money is owed creditors 0 Notes payable accounts payable 2 Issuing shares of stock for cash 0 Payments to stockholders dividends NOT AN EXPENSE 0 Investing I Purchase of resources a company needs to operate Computers delivery trucks furniture etc Resources own by a business Assets 0 Operating I Once a business has the assests it needs it can begin its operations Revenues amounts earned from the sale of products sales revenue service revenuse interest revenue income statement Inventory goods available for sale to customers balance sheet Accounts receivable right to receice money from a customer in the future as the result of a sale or service balance sheet Expenses cost of assets consumed or services used Cost of goods sold selling marketing interest income tax exp Income statement Liabilities arising from expenses incld Accounts payable interest payable wages payable etc Balance sheet Net Income revenues exceed expenses Net loss expenses exceed revenues o Revenues expenses Net IncomeLoss Income statement Communicating with Users 0 Income Statement I Revenues Expenses Net Income Loss 0 Retained Earnings Statement I Beginning Retained Earning Add Net Income Less Dividends I Ending Retained Earnings amount used in Balance Sheet 0 Balance Sheet I Assets Liabilities Stockholder s Equity 0 Statement of Cash Flows I Cash in ow cash out ow Net cash ow I Used only when physical cash is exchanged Operating Activities cash from operations selling utilities etc Investing Activities equipment trucks etc Financing Activities stock loans etc Assets Liability Stockholder s Equity 2 8 Common Stock Retained Earnings Common Stock equity contributed by owners Retained Earnings equity earned by operations 1 Revenue 2 Expense 3 Dividends Assets Liabilities Stockholders39 Equity i i 1 Common Stock Retained Earnings l i l l Revenues Expenses Dividends Transactions economic events that require recording in the statements 0 Internal payroll etc 0 External selling a product service borrowing money etc 0 Transaction has dual effect on equation I WAIT NOT all activities represent transactions Ex hiring employee meeting with a customer do not require transactions to be recorded even if money is mentioned Example IR amp Co is started when it receives 5000 cash from investors in exchange for common stock Assets Liabilities Com Stk RE 5000 Cash 5000 Com Stk Dual Transactions Assets 1 5000 Cash Common Stock rt 5000 Com Stk Cash Flow 5000 FINANACIAL stock Examples ofALSE Assets Cash Accounts Receivable Supplies Prepaid Insurance Rent Equipment Inventory Liabilities Accounts Payable Unearned Service Revenue Notes Payable Stockholder s Equity Common Stock Retained Earnings Balance Sheet Ending Retained Earnings Chapter 4 Accrual Accounting Concepts Adjusting Closing Entries Adjusting Entries ensure that the correct amounts are on the balance sheets and the income statement 0 Two categories for adjusting entries I Accrual 1 Accrued revenues revenues for services preformed but not yet received in cash or recorded 2 Accrued expenses expenses incurred but not yet paid in cash or recorded I Deferrals 1 Prepaid Expenses expenses paid in cash before the were used or consumed 2 Unearned revenues cash received before services are preformed Example Prepaid Rent Companies pay rent in advance 0 Cash is paid purchases an asset prepaid rent Recognition of the expense Passing of the time to which the rent applies March 15L IR amp Co paid 1500 for prepaid rent On March 31 Rent expense is recorded when the time of the rent has passed Used upquot on month s worth of rent exp Assets Liabilities Com Stk RE 500 Pre Rent 500 Rent Exp ournal Entry Rent Expense 500 Prepaid Rent 500 Rent Exp Prepaid Rent 500 Beg Bal 15ool 500 End Bal 500 End Bal 1000I Prepaid Rent 1500 beginning of the moth quotUsed upquot on month of rent 500 Rent Expense Subtract from total amount paid 1500500 1000 1000 left from prepaid rent Same application for Supplies Expense Accruing Interest Expense 0 Money is borrowed interest is charged for the use of that money I Interest Expense using of that money over time I Recording interest expense would happened when company pays the interest either all of it or some of it Example IR amp Co has a 6month 6000 note payable at 10 given on March 1 Both interest and principal will be paid at maturity September 1 Income statement needs to show the interest expense incurred in March even though cash has not been paid Interest principal x rate x time or can be divided by total time rate is per yearquot Interest 6000 x 10 x 112 50 Interest 6000 x 10 50 12 Interest Expense and interest payable will each be 50 Assets Liabilities Com Stk RE 50 Int Pay 50 Int Exp ournal Entry Interest Expense 50 Interest Payable 50 Accrued 50 of interest expense for March Interest Exp Interest Payable 50 50 End Bal 50 50 End Bal Accruing Salary Expense 0 Salary expense common exp that need to be accrued before financial statements are prepared I Need to be accrued before financial statements because employees may have done some work but have not yet been paid Example IR amp Co hired an employee on Monday March 30th at 500 per week NOT a financial transaction The salary for the week beginning on Monday March 30 will not be paid until Friday April 3 0 March Income Statement show expense for March 30 and 31 Monday Tuesday 0 April Income Statement show expenses for April 1 2 and 3 Wednesday Thursday and Friday Weekly Payroll 500 100 per day March 31 the company should accrue 200 of salary expense March Expense Assets Liabilities ComStk RE 200 Sal Pay 200 Sal Exp lournal Entry Salary Expense 200 Salaries Payable 200 Salary Exp Salaries Payable 200 200 End Bal 200 200 End Bal Depreciation when a company buys an asset that is used in the business eg equipment buildings vehicles computers etc and it will be used for more than one year the cost must be expensed over the accounting periods that assets will be used Depreciation Expense portion of cost allocated to any one accounting period 0 Nothing to do with value of asset Depreciation Expense cost of asset useful life how many years intended to use asset Example IR amp Co bought equipment on March 1St for 600 with a useful life of 5 years Depreciation expense 600 5 years 120 Month income statement 120 12 10 monthly depreciation expense Accumulated Depreciation the total depreciation expense taken to date Contraaccount a contraasset Assets Liabilities ComStk RE 10 Acc Dep 10 Dep Exp Accumulated Depreciation rt thereby 1 net asset book value iournal Entry Depreciation Expense 10 Accumulated Depreciation 10 Accrued 10 of depreciation exp For March Depr Exp Accum Depr 10 10 End Bal 10 10 End Bal Balance Sheet always shows the original cost of the asset less accumulated depreciation Assets Equipment 600 Less Acc Dep m 590 value of equipment after depreciation Adjusted Trial Balance after all adjusting entries company prepares another trial balance from ledger accounts Debit credit balances in ledger Then prepare Financial Statements List of total accounts with debit credit balances new adjusted balances should be included Financial Statements are prepared directly from the Adjusted Trial Balance Income Statement Retained Earnings Statement Balance Sheet Closing Entries at the end of the accounting period AFTER financial statements companies prepare closing entries 1 Update Retained Earnings account 2 Close the temporary accounts balances transferred to the permanent stockholders equity account Retained Earnings Temporary Permanent Closed Not Closed 1 All revenue accounts 1 All aSS taCC0unt8 2 A11 expense accounts 2 All 11ab111ty accounts 3 Dividends 3 Stockholders Equity accounts Closing entries produce zero balance in each temporary account Balancing entries for ReV Exp are made to the Income Summary account Dividends balancing entry is made directly to Retained Earnings Rev Exp only keep track of transactions for one accounting period need to be zero at the end of period open for the beginning of the next period Revenues amp Expenses 1 Income Summary 1 Retained Earnings ReV Exp close to Income Summary Income Summary closed to Retained Earnings Effectively transfers Net Income to Retained Earnings Revenue Revenue accounts are DEBITED reducing them to 0 Income Summary is CREDITED by same amount rt balance Normal credit balance Sales Revenue Income Summary 2200 Bal 2200 2200 0 Expenses Expense accounts are CREDITED reducing them to 0 Income Summary is DEBITED by same amount 1 balance Income Summary resulting balance NET INCOME transferred to Retained EarningS Income Summary 528 2200 Retained Earnings 223 3275 500 225 w 490 135 490 490 Dividends Dividends accounts is CREDITED reduces to 0 Retained Earnings is DEBITED 1 balance Dividends Retained Earnings Bal 50 3275 Feb 28 Bal 490 50 50 0 Chapter 2 Further Look into Financial Statements Classified Balance Sheet groups similar assets liabilities together Assets Liabilities Stockholder s Equity Current Assets Current Liabilities Longtern Investments Longterm Liabilities Property plant equipment Stockholder s Equity Intangible Assets Assets Current Assets Company expects to convert to cash or use within one year Cash investments receivables inventories prepaid expenses Longterm Investments Stock investments real estate Property plant Equipment Land Equpiment Accumulated Depreciation equipment Intangible Assets Patents trademarks Liabilities Stockholder s Equity Current Liabilities pay within the next year or operating cycle whichever is longer Accounts payable salaries wages payable notes payable income taxes payable Longterm Liabilities current liabilities with long term obligations Mortgage payable notes payable Stockholder s Equity Common stock retained earnings Example IR amp Co provides a service to a customer and charges 400 The customer says she ll return next month to pay Assets Liabilities ComStk RE 400 AR 400 Serv Rev Dual Transactions Assets rt 400 AR Common Stock rt 400 Service Revenue Cash Flow 0 No cash was exchanged Next month when customer pays Cash with increase by the amount of the payment A R will decrease by the amount of the payment There is no revenue recognized next month Revenue is only recognized when service is preformed Current Ratio Current Assets Current Liabilities Chapter 3 The Accounting Information System Steps in the Recording Process The Journal where each transaction is recorded The Ledger each component of the transaction is posted to the ledger contains the entire group of accounts maintained by a company Posting The Account Debits Left Credits Right Doubleentry Accounting each transaction must affect two or more accounts to keep the accounting equation in balance Debit one account must credit another account Debits Credits Account Name Debit Dr Credit Cr Debit Balance balance rt with a debit 1 with a credit Assets debits increase assets credits decrease assets 0 Assets expenses dividends Credit Balance balance rt with a credit 1 with a debit Liabilities credits increase liabilities debits decrease liabilities Equity credit increase equity debit decrease equity 0 Liabilities equity revenues 0 Revenue Expense accounts are NOT equity accounts I Revenue credits increase accounts debits decrease accounts I Expense debits increase accounts credits decrease accounts I Dividends debits increase account credits decrease account Example IR amp Co pays 1500 in advance for three months of rent Assets 1 500 Pro Rent 1500 Cash Journal Entry Prepaid Rent Cash Ledger Entry Liabilities 1500 1500 ComStk RE debit account first credit account second Prepaid Rent Cash Bal 1500 872 5 1500 Trial Balance total list of all accounts with final debit credit balances 0 All amounts on the trial balances come from the account Account Title Debit Credit Cash 7000 Accounts Receivable 3000 Supplies 3000 Equipment 5000 Bank Loan 5000 Accounts Payable 1000 Common Stock 10000 Service Revenue 7000 Rent Expense 600 SalariesWages Expense 2500 Supplies Expense 1200