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This 3 page Class Notes was uploaded by Annie Danyluk on Monday October 12, 2015. The Class Notes belongs to ACCT 2010 at Clemson University taught by Professor Annieka C Philo in Fall 2015. Since its upload, it has received 23 views. For similar materials see Financial Accounting Concepts in Accounting at Clemson University.
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Date Created: 10/12/15
Chapter 3 Income Statement 09032015 Cash basis accounting 0 Records revenue when cash is received and expenses when cash is paid Accrual Basis GAAPDGenerally accepted accounting principals Records revenues when they are earned and expenses when they are incurred regardless of the timing of cash receipts or payments AssetsLiabiities SE SE Common stock contributed capital Retained earnings Net income Revenuesexpensesljincome statement Revenues Increase net earnings Increases retained earnings Increases credit Increase expenseljdecrease net income Decrease net earningsdecreased retained earnings Increases debit REVENUES Revenue Principle Revenues are recognized when they are earned Earned means the company has performed the acts promised to the customer Reported when we EARN them Earned when the good is given or the service is performed Cash could be received before or after it is earned Example 1 You own a concert location During march 2015 you hold big band concert You sell 8000 worth of tickets on the day of the concert In what month do you recognize the revenue SAME TIME March Stockholders equity 8000 revenues Credit Assets 8000 cash debit Example 2 In December 2014 you sell 30000 of tickets for big band march 2015 concert Before When the transaction is made it should be put in as 2 Journal entries Assets 30000 Cash Liabilities 30000 Deferred revenue Deferred revenue is the same as unearned revenue ONLY TIME YOU SEE REVENUE AND IT DOESN T MEAN REVENUE In march you should remove the deferred revenue liability Increase revenues SE Example 3 Big company rents and uses luxury box for 5000 during the march 2015 concert Big company pays you in April 2015 March 0 Increase Accounts receivable o Decrease cash April 0 Decrease accounts receivable 0 Increase cash Chapter 2 part 3 08312015 Preparing a classi ed balance sheet Current assets converted into cash within 12 months Liabilities paid off within 12 months Equipment is a long term asset Current assets 0 Cash Supplies Long term assets 0 Equipment 0 Software 0 Logo and Trademarks Current liabilities Accounts payable Long term liabilities Note payable Stockholder s equity 0 Common Stock 0 Retained earnings No retained earnings because it s a brand new company that just started Assessing the ability to pay 0 Current RatioCurrent assetsCurrent liabilities o A higher current ratio generally means a better ability to pay Tells us if they can actually pay off their current liabilities
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