SURVEY OF ACCOUNTING
SURVEY OF ACCOUNTING ACCT 2000
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MATH 2924 - 010
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This 21 page Class Notes was uploaded by Modesto Williamson on Tuesday October 13, 2015. The Class Notes belongs to ACCT 2000 at Louisiana State University taught by David Anderson in Fall. Since its upload, it has received 31 views. For similar materials see /class/223046/acct-2000-louisiana-state-university in Accounting at Louisiana State University.
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Date Created: 10/13/15
TEST ONE o Fields of Accounting 0 Financial Accounting Focus is on Externa nancial reporting o Balance Sheet o Income Statement o Statement of Retained Earnings o Statement of Cash Flows Creditor o Anyone whom you owe money Government o SEC Securities and Exchange Commission 0 IRS Investors Managerial Accounting Focus is on Internal reporting o Seeing what you can do to make a particular entity 0 better 0 Taxation TAXES Income Sales Property Excise Use Estate 0 Auditing CPA Firm Audits o External No affiliation with the company o Internal o CIA Exam 0 Non Profit Accounting Charities Governments o Financial Accounting 0 000 Definition The process of identifying gathering and measuring relevant economic information about a business entity to enhance the decision making process GAAP Generally Accepted Accounting Principles Set of rules and procedures that we have to understand to properly Entity Concept The business organization should be treated separate from its owners and other business Decision Usefulness Book Keeping is less than Financial Accounting Organizations that impact financial accounting FASB Financial Accounting Standards Board o Issue New GAAP IRS Internal Revenue Service SEC APB Accounting Principles Board AICPA American Institute of Certi ed Public Accountants o Governing Body o CPA Exam CPE Education 0 Underlying Theory 0 Foundation for GAAP Pg 43 Going Concern o The accounting entity will have an indefinite life Operate into the foreseeable future The Company will be pro table over the long run Cost Principle 0 Assets must be reported Balance Sheet at their original cost 0 Cost is objective and verifiable 2 or more CPAs will determine the same cost vs current value too subjective Consistency o The use of the same accounting methods from year to year Full Disclosure 0 Notes to the nancial statement Parenthetically Notes Anything that might affect the user s decision making process needs to be disclosed Materiality Signi cance 0 Quantitative 0 Relative Dollar Size 0 Qualitative 0 Relative Importance Conservatism c When in doubt about how to account about something select the accounting alternative that is least likely to overstate assets and pro ts Monetary Unit 0 The US dollar is our unit of measure in nancial statements Stable Dollar 0 In ation is ignored 0 The is stable in value 0 Financial Statements Income Statement 0 Summary of the Companies results of operations Summary of the companies revenues and expenses Revenues Expenses Net Income or Pro t Net Loss if Expenses gt Revenues Revues o In ow ofAssets from the sale of goods or services Expenses 0 Costs incurred in the process of generating revenues Out ow of Assets 3 things to include in the Heading of Financial Statement 0 Company Name LM Corp 0 Title Income Statement 0 Date For the year ended After Heading List Revenues o Revenues 0 Sales 0 Services 0 Dividends Total 0 Expenses 0 Cost of Goods Sold Selling Expenses General and Administrative Interest Taxes Total 0 NET INCOME Loss M O O O O 0 Balance Sheet Summary of Financial Position Snapshot ofwhat company looks like Summary of Assets Liability and Owner s Equity 0 Assets Probable future economic bene ts cash equip etc 0 Resources Things of Value the company owns Liability Probable future economic sacri ce money goods 0 Obligation Debt Amounts owed to others Creditors claims to assets 0 Accounts Payable bought goodsservices on credit 0 Notes Payable owe money on note 0 Owner s Equity 0 Assets Liability Owners Equity 0 Represents the owners claims to the assets Layout of Balance Sheet LM Corp Name Balance Sheet As of 123104 Only one with AS OF Assets 0 Current Assets any asset that is expected to become cash or used within 12 months of balance sheet date 5 currently found current assets in order of liquidity how much cash you can come up with in a short amount of time Cash everything in banks and money not yet deposited Temporary lnvestments money not needed put in investment to help it grow Accounts Receivable sold goods or services on credit Amount owed by customers Net 30 means 30 days to pay Merchandise Inventory Prepaid Expenses such as insurance premiums or landlord wanting rent b4 the month 0 Total 0 Plant and Equipment 0 3 common characteristics 0 O O OO Tangible have physical qualities desk building Long Lives Used in Daily Operations 0 Examples of these in no order Building Land Machinery Automobiles Furniture Equipment 0 Total 0 Other Assets 0 Intangible assets patents copyrights 0 Land held as an investment 0 Notes Receivable we have loaned money to someone c Total 0 Total Assets Liabilities 0 Current Liabilities any liability that matures within the 12 months of the Balance sheet Date In orderthey are due maturity 0 Accounts Payable bought goods and services on credit Notes Payable if due within 12 months borrowed money from somebod Unearned Revenue paid in advance and have yet to deliver the goods or perform the service Accrued EXpenses incurred the expense but hasn t paid for it EX wages owed to employees 0 Total 0 Long Term Liabilities NOT CURRENT 0 Notes Payable o Bonds Payable c Total Owner s Equity Partner s Equity or Stockholder s Equity 0 Capital Stock 0 Retained Earnings Kept Pro ts 0 Total 0 Total Liabilities and Owner s Equity 0 O O Assets Liabilities Owner s Equity 0 Statement of Retained Earnings Layout 0 LM Corp 0 Statement of Retained Earnings o Forthe Year Ended 123104 Retained Earnings 1104 ADD Net Income OR DECREASED Net Loss Dividends voluntary distributions of corp pro ts to stockholders Retained Earnings 123104 0 Statement of Cash Flows layout Summary ofwhere cash came from or where it went 0 LM Cor 0 Statement of Cash Flows o For the Year ended 123104 Cash from operating activities 0 In ows collections from its customers 0 Out ows payments to employees payments to suppliers 0 Net In ow or Out ow Cash from investing activities how cash is used for things 0 ln ow Sale of Assets 0 Out ow Purchase ofAssets 0 Net In ow or Out ow Cash from nancing activities how it is paid for o ln ow Borrowing Issue Stock 0 Out ow repayment ofloans payment of dividentds 0 Net In ow or Out ow Net IncreaseDecrease in Cash Which one of the followin is a current liability Accounts Receivable Notes Payable due in 5 years A company borrows money from the bank which type of activity is that Operating Investing Purchase li l m 39 39 Comparative Financial Statements When two years of financial statements are listed side by side Chapter 4 The Accounting Cycle Bookkeeping 1 Analyze a transaction Transaction Analysis 0 About identifying the accounts affected by the transaction 0 Increased or Decreased EX The owners invested 10000 in Corporation 0 Accounts affected 0 1 Cash increased by 10000 0 2 Capital Stock increased by 10000 Corporation paid 2000 for a laptop 0 Accounts affected 0 Cash decreased by 2000 0 Equipment increased y 2000 Company bought furniture for 1000 on account 0 Accounts affected 0 Accounts Payable increased 1000 0 Furniture increased 1000 2 Prepare Journal Entries 0 Entering the data into a journal Sum of Debits must equal the sum ofthe credits At least 1 debit account and at least 1 credit 0 Debit left side and Credit right side Rules Assets and Expenses 0 Increased by Debits and Decreased by Credits Liabilities Revenues Capital Stock Retained Earnings 0 Increased by credits and decreased by debits o Ifthey start with vowels increased by debit o Consonants are increased by Credits EX The owners invested 10000 in Corporation 0 Cash increased by 10000 0 Capital Stock increased by 10000 I Acct Titles I Folio I Debit DR I Credit CR Cash 10000 Capital Stock 10000 EX Corporation paid 2000 for a laptop Date 12504 0 Equipment account increased by 2000 0 Cash decreased by 2000 Date I Acct Titles I Folio I Debit DR I Credit CR 122404 Equipment Cash 2000 I 2000 EX Company bought furniture for 1000 on account 0 Furniture increased by 1000 ASSET 0 Accounts Payable increased by 1000 Liability Date I Acct Titles I Folio I Debit DR I Credit CR I 122404 Furniture 1 000 Accounts Payable 1000 0 Always make sure they balance 3 Post the Journal Entries to General Ledger Cash Date I Description I Debit DR I Credit CR I Balance 4 Prepare a Trial Balance 0 A listing ofall accounts an their balances 0 To prove Debits Credits An accounts normal balance is on the side where the increase is reported 5 Prepare another set of Journal Entries Adjusting Journal Entries 0 Necessary because No transaction has occurred yet the nancial statement need adjustment 0 AJE s are required in orderto match revenues and expenses in the proper accounting period 6 Post the AJE s to the General Ledger 0 To update account balances for the effects of the AJE s 7 Prepare an adjusted Trial Balance 0 To prove that debits credits 0 To facilitate nancial statement preparation 8 Prepare Financial Statements 9 Prepare the Closing Journal Entries to prepare the books forthe new penod 10Post the CJEs to the General Ledger 11Prepare a postclosing Trial Balance to prove debits credits Exam on Chapters 124 Notes Assignments Book Fields ofAccounting De nition of Accounting Organizations FASB FEC Ch 2 Financial Statements Account Classi cation Concepts amp Principle Ch 4 Transaction Analysis Know and be able to apply debit and credit rules Journal Entries Accounting Cycle Posting Trial Balance AJE s lfcash is received debited lfcash is paid credit Why are AJE s necessary Data that needs to be reported in the financial statements not evidenced by a transaction matching revenues and expenses in proper accounting penod 1 Accrued Revenue earned by not yet received 2 Accrued Expense expense has been incurred but not yet paid Estate tax 0 Federal tax on the value of the assets left behind at death 0 Imposed on estates gt 35 million Rate goes down to 1 million by 2001 I Inheritance tax 0 State version of federal39s estate tax Sales tax 0 East baton rouge parish 5 changes from parish to parish 0 La 4 0 All together 9 Use tax 0 Is imposed or assessed on purchases made outside of the state or parish O Purchases are brought back into the state or parish for use 0 quotnexusquot I Created through leasing property I Employees working in particular state Employment taxes 0 Employer costs I Federal unemployment tax State unemployment tax 2 to 54 I Social security I 62 of 106800 Medicare I 145 of all wages 0 Employee costs Federal income tax Social security I Medicare State income tax Local income tax I Property taxes 0 quotad veloremquot Based on value 0 quothomestead exemptionquot Real estate 0 quotPersonaltyquot I Movable property Excise tax 0 Both federal39s and state I Gas tobacco alcohol I Income tax 0 Individual income tax laws 0 Corporate tax laws 0 Partnership tax laws Individual income tax model 0 Gross income what is taxable Deductions for adjusted gross income I adjustments to income I Student loan interest IRA contributions Adjusted gross income AGI I A subtotal has direct impact on other deductions I Medical expenses 7 75 of AGI I deductible medical expense Exemptions I Personal dependency I 3650exemption I Helps larger families Standard deduction or itemized deductions I Whichever is greater I SD 5700 if single I 11400 ifmarried f111ingjoint I By law allowed to deduct amount based on status I Itemized deductions I 1 Medical I 2 Taxes I 3 Interest 7 usually gets more than SD I 4 Donations I 5 Casualty and theft losses I 6 Miscellaneous I taxable income I Make it low I X tax rates or tax table I Tax table used iftaxable income is less than 100000 I Tax laws favor less wealthy I income tax liability I Other taxes I Household employees tax I Self employment taxes I total tax I Payments and tax credits I Refund or balance due I Tax credit vs tax deductions AGI 20000 I Single no dependents 5700 I PE 3650 a 10650 I Tax 1065 I Tax credit 0 a 1065 Gross income deduction for AGI AGI exemptions standard deduction or itemized deduction whichever is greater taxable income Tax tables or tax rate schedules other taxes total tax payment credits refund or balance due Income tax 0 Primary 7 raise revenue for government 0 Secondary 7 social objective for betterment of society Charitable donations are the deductible 10000 donation X 30 tax rate 3000 tax savings 7000 after tax cost Economic Percentage depletion in oil and gas Tax law is written by congress O 275 years depreciable recovery period 0 House 25 years 0 Senate 30 years Inclusions in gross income 0 What is taxable l Alimony received 2 Amounts recovered after being deducted in a prior year In 2008 deducted 2000 of LA state income taxes in 409 you led 2008 LA return In 2009 received 500 refund of 2008 LA taxes In 2009 federal return 500 refund is taxable 3 Awards 4 Bonuses Fully taxable cannot get avoid it 5 Capital gains From scale of capital assets Stock SP 20000 Stock basis l2000 Capital gain 8000 If long term more than 12 months get special tax rates 15 6 Compensation for services Bonus commission salary wage tips 7 Debt cancellation Bank sold condo 25000 Bank debt 29000 Cancelled debt 40000 I Pay tax on 4000 about 12000 in taxes 8 Dividends I Fully taxable I 15 max tax rate 9 Employee bene ts D ID D l Nt IO LA 4 D ID ID ID I OONONUI I Some are taxable some are not I If discriminatory to offer some not all taxable to employee I Country club health club I Up to 50000 of life insurance coverage is tax free Gains from illegal drugs Gambling winnings Hobby income I Stamp collector amateur photographer I Fully taxable Interest I Except municipal bonds interest I Exxon corporate bond 6 I Municipal bond 5 I 30 tax bracket 6 x 30 18 tax I 427 after tax I Vs 50 I 10 tax bracket 6 x 10 6 I 6654vs 5 Partnership income I Fill tax returns but does not pay tax instead the partners pay the tax I Schedule k1 300000 pro t Vs I 250000 draw Prizes Rents Retirement pay Rewards I Crimestoppers I Given to you as a bene t for doing something I Royalties 7 gas textbooks Scholarships I If not used for tuition books or supplies are taxable I 10000 annual scholarship I 4000yr tuition I 1250yr books I 1000yr supplies I 3750 taxable Social security bene ts I Retired or disabled I May or may not have to pay 0 to 85 is taxable dependent upon IRS formula 21 Tips Supposed to report all tip income not just what s on W2 or a percentage someone told you 22 Unemployment compensation Exclusions from gross income 0 O O O 0 Do not have to put on tax 1 Child support payments Would prefer to get for tax purposes only 2 Damages for personal injury Personal injury awards are tax free Must be physical injury 3 Disability bene ts If injured or sick and unable to work get a certain amount of payment that is tax free 4 Fringe bene ts employee bene ts Some are taxable some are not Taxable if discriminatory Not taxable if nondiscriminatory Health insurance Group term life insurance up to 50000 Free packing Dental insurance 5 Gifts No income tax There is a gift tax not an income tax 13000yr gift exclusion Can receive up to 13000 a year without paying taxes Gift tax imposed on giver of the gift 6 Health insurance proceeds 7 Inheritance No income tax 8 Life insurance proceeds 9 Municipal bond interest Bonds issued by cities charities government 10 Scholarships Tax free to extent used for tuition books and supplies 11 Social security bene ts At least 15 tax free as much as 100 tax free Deductions for AGI adjustments 0 1 IRA contributions Individual retirement account I 5000 per year per spouse X 30 1500 Currently deductable Up to 415 ofnext year At birth a 2000 contribution earning 10yr accumulates to 1000000 Growth is tax offered Your account Downsides Cannot withdraw until age 59 12 10 penalty if pulled out before If over age 50 can put up 1000 more At ages 713 2000 annual contributions to IRA accumulation to 1000000 at age 65 ROTH IRA Named after congressman Roth Nondeductible Upon withdrawal no taX Income limits Must have earned income 0 2 Keogn Contributions Like IRAs but for self employed No 5000 annual limit Simple 401K plain 403B plan 0 3 Self employed heath insurance 9000 X 30 taX rate 2700 taX savings 0 4 Penalty for early withdrawal of savings Certi cate of deposit 0 5 Alimony payments EX husband payer 20000 EX wife recipient 10000 Payer has to record eXspouses social security number to avoid mismatched numbers 0 6 Moving expenses Three tests 50 mile test Newjob must be 50 miles from old house Time test Must be employed at new location for 39 out of 52 weeks Job related job change Transportation of household goods Travel costs from old to new location Can t include meals 0 7 Student loan interest Up to 2500 0 8 Tuition and fees Deduction vs tax credit Standard deduction 2009 taX year 0 gift from govemmen 0 If single 5700 0 Married lling joint 11400 0 Married lling separate 5700 0 Head of household 8700 Single parents Qualifying widower 11400 Additional standard deduction if tax payer 65 or older or blind MFJ 1100 S 1400 0 Single standard deduction 5700 0 Additional standard deduction 1400 0 Blind 1400 0 8500 vs itemized deductions 0 Married Husband is 66 wife is 42 Basic SD 11400 x 30 tax rate Additional SD 1100 3300 tax Total SD 12500 savings Itemized deductions O 1 Medical expenses To extent they exceed 75 of AGI TP AGI 80000 TP 7000 med exp X 75 6000 39 6000 1000 med exp Deduction 100000 x 75 7500 Doctors hospitals dentist orthodontist health insurance premiums required cosmetic surgery travel home improvements swimming pool eyewear prescription drugs prosthetics O 2 Taxes No oor State income local income foreign income tax real estate taxes personal property tax total optional sales tax deduction O 3 Interest A quali ed residence interest Home mortgage interest on up to 1000000 of debt on up to 2 homes B home equity interest Home market value 375000 Home mortgage balance 200000 Equity 175000 C investment interest Deductible up to amount of net investment income 1000 interest div inc I 1500 investment interest expense D nondeductible Consumer interest Credit cars nance charges car loans other personal loans 0 4 Charitable contributions No deduction for political contributions Limited to 50 of AGI Must be to a quali ed charity Can or cannot be cash 0 5 Casualty and theft loss Two oors 10 of AGI waved for Katrina 400 O 6 Miscellaneous Subject to a 2 of AGI oor Unreimbursed employee business expenses Auto 55mi Uniforms Journals dues and subscriptions Travels Meals and entertainment 50 only Supplies computers printers Gambling losses 7 up to amount of winnings No 2 oor applies Hobby losses Tax prep fees Safe deposit box fees 0 7 Reduction of itemized deductions If AGI is too high Gross income deduction for AGI IRAs student loan interest AGI Greater of 1 Standard deduction or 2 Itemized deductions exemptions 3650 deductionexemption 1 Personal 7 you and your spouse Tax rates Tax Rate 10 35 2 Dependency Support test greater than 12 support Age dependent must be 18 or less except full time students under age 24 cousins Relationship 7 dependent must be blood relative except Reduction of deduction if AGI is too high Single 0 8350 8351 33950 33951 82250 82251 171550 171551 372950 372951 and up 0 16700 x10 1670 Miscellaneous MFJ 0 16700 16701 67900 67901 137050 137051 208850 20885 1 372950 372951 and up O Filling Husband 50000 X 75 3750 O I O I I O I I 0 Forms I status Single 7 unmarried as of 1231 Married llingjoint 7 married as of 1231 LA is a community property state Wife Joint Husband separate Wife separate 300000 350000 175000 175000 x 75 22000 Married lling separate 7 married as of 1231 Head of house 7 unmarried as of 1231 with dependent in effect tax break with single parents surViVing spouse 7 for two years beyond death of spouse must have dependent ex Amy is 25 and single in 2002 single Amy marries JB in 2003 MFJ or MFS Marissa is born in 2004 MFJ or MFS Amy dies in 2005 SurViVing spouse 2006 2007 SS 2008 H ofH Filling requirements Who must le In general it is sum of Standard deduction and personal exemptions Single w 5700 11400 M m 9350 18700 If single can make 9350 before lling return If married lling joint can make 18700 before lling Dependents Uneamed income greater than 950 Or earned income greater than 5700 for comp serVices Self employed earnings greater than 400 per year When to le By 415 Or le and extension 4868 and le six months later 1015 Where Depends on where you live For LA IRS Austin TX 7330100002 1040 1040EZ Shorter version of 1040 1040A Shorter version or 1040 Schedule A Itemized deductions Schedule B Itemized diV if greater than 1000 Schedule C Self employed Schedule D Capital gains and losses Schedule E Rental royalty partnership incomeloss trust Schedule H Household employment tax Schedule SE Self employment tax Form 2106 Unreimbursed employees Business expenses Form 2441 Childcare credit Form 4562 Depreciation Form 4868 Extension request Determination of refund or balance due Tax credits 0 0 1 tax credit is the same as 1 tax savings 1000 credit 1000 saVings 1000 deduction is less than or equal to 350 saVings Education tax credit American opportunity tax credit Can save up to 2500 Based on tuition and fees Lifetime learning credit Up to 2000 Earned income credit Refundable Child and dependent care I 3000 per child Up to 6000 for 2 or more Child I 1000 for each child under 17 Foreign tax Paying taxes in US and other country Tax payment Employer withholding tables Quarterly pay 415 615 915115 Applying over payments 0 Penalties and interest 1 Under payment of taxes Currently 4yr of what you owe if you owe more than 1000 2 Late lling 5 of what you owe a month up to 25 3 Late payment 5 per month no max Interest 4 per year
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