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Is a worksheet a financial statement?
No, it is not a permanent accounting record, only a working tool. It is a multi-column form used in the adjustment process and in preparing the financial statements
What are the steps in Preparing a Worksheet?
- 1. Prepare a trial balace
- 2. Enter the Adjustments in the Adjustment Columns
- 3. Enter adjusted balances in the adjusted trial balance columns
- 4. Extend adjusted trial balance amount to appropriate financial statement columns
- 5. Total the Statement Columns, compute the net income or net loss, and complete the worksheet
What is a working tool for the accountant?
Financial statements from a worksheet
Temporary accounts include...
Revenue Accounts, Expense Accounts, and any other temporary accounts, dividends
What accounts are permanent?
Asset and Liability accounts, if an account relates to one or more future accounting periods
What is a Classified Balance Sheet?
Groups together similar assets and similar liabilities, make the financial statement easier to read
What are current assets?
Assets that a company expects to convert to cash or use up within one year
What are the current assets that can be used up?
Accounts receivable, Supplies, Cash, short term investments, receivables, prepaid expenses
What is the operating cycle?
the average time that it takes to purchase inventory, sell it on account, and then collect cash from customers
Name the intangible assets.
- trade names
What is a current liability?
Obligations that the company is to pay within the coming year or its operating cycle
List what current liabilities can be
- Accounts Payable
- Wages payable
- bank loans payable
- interest payable
- taxes payable
How are current liabilities listed on the Classified balance sheet
- Present notes payable
- accounts payable
- other liabilities in order of magnitude
Define a long term liability.
Obligations that a company expects to pay after one year
What are examples of long term liabilities?
- Bonds payable
- Mortgages payable
- Long term notes payable
- Lease liabilities
- Pension Liabilities
Define Closing entries
Entries made at the end of an accounting period to transfer the balances of temporary accounts to a permanent stockholders' equity account, Retained earnings
What is a reversing entry?
An entry made at the beginning of the accounting period, that is the exact opposite of the adjusting entry made in the previous period
What is sales revenue?
The primary source of revenues for merchandising companies is the sale of merchandise
What is the Cost of goods sold account?
An expense account, the total cost of merchandise sold during the period, it is directly related to revenue recognized from the sale of goods
What is a perpetual inventory system?
keeps track of what is constantly on hand.
What kind of account is Purchases?
an inventory account that is a temporary holding account
How do you close out a purchases and inventory account?
Beginning inventory + Purchases = total goods available - ending inventory = cost of goods sold... the ending inventory and costs of goods sold, left... Purchases and inventory beginning, right
Define FOB shipping point
the buyer pays the freight costs, the title transfer is at dock
Define, FOB Destination
the seller pays for freight costs
What is the Net purchase method?
Always assuming that the discount for paying on time is taken
What to do if discount period is not taken?
The information is tracked in a Purchase discounts lost EXPENSE account
What kind of account i s a Sales Returns and Allowances?
Contra Revenue Account
What is a contra revenue account?
Normal balance in debit side, keeps track of returns, off sets sales accounts
What kind of account is a Sales Discounts Account?
Also a contra revenue account
How is Gross profit calculated?
sales revenue - cost of goods sold
how is net income calculated?
gross profit - operating expenses = net income
how is gross profit rate calculated?
gross profit / net sales... as a %
How is net sales calculated?
Sales less sales returns and allowances and less sales discounts
What is the closing procedure
- 1. Debit each revenue account for its balance, and creadit the account Income Summary
- 2. Debit income summary for total expenses, and credit each expense for its balance
- 3. Close the income summary account by transferring its balance to the retained earnings account
- 4. Debit Retained earning for the balance in the Dividends account
When a sale is made, what are the four accounts that are effected?
- Accounts Receivable
- Sales Revenue
- Cost of goods sold
What are non-operating activities?
they consist of various revenues and expenses and gains and losses that are unrelated to the company's main line of operations.
How are non-operating activities shown on the income statement?
- Other Revenue and Gains
- Other Expenses and losses