ACCT

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lisrosey
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41372
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ACCT
Updated:
2010-10-13 10:20:46
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Chap 4
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  1. Accounting Cycle
    The process followed by entities to analyze and record transactions , adjust the records at the end of the period, prepare financial statements and prepare the records for the next cycle.
  2. During The Period
    • Analyze transactions.
    • Record journal entries
    • Post amounts to general ledger.
  3. At the End of the Period
    • Adjust: revenues and expenses and related balance sheet accounts (record in journal and post to ledger)
    • Prepare: a complete set of financial statements and disseminate it to users.
    • Close: revenues, gains, expenses, and losses to Retained Earnings (record in journal and post to ledger)
  4. Adjusting Entries
    Entries necessary at the end of the accounting period to measure all revenues and expenses of that period.
  5. 4 types of adjustments
    • Revenues- Unearned and Accrued
    • Expenses- Prepiad and Accrued
  6. Unearned Reveues
    • Previously recorded liabilities that were created with cash was received in advance, and that must be adjusted for the amount of revenue actually earned during the period.
    • Records Cash received in an Unearned or Deferred Revenue account.
    • Examples: Unearned franchise fees, rent paid in advance, magazine subscriptions, airplane tickets sold in advance
  7. Accrued Revenue
    • Revenues that were earned but not recorded because cash was recieved after the services were performed or goods delivered.
    • When companies earn revenue before customers pay.
    • When earned but not yet recorded.
    • Examples: Interest Earned
  8. Prepaid Expense
    Previously recorded assets like prepaid rent and insurance, supplies, and equipment, that were created when cash was paid in advance and that must be adjusted for the amount of expense actually incurred during the period through use of the asset.
  9. Accrued Expenses
    • Expenses that were incurred but were not recorded because cash was paid after the goods or services were used.
    • Numerous expenses incurred in current period without being paid for until the next period.
    • Examples: wages expense, utilities expense, interest expense.
    • These all accumulate over time but not recognized until the end.
  10. Trial Balance
    List of all accounts with their balances to provide a check on the equality of the debits and credits.
  11. Depreciation
    Allocation of an asset's cost over it's estimated useful life to the company
  12. Contra-account
    • Accounts directly related to another account, but with an opposite balance.
    • ex. For Property and Equipment, the contra-account is called Accumulated Depreciation
  13. Net book value
    The difference between it's acquisition cost and accumulated depreciation.
  14. Permanent Accounts
    • Means they retain their balances from the end of the period to the beginning of the next.
    • these accounts are A, L, SE
  15. Temporary Accounts
    • These accounts balances accumulate for a period, but start with zero balance at the beginning of the next period.
    • These are R, E, Dividend.
  16. Closing Entry
    • Transfers balances in temporary accounts to retained earnings and establishes zero balances in temporary accounts.
    • Temporary accounts with debit balances are credited and accounts with credit balances are debited.
  17. Post-closing Trial Balance
    Should be prepared as the last step of the accounting cycle to check that debits equal credits and all temporary accounts have been closed.
  18. Earnings Per Share
    Net income/ Average # of shares
  19. When have a Depreciation account
    • Debit Depreciation expense
    • Credit Accumulated Depreciation
    • These are usually prepaid expenses
  20. Net Profit Margin
    • Net income/ Net sales
    • Net income really means your net profit or revenue
    • Net sales is the bottom of income statement
    • The Percent you get is how much of every sales dollar generated during the period is profit.
  21. Pretax Income
    Revenues - Expenses
  22. When Company earns interest..
    • It is put as interest expense for how many months used
    • Credit Interest payable for that amount as well

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