Accounting 1

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kgfreedman
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5803
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Accounting 1
Updated:
2010-02-01 11:49:46
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Accounting
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Ch 1, 2 and 5
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  1. 4 Types of Financial Statements
    Balance Sheet, Statement of Cash Flows, Statement of Shareholders' equity (Statement of Retained Earnings), Income Statement
  2. Heading
    • 1. Name of entity (the separate-entity assumption); 2. Title of statement; 3. Specific date
    • (financial snapshot at a specific point in time- period for all but balance sheet); 4. Unit measure (thousands of dollars)
  3. Basic Accounting Equation
    Assets= Liabilities + SE
  4. Balance Sheet: Broad categories
    Assets; Liabilities and Stockholders' Equity
  5. Balance Sheet: Assets (5)
    Cash; Accounts recievable. Inventories, Plant and Equipment; Land
  6. Balance Sheet: Liabilities
    • Accounts payable (to suppliers); Notes payable (written debt contracts)
    • - Total liabilities
  7. Balance Sheet: Stockholders' Equity
    • Contributed Capital; Retained earnings
    • -Total stockholders' equity
    • -Total liabilities and Stockholders' equity
  8. Income Statement: Broad categories
    Revenues, Expenses, Net Income
  9. Income Statement: Revenues
    Sales revenue
  10. Income Statement: Expenses
    • Cost of goods sold; selling, general and administrative; research and development; interest expense
    • - Total expense
    • Pretax Income
    • -Income tax expense
  11. Revenues are recorded when?
    Revenues are recognized in the period in which goods and services are sold, not necessarily when cash is received.
  12. Statement of Retained Earnings: listings
    • Retained earnings [BOY]
    • Net income for year
    • Dividends for year
    • Retained Earnings [EOY]
  13. Why we need statement of cash flows?
    Revenue reported doesn't always = cash collected; expenses reported /=/ cash paid; Income is usually not = to the change in cash for period
  14. Statement of Cash Flows: Broad Categories (4)
    Cash flows from operating activities; Cash flow from investing activities; Cash flow from financing activies; Net increase/ decrease in cash during year
  15. Statement of Cash Flows: Cash flows from operating activities
    • Cash collected from customers; cash paid to suppliers and employees; cash paid for interest; cash paid for taxes
    • - Net cash flow from operating activities
  16. Statement of Cash Flows: Cash flow from investing activities
    • Cash paid to purchase equipment (land, stock, etc)
    • -Net cash flow from investing activities
  17. Statement of Cash Flows: Cash flow from financing activities
    • Cash recieved from bank loan; cash paid for dividents
    • - net cash flow from financing activities
  18. Net decrease in cash during year
    • -Cash at beginning of the year
    • -Cash at end of the year
  19. Three types of notes
    Describe accounting rules applied; present additional detail about item on financial statements; provide info about items not on financial statements
  20. Securities and exchange commission (SEC)
    Given broad powers to determine measurement rules for financial statements
  21. Financial Accounting Standards Board (FASB)
    Body to formulate Generally Accepted Accounting Principles (GAAP)
  22. Unqualified opinion
    States that the financial statements are fair, in compliance with GAAP
  23. Players in Accounting Communication Process
    Management (preparation)--> Independent Auditors (verification)--> Information Intermediaries (analysis and advice), Government Regulators (verification- pub companies only)--> Users (analysis and decision- investors, lenders)
  24. Annual Reports: Private companies
    4 basic financial statements, relevant footnotes, report of independent accountants
  25. Annual Reports: Public Companies
    Nonfinancial section, financial section including summarized financial data, MD&A (management discussion and analysis), 4 fin statements, notes, auditor's report, recent stock price info, summaries of the unaudited quarterly financial data, lists of directors and their offices, addresses
  26. Form 10-K annual report
    Due within 60-75 days of fiscal year- end, must be audited
  27. Form 10-Q Quarterly Report
    Due within 30-40 days of end of quarter, can be unaudited
  28. Qualitative Characteristics of External financial reporting
    relevancy, reliability, comparability, consistency
  29. Seperate entity assumption
    Transactions of business are seperate from those of the owners
  30. Unit- of- measure assumption
    Accounting measures are in national monetary unit
  31. Going- concern (continuity) assumption
    Entity will not go out of business in near future
  32. Time period assumption
    Life of company can be broken up into a series of shorter reporting periods
  33. Historical cost principle
    Cash equivalent of cost given up for item is basis for intial recording of that item in financial statements
  34. Revenue Recognition Principle
    Record revenues when earned and measurable (exchange complete and collection probable)- does not have to correspond with cash collection
  35. Industry practices
    Differences in accounting and reporting are permitted if there is clear precedent in the industry
  36. Conservatism
    When uncertainty exists, the alternative produing the lowest asset value or least amount of income should be chosen
  37. Because assets must equal liabilities+ owners' equity, every transaction ____
    Must affect at least two balances (duality of effects) so equation is kept balanced
  38. T- account: Left side= ____; Right side = _____
    Left side= debit; right- side= credit
  39. If an asset increases, record transaction on ____
    debit (left) side
  40. If there as an increase in liabilities or owners' equity, record on ____
    Right (credit) side
  41. Journal entries indicate
    Date of event, accounts involved, direction of effect, dollar amount of effect, brief description of transaction-DEBITS ARE WRITTEN FIRST and credits are indented; debits must = credits
  42. Steps in the Accounting Cycle
    1) Analyze transactions. 2) Journalize transactions (general journal) 3) post to t- accounts (general ledger) 4) Prepare balance sheet

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