Acct 2101 Unit 1

Front 1

accrual basis of accounting

Back 1

Revenues are recognized when EARNED and expenses are recognized when INCURRED.

Front 2

Revenue recognition principle

Back 2

-revenues are recorded in the acct period they were EARNED
-revenues are EARNED when products are delivered or services are performed

Front 3

Matching principle

Back 3

expense recognition--record expenses that were incurred to generate the revenues recorded in the accounting period

Front 4

ADJUSTING ACCOUNTS

Back 4

AN ADJUSTING ENTRY IS RECORDED TO BRING AND ASSET OR LIABILITY ACCOUNT BALANCE TO ITS PROPER AMOUNT AND ENSURE THAT THE REVENUE RECOGNITION AND MATCHING PRINCIPLE ARE FOLLOWED

Front 5

DEFERRED ADJUSTMENT

Back 5

PAID OR RECEIVED CASH *BEFORE* EXPENSE OR REVENUE RECOGNIZED

-PREPAID (DEFERRED) EXPENSE
-UNEARNED (DEFERRED) REVENUES

-CASH BEFORE ACTION

Front 6

ACCRUED ADJUSTMENT

Back 6

PAID OR RECEIVED CASH *AFTER* EXPENSE OR REVENUE RECOGNIZED

-ACCRUED EXPENSE
ACCRUED REVENUES

Front 7

Prepaid insurance adjustment

Back 7

This is when you pay ahead of time and the service of insurance coverage is deferred/owed

after a month, 1/12th of the amount paid for a year's coverage of insurance expires

debit insurance expense (service incurred so expense can be recognized)
credit prepaid insurance (this was an asset but through the passage of time it became an expense recordable) it's one less month you're covered

Front 8

Plant assets

Back 8

assets expected to provide benefits for many periods

ex: buildings, machines, vehicles, etc.

they are prepaid expenses (current assets) that depreciate overtime--meaning, their costs are deferred and then recorded under an expense account

Front 9

straight-line depreciation

Back 9

allocates equal amounts of an asset's new cost to depreciation during its useful life

purchase for $26,000
expect worth in 48 months = $8,000

Net cost $18,000 allocated over 48 months = $375 per month

NOT adjusting due to depreciation would understate expenses and overstate net income. also, would overstate assets and equity on balance sheet

Front 10

ACCUMULATED depreciation

Back 10

is a CONTRA asset account

it means: total depreciation expense for all prior periods (expense of just one period's worth of depreciation goes under expense account)

Front 11

example of deferred REVenue

Back 11

for YOU to journalize this adjustment it would mean that someone paid you first before you supplied a product or service such as a mag company owing 12 magazines to those who paid a full year subscription

once a month passes record as:

debit UNEARNED SUBSCRIPTION REVENUE for that month you provided service

credit SUBSCRIPTION REVENUE for the month you EARNED

at the time of the mag subscription was paid by customer, you would recognize your cash debited and unearned revenue credited

Front 12

example of an accrued expense
(when action comes before cash)

Back 12

accrued salaries expense - when an employee earns three days of pay (A) before he is paid and (B) before and acct period ends -- he gets paid every two weeks

the company must record these 3 days the employee earned pay even though he has not been paid and the acct per is over

orig. entry:
debit salaries expense
credit salaries payable

adjusting entry:
debit salaries expense (for the two days he worker after the period)
debit salaries payable (for the three days before the period)
credit cash (total salaries)

Front 13

accrued revenues example
(when YOU did something and a customer OWES you)

Back 13

this is when a customer purchases something on account with you. you give them their one month of consulting (could have paid for three months on credit) and record your revenue because you earned it for that one month of service even if you dont have the physical cash in hand)

entry for earnings:
debit accounts receivable
credit consulting revenue

adjusting (as they pay)
debit cash
credit a/r

Front 14

temporary/nominal accounts

Back 14

accumulate data related to one accounting period

ex: income statement accounts, dividends account, income summary account

THESE ARE CLOSED AT THE END OF A PERIOD TO GET READY FOR THE NEXT PERIOD

Front 15

order of recording closing entries

Back 15

1. revenues
2. expenses
3. income summary
4. dividends
:
debit revenues
credit expenses
debit retained earnings
credit dividends
:
revenues (less expenses) plus retained earnings (less dividends)

Front 16

ch.1


Securities and Exchange Commission (SEC)

Back 16

the government group that establishes reporting requirements for companies that issue stock to the public

Front 17

Objectivity Principle

Back 17

accounting information is supported by independent, unbiased evidence

Front 18

cost principle

Back 18

accounting information is based on actual costs incurred in business transactions. cost is measured on a cash or equal-to-cash basis

Front 19

going-concern principle

Back 19

accounting information reflects the assumption that the business will continue operating instead of being closed or sold

Front 20

monetary unit principle

Back 20

transactions and events are expressed in monetary, or money, units (generally the currency of the country in which the business operates)

Front 21

revenue recognition principle

Back 21

provides guidance on when a company must recognize revenue (meaning when they record it)

Front 22

business entity principle

Back 22

a business is accounted for separately and distinctly from its owner(s)

Front 23

Reporting income for a Merchandising Company

Back 23

NET SALES - COGS = GROSS PROFIT - EXPENSES = NET INCOME

Front 24

Trade Discounts

Back 24

used by manufacturers and wholesalers to offer better prices to for greater quantities purchased

Front 25

purchase discount

Back 25

(for credit sales) to induce early payment of the amount due, seller grants the buyer a deduction from the invoice price

Front 26

FIFO vs LIFO
when prices are rising

Back 26

FIFO cogs are lower but ending inventory, net income, equity, and income taxes are higher

Front 27

FIFO vs LIFO
when prices are falling

Back 27

FIFO cogs are higher, but ending inventory, net income, equity, and income taxes are lower

Front 28

when you OVERSTATE your ending inventory,
YR 1...
YR 2...

Back 28

YR 1
you understate your COGS, overstate your net income, equity, assets, gross profit, but your beginning inventory, net purchases, and merchandise available for sale are all OK

YR 2
your beginning inventory, merchandise available for sale, and COGS will be over, your gross profit and your net income will be under, and net purchases, ending inventory, assets, and equity will all be OK

Front 29

analyzing and recording process

Back 29

analyze source documents
journalize
post journal info to ledger accounts
prepare and analyze trial balance

Front 30

Financial Accounting

Back 30

rules for recording money on paper--how you make your financial statements

it's for outsiders (investors)

Front 31

managerial accounting

Back 31

is information for people INSIDE the company--it's not about rules it's about makeing the right decisions for your company

Front 32

Financial Accounting Standards Board

Back 32

organization SEC put in charge for changing and adding to GAAP
their decisions on paper are called financial accounting standards FAS

Front 33

sole proprietorship

Back 33

started by and owned by one person..when he dies so does th company
you have unlimited liability
--if someone sues you, they can take your car, house, etc not jsut the bus's assets

you only get taxed once for income tax

Front 34

partnerships

Back 34

proftis shared between partners some have unlimited liability and some are limited

if someone sues you the most they can get are the assets from your business not your house or car

get taxed once for income tax

Front 35

corporations

Back 35

can sell stock on the open market and sell pieces of the co.

limited liability

taxed twice--when the corp makes money, and when shareholder gets dividends he pays income tax on it

Front 36

2009 top ten corps

Back 36

2008 was wal-mart but 2009 is exxon mobil

walmart is number 2

Front 37

classified balance sheet format and includes

Back 37

format assets followed by liabilities and equities

assets are broken down to current (meaning close to cash: cash, A/R)
and noncurrent (longterm investments, plant assets, intangibles:building, land, accu depre)

liabilities and equity
current and noncurrent

Front 38

classified multistep income statement

Back 38

NS
-cogs
=GP
-Op Exp
=income from op
+nonop rev
-nonop exp
=income before taxes
-income tax
=net income