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24 Cards in this Set
- Front
- Back
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expenses
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costs of doing business
other than those related to producing your product |
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income statement is like
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a blow up of how we got to our earnings
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notes payable v. accounts payable
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receive cash (due in long term maybe several years). generally has interest
goods or services (due in short-term maybe 30 days) |
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what makes an expense an asset
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when we pay in advance AND
it has value INTO future accounting periods i.e. 3 year insurance |
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accrual method
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we account for purchases when they happen OR
when we owe them NOT when we pay for them |
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cash method
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you account only when you give or receive cash
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cost of services
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costs directly related to providing a service
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FIFO
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HIGH
ending inventory net profit LOW COG |
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LIFO
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HIGH
COG LOW ending inventory net profit |
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LIFO only chosen to
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save taxes
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capitalizing the asset
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when you buy an asset and add it to the balance sheet
i.e. land and lemonade stand |
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why can't we expense land and stand?
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it is a major purchase of significant VALUE with a LONG life
it increases your assets |
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when you capitalize an asset (i.e. sink) by charging it, where does it show
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balance sheet only.
not on income statement as expense because it is an asset not on cash statement because you charged it. |
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should we expense or capitalize an item?
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TIME something that lasts longer than a year
COST greater than certain amount. i.e. $500, $1000. i.e. trash can lasts longer than year but not capitalized |
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net book value of a fixed asset
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purchase price minus depreciation
i.e. $11 for stand and sink after $1 depreciation |
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depreciation is a
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non-cash expense
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advantages of depreciation
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reduces EARNINGS and TAXES w/o reducing CASH
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equipment
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a fixed asset that's movable
i.e. red wagon |
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earnings are NOT
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cash
tied up as assets, inventory, equipment |
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what runs business on a daily basis
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cash, not profits
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4 types of current assets
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cash
A/R inventory prepaid expenses |
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current assets are
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most likely converted to cash within a year
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assets are organized
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in descending order of liquidity
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liquidity
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how quickly something can be converted to cash
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