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35 Cards in this Set
- Front
- Back
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Rules/Guidelines for Preparing Accounting Info |
GAAP ASPE IFRS |
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GAAP |
Generally Accepted Accounting Principles Dead as of 2011 |
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ASPE |
Accounting Standards for Private Enterprises - optional for private - based on GAAP |
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IFRS |
International Financial Reporting Standards - mandatory for public corporations - for most countires |
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Business Entity Principle |
Accounting for a business must be kept separate from the personal affairs of its owners. - GAAP/ASPE, IFRS - business account for usage based on percentage of use for both personal and business (car) |
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Cost Principle |
Assets are shown on the balance sheet at the cost of their acquisition or construction. (not fair market val) - GAAP/ASPE (private) - buildings are listed at price bought, not current worth |
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Fair Value Principle |
Assets are shown at their current market value. - IFRS - building listed at current worth |
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Account |
Form in which changes caused by transactions are recorded. |
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Ledger |
Group of accounts. |
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Double Entry Accounting |
Requires debit amount to equal credit amount per transaction. |
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Things listed on Debit Side: |
Asset balances Asset increases Liability decreases Owners equity decrease |
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Things listed on Credit side: |
Liabilities balances Liability increases Asset decreases Owners equity increase |
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Rules for Creating Accounts |
Balance account name and # Transaction date, dollar value |
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Transaction Rules |
Analyze transaction, enter date Insure total DR = CD Total each column for balances Find surplus balance ( CR or DR) Circle final amount. |
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Trial Balance |
Financial statement that lists ledger account balances. Used to insure DR = CR. |
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Accounting Cycle |
Balance Sheet -> enter balances -> t-charts -> trial balance -> new balance sheet |
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Working Capital |
Current assets - current liabilities |
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Quick Ratio |
(Cash + AR)/current liabilities 2:1 is good......4:1 is hard to manage |
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Equity Ratio |
Owners equity/total assets Banks like high ratio Owner/investors like low ratio |
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Debit ratio |
Total debts/total assets Lower the better |
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Rate of return on net sales |
Net income/net sales Higher the better |
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Rate of return on OE |
Net income/average OR Higher the better Should be at least more than 10% |
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Bad Debts expense |
600s account Loss due to uncollectible A/R |
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Allowance for Doubtful Accounts |
Asset (100) contra account to AR Amount of predicted bad debts |
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Adjust for Bad Debts: Income Statement Method |
- estimates bad debts with % of net sales based on history of bad debts |
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Income Statement Method adjusting for Bad Debts 2% of net sales is not collectable. Net sales $500. |
Bad debt exp is $10 (=500x.02%)
Bad debt exp....... 10 ...... ADA.................... 10 |
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Method adjusting bad debts Balance sheet method |
Uses % of AR to estimate bad debt Prepare AR age analysis. Estimate % of loss. Prepare adjusting entry. |
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Balance sheet method example for adjusting bad debts 173$ will be uncollectable Current 70$ credit in ADA |
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Accrued Expenses |
Expenses that have occurred but not yet recorded in books. |
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Accrued interest expense Example Loan of 500$ at 5% APR (jan 1) Record for (May 1) |
Interest expense is 10.42$ (500$ x 5%)x 5 months/ 12 months Debit interest expense....... 10.42 ....... Credit interest payable....... 10.42 |
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APR |
Annual percentage rate |
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Accrued Salaries Example Commission is 10% of net sales. Net sales = 100$ |
Salary Expense....... 10 ........ salary payable.... 10 To record June commissions due to employees. |
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If accrued expenses aren't recorded: |
Expense is understated Liability is understated Net income overstated OE overstated |
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Accrued Revenue example Jan 1 500$ 2yr investment, earns 10% apr. Adjust for Dec 31 |
Interest receivable... 50 ..... Interest revenue..... 50 |
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Unearned Subscriptions Example Receive 1000$ in advance for Jan 1. Adjust subs. for year (500$) |
Cash...... 1000 ... Unearned rev (payable)... 1000 Unearned rev....... 500 ..... Subs.. Rev.............. 500 |
