Financial Accounting

Front 1

Income Statement

Back 1

Revenue - Expenses

Front 2

Retained Earning

Back 2

Retained Earning + Net Income - Dividends

Front 3

Debit

Back 3

On the left
For positive asset and positive expenses
For negative earning, PIC, and liability

Front 4

Credit

Back 4

On the right
For positive equity and liability
For negative asset and expenses

Front 5

Trial Balance

Back 5

Credit & Debit with balances from all ledgers

Front 6

Ledger

Back 6

Book that records all tranasaction

Front 7

Closing Entries

Back 7

Use T Ledger Account!

C1. revenue to income summary
C2. Expenses to income summary
C3. Income summary to Retained Earnings

(Retained Earnings subtract dividends)

Front 8

Net Book Value

Back 8

Cost - Accumulated Depreciation = book value

At the end of useful life, book value = residual value (you need to adjust for DDB)

Front 9

Residual Value

Back 9

The residual value of equipment after total accumulated depreciation

Salvage value

Front 10

Sales of Equipment

Back 10

Other Income

NOT revenue or expenses

Front 11

Impairment

Back 11

GAAP:
1) recoverability test
future net cash flow + disposal value vs. Current carrying value



2) $ of impairment (Net book value - fair value)

IFRS:
recoverable $ is higher of....

a) Fair Value -Cost to sell
b) Value in use (present value of the expected future net cash flows)

Front 12

Intangible Asset

Back 12

TM, (C), Patent

Front 13

Tangible Asset

Back 13

equipment, parts, inventory

Front 14

Good Will

Back 14

Pay more than fair value for company

Under noncurrent assets

Front 15

Fair Value of Assets

Back 15

Assets - Liabilities

Front 16

Working Capital
Net Working Capital
Net Current Assets

Back 16

= current assets - current liabilities

Front 17

Current Ratio

Working Capital Ratio

Back 17

Current Assets/ Current Liabilities

Assesses the liquidity

Front 18

Quick Ratio/ Acid Ratio Test

Back 18

Quick Ratio = (Current Assets - Inventory) / Current Liabilities

A conservative look at liquidity, since inventory is questionably liquid in a short amount of time (quick!)

Front 19

Multistep vs Singlestep Income Statement

Back 19

Multistep:
Gross profit, operating expenses, operating income, other revenue and expenses, income before tax, tax

Front 20

Gross Profit

Back 20

Sales- Cost of Goods Sold

Front 21

Operating Income

Back 21

Gross Profit - Operating Expenses

Front 22

Reserves and Treasury Stocks

Back 22

You subtract from Equity, since Stockholders don't control them. They are owned by the company

Buying or selling treasury stock never results in recognizing gains or losses on the
income statement. Treasury stock transactions are changes in a corporation's
capitalization, not part of its profit generation activities.

Front 23

Rights of common shareholder

Back 23

Premeptive rights: acquire proportional amount of new issues of capital stock

Front 24

Contrast Bonds

Back 24

Bonds you earn "interest" rather than dividends

Front 25

Preferred Stock

Back 25

Rights to dividends
dividend rate * stock's par value
preferred claim on assets in liquidation

Preferred stock dividends are cumulative.

liquidation: all cumulative unpaid dvidends must be paid
dividends in arrears must be disclosed

Front 26

Restricted Stock Plans

Back 26

?

Front 27

Debentures

Back 27

Debt/Liability

Front 28

Dividends Arrearages (in arrears)

Back 28

Cumulative dividends from years dividends were unpaid.

Companies must pay dividends in arrears first before giving out dividends to common stock owners

Like a debt to preferred stock owners

Front 29

Stock Splits

Back 29

Distribution of additional shares, without changing their amount of shares

Front 30

Net Sales

Back 30

Gross sales - Sales returns and allowances

Front 31

Lower-of-Cost-or-Market

GAAP

Back 31

When items become obsolete or prices fall, you adjust using "Lower-of-Cost-or-Market"

in GAAP, you use replacement costs

And you cannot write up

Front 32

Lower of Cost or Market

IFRS

Back 32

When items become obsolete or prices fall, you adjust using "lower of cost or market"

in IFRS, you use net realizable value (what you expect to receive when you sell the inventory)

Front 33

Revaluation Method Under IFRS

Back 33

REVALUATION GAIN:
1) Normal: Other comprehensive Income in SE
2) Reversal: Income Gain

REVALUATION LOSS
1) Normal: Income loss
2) Reversal: Other Comprehensive Income in SE Loss

Front 34

Relevance

Back 34

capability of info making a difference to decision maker

Front 35

deferral

Back 35

Deferred, in accrual accounting, is any account where the asset or liability is not realized until a future date

Unearned revenue is a deferral!

Front 36

Annual Report

Back 36

Document prepped by management:
financial statement
letter
report of management and auditors on company's internal controls

Front 37

FOrm 10k

Back 37

SEC: regulates

Form 10-K filed annually
basic financial statements
detailed financial info

Front 38

SOle proprietorship

Back 38

one owner

Front 39

partnership

Back 39

partners liable for obligations of business

(exception: limited liability company)

Front 40

corporations

Back 40

limited liability: corporate creditors have claim against corporate asset only

Front 41

Auditor

Back 41

attests to credibility, but does not provide GUARANTEE

auditor's opinion: describe the scope and results of audit, included with financial report

Front 42

calendar year vs fiscal year

Back 42

calendar year is a year

fiscal year is determined by accountants

Front 43

Other Comprehensive Income

Back 43

Changes in S.Equity that is not from net income

selling treasury stock

gaining money from reevaluation gain (IFRS)

Front 44

Earnings per share

Back 44

on financial statement

net income/number of shares outstanding

Front 45

price earnings ratio

Back 45

market price per share/earnings per share

Front 46

dividend yield ratio

Back 46

common dividends per share/ current market price of stock

Front 47

dividend payout ratio

Back 47

common dividends per share/ earnings per share

Front 48

recording process

Back 48

1. Transaction documentation (like a receipt)
2. General journal
3. Ledger
4. Trial balance
5. Financial statement

Front 49

Simple and complex journal entry

Back 49

complex: transaction affects more than 2 accounts

Front 50

Book value

Back 50

Balance of account on the books - value of any associated contra accounts

Front 51

explicit transaction:

Back 51

observable events

Front 52

implicit transaction

Back 52

events, such as passage of time, that do not generate source documents:

Accrual: not based on explicit transactions, hence no recorded on day-to-day basis

Shouldn't affect cash

Front 53

Classified balance sheets

Back 53

Assets classiffied by:
current
noncurrent
liabilities:
current
non-current

(Shows how liquid the company is)

Front 54

Multi-step income statement

Back 54

1. Gross Profit
2. Operating Income
3. Non-operating revenues and expenses
4. Income before taxes
5. Net Income

Front 55

participating preferred stock

Back 55

Allows holders of shares to participate in the growth of the company because they share in growing dividends

Front 56

Callable preferred stock:

Back 56

Gives the issuer the right to purchase the stock back from the owner at a fixed price

Front 57

Restricted stock:

Back 57

Awarded to employees with certain constraints

Front 58

Rate of return on equity

Back 58

Net income- preferred dividends / average common equity

Front 59

FOB Destination

Back 59

Seller bears cost

Front 60

FOB Shipping PT

Back 60

Buyer bears cost

Front 61

Inward transportation

Back 61

additional cost of goods acquired

Front 62

Inventory Valuation Methods GAAP vs. IFRS

Back 62

IFRS bans LIFo