Fin Actg Basics

7/29/2019 Fin Actg Basics

http://slidepdf.com/reader/full/fin-actg-basics 1/2

The Basics1. Accounting Equation:

Assets = Liabilities + Owner’s Equity

2. T Account:

Account Title

Left Side Right Sidedebit credit

3. Rules of Debit and Credit:

STATEMENT OF CASH FLOWSA summary of the cash receipts and cash payments of a businessentity for a specific period of time,such as a month or a year.

6. Accounting Cycle:

1. Transactions are analyzed and recorded in the journal.2. Transactions are posted to the ledger.3. An unadjusted trial balance is prepared.4. Adjustment data are assembled and analyzed.5. An optional end-of-period spreadsheet (work sheet) is prepared.

6. Adjusting entries are journalized and posted to the ledger.

4. Analyzing and Journalizing Transactions

1. Carefully read the description of the transaction to determinewhether an asset, a liability, an owner’s equity, a revenue, anexpense, or a drawing account is affected.

2. For each account affected by the transaction, determine whetherthe account increases or decreases.

3. Determine whether each increase or decrease should berecorded as a debit or a credit, following the rules of debit andcredit.

4. Record the transaction using a journal entry.5. Periodically post journal entries to the accounts in the

ledger.6. Prepare an unadjusted trial balance at the end of the period.

5. Financial Statements:

INCOME STATEMENTA summary of the revenue and expenses of a business entity for aspecific period of time, such as a month or a year.

STATEMENT OF OWNER’S EQUITYA summary of the changes in the owner’s equity of a business enti-ty that have occurred during a specific period of time, such as amonth or a year.

BALANCE SHEETA list of the assets,liabilities, and owner’s equity of a business enti-ty as of a specific date,usually at the close of the last day of a monthor a year.

Owner’s

Drawing Account

Debit for Credit for

inc reases ( ) dec reases ( )

Balance

Revenue Accounts


d ecre ase s ( ) i ncre ase s ( )

Balance

Expense Accounts


i ncrea ses ( ) decr ease s ( )

Balance

The side of the account for recording increases and the normal balance is shown shaded.

ASSETS LIABILITIES OWNER’S EQUITY

Asset Accounts Liability Accounts Owner’s Capital Account

Debit for Credit for Debit for Credit for Debit for Credit for

increases ( ) decreases ( ) decreases ( ) increases ( ) decreases ( ) increases ( )

ecnalaBecnalaB Balance

Income Statement Accounts

7. An adjusted trial balance isprepared.

8. Financial statements areprepared.

9. Closing entries are journal-ized and posted to the ledger.

10. A post-closing trial balance isprepared.

7. Types of Adjusting Entries:

1. Prepaid expense (deferred

expense)2. Unearned revenue (deferredrevenue)

3. Accrued revenue (accruedasset)

4. Accrued expense (accrued liability)

5. Depreciation expense

Each entry will always affect both a balance sheet and an incomestatement account.

8. Closing Entries:

1. Revenue account balances are transferred to an account calledIncome Summary.

2. Expense account balances are transferred to an account calledIncome Summary.

3. The balance of Income Summary (net income or net loss) istransferred to the owner’s capital account.

4. The balance of the owner’s drawing account is transferred to theowner’s capital account.

9. Special Journals:

Providing serviceson account ⎯⎯⎯⎯⎯→ recorded in ⎯⎯→Revenue (sales) journal

Receipt of cash fromany source ⎯⎯⎯⎯⎯→ recorded in ⎯⎯→ Cash receipts journal

Purchase of itemson account ⎯⎯⎯⎯⎯→ recorded in ⎯⎯→ Purchases journal

Payments of cash forany purpose ⎯⎯⎯⎯⎯→ recorded in ⎯⎯→Cash payments journal

10. Shipping Terms:

FOB Shipping Point FOB DestinationOwnership (title)passes to buyer whenmerchandise is ................... delivered to delivered to

freight carrier buyer

Core_Endsheets_Front.qxd 5/17/08 11:54 AM Page B

7/29/2019 Fin Actg Basics

http://slidepdf.com/reader/full/fin-actg-basics 2/2

Freight costsare paid by .......................... buyer seller

11. Format for Bank Reconciliation:

Cash balance according to bank statement... .. .. .. .. .. .. .. .. .. . $xxxAdd: Additions by company not on bank

statement.......................................................... $xxBank errors............................................................. xx xx

$xxxDeduct: Deductions by company not on bank

statement.......................................................... $xxBank errors............................................................. xx xx

Adjusted balance.................................................................. $xxx

Cash balance according to company’s records.... .. .. .. .. .. .. $xxxAdd: Additions by bank not recorded by company.. $xx

Company errors .................................................... xx xx$xxx

Deduct: Deductions by bank not recorded by company...................................................... $xx

Company errors .................................................... xx xxAdjusted balance.................................................................. $xxx

12. Inventory Costing Methods:

1. First-in, First-out (FIFO)2. Last-in, First-out (LIFO)3. Average Cost

13. Interest Computations:

Interest = Face Amount (or Principal) ϫ Rateϫ Time

14. Methods of Determining Annual Depreciation:

DOUBLE-DECLINING-BALANCE: Rate*ϫ Book Value at Beginningof Period

*Rate is commonly twice the s traight-linerate (1/Estimated Life).

15. Adjustments to Net Income (Loss)Using the Indirect Method

Increase

(Decrease)

Net income (loss) $ XXXAdjustments to reconcile net income tonet cash flow from operating activities:

Depreciation of fixed assets XXXAmortization of intangible assets XXXLosses on disposal of assets XXX

Gains on disposal of assets (XXX)Changes in current operating assets and liabilities:

Increases in noncash current operat ing assets (XXX)Decreases in noncash current operating assets XXXIncreases in current operating liabilities XXXDecreases in current operating liabilities (XXX)

Net cash flow from operating activities $ XXX

or$(XXX)

STRAIGHT-LINE:Cost —Estimated Residual Value

Estimated Life

16. Contribution Margin Ratio=

17. Break-Even Sales (Units) =

18. Sales (Units) =

19. Margin of Safety =

20. Operating Leverage =

21. Variances

= ×

= ×

= ×

= ×

= –

22.=

Alternative ROI Computation:

ROI = ×

23. Capital Investment Analysis Methods:

1. Methods That Ignore Present Values:A. Average Rate of Return MethodB. Cash Payback Method

2. Methods That Use Present Values:A. Net Present Value MethodB. Internal Rate of Return Method

24.=

25. Present Value Index=

26.=

Amount to Be InvestedEqual Annual Net Cash Flows

Present Value Factorfor an Annuity of $1

Total Present Value of Net Cash FlowAmount to Be Invested

Estimated Average Annual IncomeAverage Investment

Average Rateof Return

SalesInvested Assets

Income from OperationsSales

Income from Operations

Invested Assets

Rate of Return on

Investment (ROI)

Fixed FactoryOverhead

Rate

StandardHours for

Actual UnitsProduced

Standard Hoursfor 100% of

NormalCapacity

Fixed FactoryOverheadVolumeVariance

Budgeted VariableFactory Overhead

Actual VariableFactory

Overhead

Variable FactoryOverhead Controllable

Variance

Standard Rateper Hour

Actual Direct Labor Hours –Standard Direct Labor Hours

Direct LaborTime Variance

Actual HoursActual Rate per Hour –Standard Rate per Hour

Direct LaborRate Variance

StandardPrice

Actual Quantity –Standard Quantity

Direct MaterialsQuantity Variance

Actual QuantityActual Price –Standard Price

Direct MaterialsPrice Variance

Contribution MarginIncome from Operations

Sales – Sales at Break-Even PointSales

Fixed Costs + Target ProfitUnit Contribution Margin

Fixed CostsUnit Contribution Margin

Sales – Variable CostsSales

= ≥£ – ×

Core_Endsheets_Front.qxd 5/17/08 11:54 AM Page C

Documents

Fin Actg Basics