ultimate accounting cheat sheet

1. Revenues increase Equity
Expenses decrease Equity
Credit Side
Debit Side
Reliability
Info strives to faithfully represent the
economic situation
-Completeness
-Includes all info necessary for user to understand
-Neutrality
-Info cannot be manipulated; free from bias
-Freedom from Error
-Contains no errors/omissions
-Does not require perfect accuracy
Earned
Goods/services are delivered & related obligs
are complete
Seller has performed duties under terms of
sales agreement- title has passed to buyer
w/o right of return or contingencies
Realized
Seller has received cash or will at
some point in the future (AR)
Reliability, or faithful representation, is a
necessity for individuals who neither have
the time nor the expertise to evaluate
the factual content of the information.
Retained Earnings
Equipment
Common Stock
Unearned Revenue
Sales
Rent Expense
Inventory
Assets = Liabilities + Equity
D C D C D C
Net income = Revenue - Expenses
Retained Earnings = Net Income - Dividends
Net sales = Credit sales - Sales returns & allowances
Net Book Value = Cost - Accumulated Depreciation
BS, RE
BS
BS
BS
IS
IS
BS
SE
A
SE
L
R
E
A
IS=income statement | RE=retained earnings | BS=balance sheet
R=revenue
E=expense
A=asset
L=liability
SE=Stock-
hld eq
ITEM
STUDY GUIDE
MY SIDE
HANDY FORMULAS
ITEMS, STATEMENTS, & ACCOUNTS
STATEMENT ACCOUNT
Allow. for Bad Debt
Bad Debt Exp
-4,500
-4,500
BALANCE SHEET
ASSETS = LIABILITIES + EQUITY
INCOME STATEMENT
REVENUE - EXPENSES = NET INCOME
Acquire PP&E
Year 1 depreciation
Year 2 depreciation
Year 3 depreciation
+10,000
-3,000-3,000
-3,000-3,000
-3,000-3,000
BALANCE SHEET ASSETS
PP& E ACCUM. DEPR
INCOME STATEMENT
DEPR. EXPENSE
Inventory
COGS Expense
Cash
Sales Revenue
Totals
-500
+500 +500
-500 -500
-500
=-500
=500
=1,000
+1,000
+1,000 +1,000
+1,000
BALANCE SHEET
ASSETS = LIABILITIES + EQUITY
INCOME
STMT
BALANCE
SHEET
INCOME STATEMENT
REVENUE - EXPENSES = NET INCOME
Receivable = Asset
D C
Lesson 1 | Accounting Concepts
Lesson 2 | Accounting Building Blocks
Assets = Liabilities + Equity
D C CD C D
Lesson 3 | Revenue & Receivables
2) Reporting entities
Financial stmts
Footnotes
Auditors's report
Mgmt's discussion
& analysis (MD&A)
about
accounting equation
through
to 3) Primary users
Purpose of accounting: 1) Provide financial information
Basic financial
statements (FOUR)
1
12
1
2
3
4
Income Statement
Revenues
-Expenses
Net Income
Lesson 4 | Inventory & Payables
Inventory costing methods
ACCT for Inventory
Lesson 5 | Fixed
& Intangible Assets
Lesson 6
Net Book Value = $1,000
Property, Plant,
& Equip
Other inventory issues
Recording transactions
Adjusting entries
Qualitative characteristics | primary qualities (TWO)
Relevance
Info capable of making
a difference in a decision
-Predictive value
-Predict outcomes of past,
present, & future events
-Confirming value
-Feedback can be used
to set expectations
-Materiality
-Inclusion/omission would
influence judgement
For info to be relevant, it
should have predictive or
confirming value, & be
material for the
reporting entity.
Revenue recognition
Receivables
Sole proprietors
Partnerships
Corporations
LLC's
LIFO & FIFO
Primary advantage
is tax benefit
Older, lower acquisition Px
matched w/ higher sales Px
Current, higher acquisition Px
mtchd w/ curr, higher sales px
Inventory is valued using
older lower acquisition Px
Inventory is valued using
current (higher) acquisition Px
Increase on the
Capital market
Product market
Government
Internal users - execs
Straight-Line Depreciation
example
example
$10k asset has salvage of $1k, use life is 3 years
=(10000 - 1000)/3 = 3000 per year
Balances +10,000 -9,000 -9,000
Depreciation Expense = Asset Cost - Salvage Value
Estimated Useful Life
Natural Resources
2 Double Declining Balance
Depreciation Expense =
Determine by taking the straight-line rate of depreciation and
double it. Example: Asset w/ 4-year life = straight-line rate 25%,
calc'd by 100%/4years. The straight-line rate doubled = 50%.
Asset w/ a 5-year life would = 20% straight-line * 2 = 40%.
Doubled rate is then multiplied by Net Book Value:
Net Book Value * 2
Estimated Useful Life
Depreciation Expense =
=
Depreciation rate * Net Book Value
(Straight-line rate *2)
* (Cost - Accumulated Depreciation)
Stmt of Retained Earnings
Beginning RE
+ Net Income
Ending Retained Earnings
Stmt of Cash Flows
Beginning Cash
Operating Activities
Investing Activities
Financing Activities
Net Change in Cash
Ending Cash
Lower of Cost or Market
When future revenue-producing ability < purch Px
the inventory asset write down will reflect loss
-Ensures inventory is not overvalued
-Accelerates future losses to current Inc Stmt
Compare historical cost (balance sheet value)
to Market Value. Report the lower of the two.
-Market value is cost to replace inventory today
Accrual
Recognizes economic
events in the period
in which they occur
Net realizable value
Income Stmt
Percentage
of credit
sales
Aging of
Accounts
Receivable
Amount the company expects to collect (GAAP Requirement)
Allowance method | Bad Debt Expense (BDE)
Recognize BDE in the period of sale by estimating doubtful accounts
-Record estimate in contra-asset acct "Allowance for Doubtful Accts"
Estimate results in
Bad Debt Expense
-Estimate results in balance of
allowable account
-Bad Debt Expense is a "plug"
Aging of AR method
Estimate how much of the ending balance of AR is bad debt
-Amount becomes ending balance of Allowance for Bad Debt
-Based on the age of account making up ending bal of AR
Percentage of sales method
Bad debt is estimated as a % of credit sales that
occured during the period
-Percent is based on historical trends
& company policies
-As extracted the asset is depleted
and transferred to inventory
-As sold the expense is Xferred to
income statement as COGS Exp
Intangible Assets
-Lack physical existence
-Not financial instruments
-Normally classified as long-term
assets
Effective/stated rates
-Effective = market rate, or yield
-Stated = Specified on the face of
the bond.
Cash
Recognizes economic
events when cash has
been exchanged
Ignores revenue recognition & matching principles
Not in conformity with GAAP
Balance Sheet
--Assets--
Cash
Inventory
PPE
Total
--Liabilities & Equity--
A/P
LT Debt
Equity
Total
Acquire PP&E
Year 1 depreciation
Year 2 depreciation
Year 3 depreciation
+10,000
-6,667-6,667
-2,222-2,222
-111-111
BALANCE SHEET ASSETS
PP& E ACCUM. DEPR
INCOME STATEMENT
DEPR. EXPENSE
Balances +10,000 -9,000 -9,000
DOUBLE-ENTRY ACCOUNTING
DETAILED EXAMPLES
DETAILEDEXAMPLES
recognized/recorded when BOTH
Recognition @ time of sale provides
a uniform/reasonable test
Recognition Principle: Revenue should be
recorded when a resource has been earned
*General Rule
EXAMPLES
EXAMPLES
Balance Sheet
% of current credit
sales is matched with
current sales revenue
as bad debt expense
Allowance does not
necessarily reflect the
receivables that are
uncollectible
Bad debt expense is a
plug to force
allowance for bad
debt to the proper
balance
Allowance for Bad
Debts is calculated
based on balance in
Accounts Receivable
Interest Expense
Cash
Bonds Payable
Asset
Liability
Equity
Revenue
Expense
Dividends
Totals
Amount
Amount
Amount
Total DRs
Amount
Amount
Amount
Total CRs
Trial Balance Form-17.50
Cash
Common stock
Issue 3000 shares of common stock for $15,000
Assets = Liabilities + Equity
15,000
+15,000 +15,000
15,000
-19.75 -19.75 =-19.75
+2.25
BALANCE SHEET
ASSETS = LIABILITIES + EQUITY
INCOME STATEMENT
REVENUE - EXPENSES = NET INCOME
1
2
3
4
$491.00
$493.25
$495.50
$497.75
$493.25
$495.50
$497.75
$500.00
$19.75
$19.75
$19.75
$19.75
$17.50
$17.50
$17.50
$17.50
PERIOD
BEGINNING
BALANCE
INTEREST
EXPENSE
EFFECTIVE
RATE = 4%
INTEREST
PAYMENT
STATED
RATE = 3.5%
ENDING
BALANCE
Bond interest: Two year semiannual bond w/ par value of $500 and
a stated rate of 7% was priced to yield 8%.
-Calc the issue price, find the pres value of both lump-sum principle pymt of $500
and the interest stream of $35 per year. - Pres val of principle = $427
- Pres val of interest stream = $64
- Issue price = $491
Record bond proceeds
Cash
491.00
Disc on Bonds Pyble
9.00
Bonds Payable
500.00
Record first semi-annual interest payment
Cash
17.50
Cash
15k
Common
Stock
15k
Cash
Unearned Revenue
Receive $2,000 for future services
Assets = Liabilities + Equity2,000
+2,000 +2,0002,000
Cash
2k
Unearned
Revenue
2k
Depreciation Expense
Accumulated Depreciation
Balance sheet: Reports a company's resources & claims against @ a given point in time.
Income Stmt: Rev & Exp over period. Stmt of RE: Shows RE over period. Stmt of Cash Flows: use of $$
Equipment depreciation of $600 per month
Assets = Liabilities + Equity600
-600 -600600
Depreciation
Expense
600
Accum
Deprec
600
Unearned Revenue
Service Revenue
Serviced pre-paid client ($2k)
Assets = Liabilities + Equity2,000
-2,000 +2,0002,000
Unearned
Revenue
2k
SVC
Revenue
2k
Advertising Expense
Cash
Pay $250 for advertising
Assets = Liabilities + Equity250
-250 -250250
Cash
250 250
Advertising
Expense
Accounts Receivable
Service Revenue
Do work and leave an invoice for $3,500
Assets = Liabilities + Equity3,500
+3,500 +3,5003,500
Accounts
Receivable
3.5k 3.5k
Service
Revenue
Dividends
Cash
Pay $1,500 in dividends
Assets = Liabilities + Equity1,500
-1,500 -1,5001,500
Cash
1.5k 1.5k
Dividends
Interest Expense
Debit Credit
19.75
Disc on Bonds Pyble
bal 9.00
2.25
-DO NOT REDUCE! cost by
salvage value
-STOP DEPRECIATING
when salvage value is reached
Lesson 6,
cont...
OR