Accouting - Midterm Guide Good

7/31/2019 Accouting - Midterm Guide Good

1/11

SPECIAL JOURNALS

Transaction Special-Purpose Journal Posting Abbreviation

Sale of Merchandise on Credit Sales Journal S

Purchase on Credit Purchases Journal P

Receipt of Cash Cash Receipts Journal CR

Disbursement of Cash Cash Payments Journal CPAnything Else General Journal J

Sales Journal:

-Consists of debit to a customer in accounts receivable (shown in the journal) and a credit to

sales(not shown in journal)

-Post daily each of the transactions to the subsidiary accounts and post the total to the general

ledger account at the end of the month

Purchases Journal:

-Consists of a debit to purchases and a credit to accounts payable

- Post daily each of the transactions to the subsidiary accounts and post the total to the general


Cash Receipts Journal:

- Consists of a debit to cash and sales discounts and a credit to accounts receivable, sales, and

sales tax payable

-Post individual amounts in the Accounts Receivable Subsidiary Ledger column daily and post

the totals at the end of the month

Cash Payments Journal:

- Consists of a debit to accounts payable and a credit to purchases discounts and cash. There can

be a general debit if the payment was for an expense.

- Post daily each of the transactions to the subsidiary accounts and post the total to the general



2/11

BANK RECONCILIATIONS

Bank Balance Checkbook Balance

Add:

Outstanding DepositsBank Mistakes

SubtotalLess:

Outstanding Checks

Adjusted Balance

Add:

Note ReceivableInterest on Note Receivable

Interest on AccountSubtotal

Less:

Mistake on checkService Charge

Non sufficient funds

Adjusted Balance

- Record the changes in the checkbook balance as transactions

PETTY CASH

-Establishing the fund

Debit Petty cash

Credit Cash

-Reimbursing the petty cash fund

Debit the thing you used it on

Credit Cash

INVENTORY ANALYSIS

Inventory Turnover: Indicates the number of times a companys average inventory is sold during an

accounting period.

Average Days Inventory on Hand: Indicates the average number of day s required to sell the inventory

on hand.

Supply-Chain Management: a company manages its inventory and purchasing through business to

business transactions that it conducts over the internet

Just-in-Time Operating Environment: The company works closely with suppliers to coordinate and

schedule shipments so that the shipments arrive just at the time they are needed.

Goods Flow: Actual physical movement of goods in the operations of a company


3/11

Cost Flow: The association of costs with their assumedflow in the operations of a company.

Specific Identification Method

*This method prices the inventory by identifying the cost of each item in ending inventory.

*Cost of goods available for saleEnding inventory = Cost of goods sold

Calculate the ending inventory by taking the remainder stock and multiplying each piece of

inventory by the price of it.

*Two disadvantages

1. It is difficult and impractical to keep track of the purchases and the sale of individual items

2. When a company deals in items that are identical but that are bought at different costs,

deciding which items were sold becomes arbitrary; thus the company can raise or lower income by

choosing the lower or higher cost items

Average-Cost Method

*Inventory is priced at the average cost of the goods available for sale during the period

*Tends to level out the effects of cost increases and decreases because the cost for the ending inventory

calculated under this method is influenced by all the prices paid during the year and the beginning

inventory price

First-In, First-Out (FIFO) Method

*Based on the assumption that the costs of the first items acquired should be assigned to the first items

sold

*The costs of the goods on hand at the end of a period are assumed to be from the most recent purchases,

and the costs assigned to the goods that have been sold are assumed to be from the beginning inventory

and the earliest purchases

*Effect is to value the ending inventory at the most recent costs and include earlier costs in cost of goods

sold

*Magnifies the effects of the business cycle on income

*Good for the balance sheet because the ending inventory is closest to current values and therefore gives

a better view of the current financial assets of a business

Last-In, First-Out (LIFO) Method


4/11


5/11

*

Gross Profit Method of Inventory Estimation

*Assumes that the ratio of gross margin for a business remains relatively stable from year to year

Beginning Inv-cogs

WHICH FINANCIAL STATEMENT?

Income Statement

Revenues

Expenses

Statement of Owners Equity

Beginning Capital

Investments

Withdrawals

Balance Sheet

Assets

Liabilities

Owners Equity

WHICH COLUMNS FOR THE WORKSHEET

Income Statement

Withdrawals

Expenses

Revenues

Balance Sheet

Assets

Liabilities

Owners Equity


6/11

ACCRUAL VS. DEFFERAL

Accrual

-used to apply the matching rule

-attempts to record the financial effects on an enterprise of transactions and other transactions

and other events and circumstances in the periods in which those transactions occur rather than only in the

periods in which cash is received or paid by the enterprise

-requires:

Recording revenues when earned

Recording expenses when incurred

Adjusting the accounts

-follows the matching principles

Deferral

-events that may happen over two or more periods

-major events including prepaid expenses and the depreciation of plant and equipment

NOTES

-maturity date

- date in which the note must be paid

- duration of note

- time in between the day the note is issued and the maturity date

-interest and interest rate

-principal X rate of interest = interest

- maturity value

- principal + interest = maturity value


7/11

-recording a dishonored note

- debit notes receivable past due

-credit notes receivable

- credit interest income

Adjustments

Prepaid insurance:

- debit insurance expense

-credit prepaid insurance

*only use the number that is the percentage of the time that you have used up

Depreciation:

-Debit depreciation expense

-credit accumulated depreciation

SHORT TERM INVESTMENTS

Held-to-Maturity Securities:

-buying the item

-debit short term investments

-credit cash

-recording interest

-debit short term investments

-credit interest income


8/11

-recording collection

-debit cash

-credit short term investments

-credit interest income

TRADING SECURITY

-buying the item

- debit short term investments

- credit cash

-recording unrealized loss

-debit unrealized loss on investment

-credit allowance account

recording realized gain

- debit cash

-credit short term investments

-credit realized gian

-recording unrealized gain

- debit allowance

-credit unrealized gain


9/11

PERIODIC OR PERPETUAL INVENTORY

-perpetual

-continuous records are kept of the quantity and prices of individual items at

purchase and selling price-pros:able to respond to customer's inquiries about product availability

order inventory more effectively

avoid running out of stock

to control the financial costs associated with investments in inventory

-the cost of each item is recorded in Merchandise Inventory account when it is

purchased

-as merchandise is sold, cost is transferred from Merchandise inventory to COGS

-balance of Merchandise Inventory=Cost of Goods on hand- balance in COGS=Cost of merchandise sold to customers

-periodic

-inventory not yet sold or still on hand is counted periodically, usually at the end

of the accounting period-the figure for inventory on hand is accurate only on the balance sheet date

-when a purchase or sale is made, the inventory figure becomes a historical

amount, and it remains so until the new ending inventory amount is entered at the

end of the next accounting period

-pros:reduces amount of clerical work

-more likely to be found in a small business or in companies that sell items of low

value in high quantity

BAD DEBTS

- Dishonored notes

-debit notes receivable

-credit sales

-debit AR

-credit sales

-debit NR

-credit AR/S

-notes receivable

-credit cash


10/11

RATIOS AND FORMULAS

Liquidity

Working Capital

CA-CL=WCCurrent Ratio

CA/CL= Current RatioQuick Ratio

QA/CL=Quick Ratio

Profitability


11/11

Profit Margin

Net Income/Net Sales On each dollar of net sales, a percentage (money) is made

Asset Turnover

Net Sales/Avg Total Assets = TIMES The number is how much money in sales is made for each dollar invested

Return on Assets

Net Income/Avg Total Assets For every dollar invested, this is how much the assets generate in income

Debt to Equity Ratio

Total Lia/OE = Ratio Over 1 means more is from lended Under 1 means more is invested by owner

Return on Equity

Net Income/Avg OE Company earned (percentage) money on each dollar invested by owner

Receivable Turnover

Net Sales/Avg Net Account ReceivableAvg Days Sales Uncollected

365 days/Receivable Turnover

Current Assets

Cash Become Cash Prepaid

Quick Assets

Cash Marketable Securities Receivables

Documents

Accouting - Midterm Guide Good