Accounting cheat sheat

1

www.transtutors.com

https://www.facebook.com/transtutors Call Us: +1.617.933.5480 https://twitter.com/transtutors

Governing bodies influencing GAAP

Financial Accounting standards boards

Securities and exchange commission

American institute of certified public accountants

FASB emerging tasks force

Cost accounting standard board

Internal revenue service

American accounting Association

International accounting standards board

Governmental accounting standard board

Public company accounting oversight board

2

www.transtutors.com


Accounting equation and double entry system

Classification of Accounts:

Permanent Account

Temporary Account

All assets, liabilities and stockholders equity

All revenues and expenses

Permanent Account Temporary Account

(Debit) Increase

(Credit) Decrease

(Debit) Decrease

(Credit) Increase

(Debit) Decrease

(Credit) Increase

(Debit) Decrease

(Credit) Increase

(Debit) Decrease

(Credit) Increase

(Debit) Increase

(Credit) Decrease

(Debit) Increase

(Credit) Decrease

Assets = Liabilities + Stockholder’s Equity

Asset Accounts Liability Accounts Capital Stock Accounts

Retained Earnings

Revenue Accounts

Expense Accounts

Dividend Accounts

3

www.transtutors.com


Accounting Cycle

* Income statements, Owners’s equity statements, Balance Sheet

Analyze business transactions

Journalize the transactions

Post to ledger

accounts

Prepare a trial balance

Journalize and post adjusting entries: Deferrals/ Accruals

Prepare an adjusted trial

balance

Prepare Financial

statements*

Journalize and post

closing entries

Analyze business

transactions

8

9 1

2

3

4

5

6

7

Optional Steps: If a worksheet is prepared, steps 4, 5 and 6 are incorporated in the worksheet. If reversing entries are prepared, they occur between steps 9 and 1 as discussed below.

4

www.transtutors.com


Forms of Business Organization

Partnerships

Corporations

Sole Proprietorship

Owned by single person (proprietor) and owner is personally liable for debts of business

Unincorporated business jointly owned by two or more people, which is not a separate legal entity

Perpetual separate legal entity, with limited liability, where ownership exist in transferrable shares.

5

www.transtutors.com


Key Financial Statements

Income Statement

The income statement shows a company’s revenue, expenses,

gains and losses appear on this financial

statement.

Balance Sheet

The balance sheets lists the company’s assets, liabilities and equity

Cash Flow Statement

This financial statement reveals how a company

is bringing in and spending its cash.

Partnership

Partner’s equity is used instead of Owner's Equity

and listed separately

Proprietorship

The equity section contains only the equity of

the proprietor

Corporation

Shareholders equity is divided into capital stock

and retained earnings.

6

www.transtutors.com


Income Statement

Revenue Cost of goods sold

Gross Profit Operating Expense

Non-Operating Income

Operating Income

Components of Income Statement

7

www.transtutors.com


Pro forma: Income Statement Multi-step income statement

Ruth's Place

Income Statement

For Year Ended December 31, 2001

Sales

Less: Sales discounts -

Net sales -

Cost of goods sold

Gross profit -

Operating expenses:

Selling expenses:

Total selling expenses -

General and administrative expenses:

Total general and administrative expenses

Total operating expenses -

Net income

-

$

-

8

www.transtutors.com


Main Components of Balance Sheet

• Assets are economic resources that are owned by a business and are expected to benefit future operations.

• Examples: buildings, machinery, accounts receivable.

• Valued at cost value... that is what you paid for the asset, not what it is worth today.

Assets

• Debts of a business

• All businesses have debts. It is convenient to buy with credit

• The purchase of goods of services for credit is an account payable

• When money is borrowed it is a note payable

Liabilities • Represents the resources

invested by the owner

• Residual claim because claims of creditors come first

• Equal to the total assets minus the total liabilities

• Increase in Owner's Equity comes from Investment and Earnings

• Decreases come from Withdrawals and Losses

Owners’ Equity

Assets Liabilities Owner's Equity

9

www.transtutors.com


Performa: Balance Sheet Note As at 31 December

2011 2010

ASSETS

Non-current assets

Property, plant and equipment

Intangible assets

Deferred income tax assets

Trade and other receivables

Total non-current assets 0 0

Current assets

Inventories

Trade and other receivables

Cash and cash equivalents (excluding bank overdrafts)

Total current assets 0 0

TOTAL ASSETS 0 0

EQUITY AND LIABILITIES

Equity

Share capital

Share premium

Other reserves

Retained earnings

Total equity 0 0

Liabilities

Non-current liabilities

Borrowings

Deferred income tax liabilities

Provisions for other liabilities and charges

Total non-current liabilities 0 0

Current liabilities

Trade and other payables

Current income tax liabilities

Borrowings

Provisions for other liabilites and charges

Total current liabilities 0 0

Total liabilities 0 0

TOTAL EQUITY AND LIABILITIES 0 0

10

www.transtutors.com


Journal Entry

An amount entered on the right side of an account, which cause

increase in revenue and gains and decrease in assets and expenses

Each bookkeeping or accounting entry will involve at least two accounts: at

least one account will be debited, one account will be credited.

An amount entered on the left side of an account, which causes increase in assets and expenses and decrease in liabilities and revenue.

11

www.transtutors.com


Basic Ledgers Used in Accounting

Accounts Receivable

Accounts Payable

Notes Receivable

Petty Cash Account

Cash Account

Inventory

12

www.transtutors.com


Accounts Receivable

Accounts Receivable

Journal entry to create allowance for doubtful account

Uncollectible Accounts Expense XXX

Allowance for Doubtful accounts XXX

Allowance for Doubtful Accounts will appear on the balance sheet as a deduction from A/R

Accounts Receivable XXX

Allowance for doubtful accounts XXX

Final A/R Amount XXX

Journal entry to record bad debt entry

Allowance for Doubtful Accounts XXX

Accounts Receivable (Simons) XXX

Any product sold on credit creates an asset which is yet to receive , thus termed as Account Receivable.

13

www.transtutors.com


Cash Account and Cash Management

Listed first because it is available to meet obligations.

Assets are listed in order of liquidity and it is most liquid asset.

Some short term investments are combined with cash on the balance sheet because of

their liquidity.

Creditors are interested in how cash compares with accounts payable, i.e.

Solvency

Cash Account

Creation of Petty cash Funds Petty Cash XXX Cash XXX

Replenishing Cash Funds

Office Supply Expenses XXX Entertainment Expense XXX Cash XXX

Economy & Finance

Accounting cheat sheat