Liquidity and Efficiency Before Adjustment Ending Bal per Bank Ending Bal per Book

Current Ratio Current Asset/Current Liabilities (CL) FinancePosition/Bal Adjusting +Deposits in Transit +Deposits by Bank(Cr Meno)
Acid test Ratio Quick asset/Current liabilities Sheet Entry =Coy deposit – Bank Deposit
Account Receivable turnover Net Sales/ Average account receivables
Defer Asset Overstated Expense Dr Expense -Outstanding Checks -Service Charge
Inventory Turnover Cost of Good sold /Average Inventory
Expen Equity Overstated Understated Cr Asset =Checks Written-Checks Clear -Non Sufficient Funds Checks
Account Payable Turnover COGS /Average Account Payable
Days’ sales uncollected Account receivable/net sales x 365
Defer Liability Overstated Revenue Dr Liability +/- Bank errors
Days’ sales in inventory Ending inventory/COGS x 365 Revenu Equity Overstated Understated Cr Revenue Depreciation Method
Days’ purchase acct payable Acct Payable/ COGS x 365 Accrue Liability Understated Expense Dr Expense (a) Straight line – (Cost-Residual Value)/Useful Life
Total Asset Turnover Net sales/ Average total asset Expen Equity Overstated Understated Cr Liability (b) Unit-Of-Production – (Cost-Residual Value)/Total units of
Solvency Accrue Asset Understated Revenue Dr Asset production. Depreciation Expense = Unit Produce * Depreciation/unit
Debt Ratio Total Liabilities/Total Assets Reven Equity Understated Understated Cr Revenue (c) Declining-Bal –Depre Expense =(2*Straight Line) * Begin carry amt
Equity Ratio Total Equity/Total Assets Closing Process (Done after financial report before the start of next Depending on the Method, Profit and Profit Tax are affected. Change
Debt-to-Equity ratio Total Liabilities/Total Equity period). Income Summary Acct (Contra Acct, Temp)
Time interest earned Profit before interest expense and income in Estimates for depreciation being only during re-evaluation.
Credit(reduce) Expense Acct, Debit Income Summary Long Term Asset
taxes / interest expense
Profitability Debit (Reduce) Revenue Acct, Credit Income Summary Revenue Expenditure – spending don’t increase lifetime/productivity
Profit Margin ratio Net Profit/Net Sales Debit/Credit Balance indicate loss/profit, Credit/Debit Income Capital Expenditure-Spending extend PPE longer period
Return on Assets Net Profit/Average Total Asset Summary Acct to debit/credit Retained Earnings Impairment(Carry amt exceed recover amt)-Dr Impairment Loss, Cr
Return on shareholder’s (Net Profit – Preference Credit(reduce) Dividends Acct, Debit Retain earning acct Accumulated Depreciation. Discarding/Sale PPE. (a) Fully
equity Dividends)/Average ordinary share equity Debit/Credit Balance in Retained earning indicate loss/profit
Basic earnings per share (Net Profit-Preference Depreciate- Dr Depre Expense, Cr Accumulated Depre. Dr
Dividends)/Weighted average ordinary Accumulated Depre, Debit Loss on Disposal, Cr PPE
Cash Over and Short (Reported Under Expense)- normal Debit Bal
shares outstanding (b) Sale on Amt-Dr Cash, Dr Accumulated Depre, Cr PPE
Overage-Debit (Increase) Cash, Credit (Increase) Sales, Credit COAS
Market Prospects (c) Abv carry amt-Dr Cash, Accumulated Depre, Cr PPE,Gain on
Price-earnings ratio Market Price Ordinary / Earning per share Shortage-Debit(increase) Cash, Credit(Increase) Sales, Debit COAS
(d) Below Carry amt-Dr Cash,Loss, Accumulated Depre, Cr PPE
Dividend yield Annual cash dividend per share/market
price per share Petty Cash
Current Liabilities (Within 1 year, or company operating cycle)
Asset=Liability + Shared Capital –Dividends + Revenues – Expense Starting – Debit(increase) Petty Cash, Credit(Decrease) Cash
Uncertainty in Whom to Pay, When to Pay, How much to Pay
+/- -/+ -/+ +/- -/+ +/- Reimburse-Debit(Increase) Expense, Credit(Decrease) Cash
Sales Taxes Payable – Dr Cash, Cr Sales,GST Payable. Unearned
Increase/Decrease Petty Cash Fund-Dr/Cr Petty Cash, Cr/Dr Cash
Prepared Expense (Deferred) Revenue-Dr Cash, Cr Unearned, when earn,Dr Unearned, Cr Revenue.
When purchase, Credit Cash, Debit Acct (Change in Asset Account) Credit Card Sale (a) Cash receive Immediate – Debit(increase) Cash, Note Payable-Dr Note Payable,interest expense, Cr Cash. Payroll- Dr
When use, Debit(Increase) Expense, Credit(reduce) Asset Account, Debit Expense, Credit(Increase) Sale. (b) Cash Receive later – Salary and Bonus Expense, Cr Employee CPF Payable, Employer CPF
PPE debit(increase) Depreciation Expense, Credit(increase) Debit(Increase) Acct Receivable, Debit(Expense), Credit(Increase) payable, Salary Payable to Employee.
Accumulated Depreciation. No doing, Overstate asset & Equity Sale, Later Period, Debit(increase) Cash, Credit(decrease) Acct Receiv Multi-Period Known Liabilities
Unearned Revenue (Deferred) Unearned Revenue (>1 year)- Current Portion due. Note Payable-
Bad Debt Last year of the note due. Long term debt-Current portion
When purchase, Debit(Increase) Cash asset, Credit(increase) Liability
(a)Direct Write Off-Dr(Increase)Bad Debt Expense, Cr(Decease)Acct R Estimated Liabilities (known obligation, uncertain, reliable amt)
When use, Debit(Decrease) Liability, Credit(Increase) Revenue
(b) Allowance Method-Dr(Increase) Bad Debt Expense, Cr(Increase) Warranty- Date of purchase, Dr Warranty Expense, Cr War Provision.
Something(?) Payable (Accrued Expense)
Allowance for doubtful action. Adjustment to Acct Receivable(Cr) When used, Dr warrant Provision, Cr (?) Inventory.
When purchase, Debit(Increase) Expense, Credit(Increase) Payable
coupled with the allowance for doubtful acct(Dr) will not affect the Contingent Liabilities
When use, Debit(Decrease) Payable, Credit(Decrease) Cash Acct
total assets or the net profit (include recovering of bad debt). Asset & (a) Probable – likely to happen, cost estimate-able. (b) Possible –
Something(?) Receivable (Accrued Revenue)
Profit are affected in the period when bad debt expense is predicted likely to happen, cant estimate cost, disclose in note. (c) Remote
When purchase, Debit(increase) Receivabl, Credit(Increase) Revenue
and recorded in the adjusting entries. Estimating Bad Debt-Percent of
When Use, Debit(Increase) Cash, Credit(Decrease) Receivable
receivable given by experience and market Value. Aging Receivable-
diff percent given to money according to number of days past due.
Income and Equity
Recovering Bad Debt-Reinstate Dr receive acct and Cr allowance for
doubtful actions. Cr(Reduce) acct Receivable and Dr Cash
 (b) FIFO. Inventory sold in order. Cash Flow from Financing Activities
Income and equity (c) Weighted Average. Use average cost per unit at the time of sale. Identify finance-related, explain using reconstruction, report cash
Advantage of Cooperate-Separate legal entity, Limited Liability of Purchase Cost increase, FIFO yield higher gross profit and net profit, Net increase(decrease) in Cash, Cash Bal at begin, Cash Bal at end
shareholders, Transferable ownership rights, Continuous life, Lack of Weighted yield highest COGS and low profit. (Vice Versa if cost drop).
mutual agency for shareholders, ease of capital accumulations FIFO mimics actual flow of goods in most business. Weighted smooth
Disadvantage-Government regulation, Corporate taxation(Double tax our erratic changes. Specific match cost of items with revenue it get.
Incorporation->Organisation expenses->Management of Corporation Lower of Cost, Net Realisable Value (Asset should not be carried in
Ordinary Shares. Par value shares at par-Dr Cash, Cr Share Capital. excess of amounts expected to be realised from their sale or use).
Par value at premium-Dr Cash, Cr Share Capital, Share Premium. No- Record – Dr COGS, CR Inventory, consider this as operating expense.
par value – Dr Cash, Cr Share Capital. Stated Value share – Dr Cash, Cr Financial Statement Effects of Inventory Error
Share Capital, Share premium. Shares for noncash asset – Dr Begin Inventory + Purchase - End Inventory = COGS
PPE/expense, Cr Share capital, Share Premium.
Dividends. Cash Dividends –Date of Declaration, Record, Payment. Year 1 Year 2
Record (Dr Retained earnings, Credit Ordinary Dividend Payable). End Inven COGS Net Profit COGS Net Profit
Payment (Dr Ordinary Dividend Payable, Credit Cash). Bonus Issue Under Over Under Under Over
Over Under Over Over Under
(Distribution of addition shares to shareholders). Keep market price
Statement of Cash flow (favourable at company finance with cash)
affordable and evidence of doing well. Record (Dr Retained, Cr
Operating Activities – Transaction & events determine profit. Sale of
Ordinary Share Dividend Distributable). Payment (Dr Ordinary Share
goods, services, fee, employee. Investing Activities – Acquisition &
Dividend Distributable, Cr Share-Ordinary). Share Split (Almost same
disposal of long-term Assets and other investments not included in
as bonus issue, but here 1 shareholder share is split into 2 or more).
cash equivalent, PPE, Equity & debt of other entities, loan to other.
Preference Share (Special rights in term of dividends, liquidation, no
Financing – Change in size and composition of contributed equity and
voting). Cumulative (Dividends paid both the current and all prior
borrowing of entity, Shares, loans, borrowing.
periods, Dividends in Arrears). Non-Cumulative(Opp of Cumulative).
Interest Receive and Dividends receive counted as operating cos it
NonParticipating (Limit dividends to max amt per year). Participating
affect net profit and counted as investing cos they are return on
(Share with Ordinary any dividends pay in excess). Convertible (can
investment. Interest paid is both operating and financing cos it affect
change to Ordinary at specific rate). Callable(Company right to buy
profit and it is cost of obtaining finance. Dividends Paid is both
them back). Reasons – Raise Capital without losing control, Boost
operating and financing cos it assist users to determine the ability of
return to Ordinary shareholders (dividend rate or preference < Rate
company to pay dividends and cost of obtaining finance respectively.
or ROA).
Cash Flows from operating activities
Treasure Shares (Company Acquire Own Share). Acquire another
Cash Received customers= Sales +/- Decrease/Increase Acct Receivab
Corporation, prevent hostile takeover, Issue to employees, Maintain
Cash Paid Merchandise= COGS +/- Increase/Decrease Merchant
strong market, how Management confidence. Not counted as Asset,
Inventory +/- Decrease/increase Acct Payable.
don’t receive dividends, no voting rights. Purchasing-Dr Treasury, Cr
Cash Paid for other operating expenses = Other Operating Expense
Cash (Asset & Equity drop, Retained earning and share capital stay).
+/- Increase/Decrease Prepaid Expense +/- Decrease/Increase
Selling-At cost (Dr Cash, Cr Treasury), Above Cost(Dr Cash, Cr
Accrued Liability
Treasury&Share Premium), Below Cost (Dr Cash, Share Premium,
Cash Paid for interest = Interest Expense +/- Decrease/Increase
Retained Earnings(split over from Share Premium, Cr Treasury).
Interest Payable
Inventory Cash Paid for Tax = Income Tax Expense +/- Decrease/Increase
Goods in Transit (FOB destination/shipping pt), Goods on Income tax Payable
Consignment(Inventory reported under consignor inventory), Goods Cash Flows from Investing activities
Damaged/Obsolete(not counted if they cant be sold, NRV if can) Identify changes in investing-related acct, explain changes using
Inventory Cost Flow Assumptions reconstruction analysis, report cash flow effects.
(a) Specific Identification. Know which price of good is being sold.