Beruflich Dokumente
Kultur Dokumente
Statements
Long-Term Assets
Expected to last longer than one year
Current Liabilities
Obligations expected to be paid out of current assets within the
coming year
Long-Term Liabilities
Obligations not expected to be paid or satisfied within the coming
year
Stockholders Equity
Contributed capital
Earned capital
6
Current Assets
Assets expected to be converted to cash within
one year or the current operating cycle
The operating cycle involves the use of cash to
purchase inventories, sell inventories to create
accounts receivable, collect the accounts receivable
Includes
Cash
Investments in securities
Accounts receivable
Inventories
Prepaid expenses
7
Intangible assets
Patents, copyrights, trademarks, franchises, goodwill
Other assets
Assets not included in the previous categories
Current Liabilities
Obligations expected to be paid out of
current assets within the coming year
Includes
Accounts payable
Accrued liabilities
Short term loans payable
Current portion of long term debt
Unearned revenue
Bonds payable
Capital lease obligations
Leases of plant assets which are equivalent to debt-financed
purchases
Stockholders Equity
Contributed Capital:
1.
2.
3.
Common stock - the capital received from the primary owners of the
company
Additional paid-in capital - amounts received from the primary
owners in addition to the par value or stated value of the common stock
Treasury stock - the amount paid for common stock that the company
has reacquired
Earned Capital:
1.
2.
11
12
Pay
suppliers.
Deliver product
or provide service
to customers on
credit.
13
14
Income
Statement
Operating Activities
Peripheral Activities
16
Measuring Income
the difference
between sales
of the product
and the cost of
sales of the
product
Sales
Cost of goods sold
Gross profit
Operating expenses
Operating income
Interest expense
Miscellaneous revenues and expenses, gains
and losses
Income before taxes
Income tax expense
Income from continuing operations
Income from discontinued operations
Extraordinary items
Cumulative effect of accounting changes
Net income
Unrealized gains and losses not included in
net income
Comprehensive income
17
Measuring Income
gross profit
minus operating
expenses;
measures the
performance of
the central
operations of
the company
Sales
Cost of goods sold
Gross profit
Operating expenses
Operating income
Interest expense
Miscellaneous revenues and expenses, gains
and losses
Income before taxes
Income tax expense
Income from continuing operations
Income from discontinued operations
Extraordinary items
Cumulative effect of accounting changes
Net income
Unrealized gains and losses not included in
net income
Comprehensive income
18
Measuring Income
operating
income minus
interest
expense,
income tax
expense, and
other
miscellaneous
items
Sales
Cost of goods sold
Gross profit
Operating expenses
Operating income
Interest expense
Miscellaneous revenues and expenses, gains
and losses
Income before taxes
Income tax expense
Income from continuing operations
Income from discontinued operations
Extraordinary items
Cumulative effect of accounting changes
Net income
Unrealized gains and losses not included in
net income
Comprehensive income
19
20
Measuring Income
income from
continuing
operations
adjusted for
below the
line items
Sales
Cost of goods sold
Gross profit
Operating expenses
Operating income
Interest expense
Miscellaneous revenues, expenses, gains,
and losses
Income before taxes
Income tax expense
Income from continuing operations
Income from discontinued operations
Extraordinary items
Cumulative effect of accounting changes
Net income
Unrealized gains and losses not included in
net income
Comprehensive income
21
Measuring Income
net income
plus (minus)
changes in
market
condition
unrelated to
business
operations,
reflecting
overall
changes in a
companys
wealth in a
given period
Sales
Cost of goods sold
Gross profit
Operating expenses
Operating income
Interest expense
Miscellaneous revenues, expenses, gains,
and losses
Income before taxes
Income tax expense
Income from continuing operations
Income from discontinued operations
Extraordinary items
Cumulative effect of accounting changes
Net income
Unrealized gains and losses not included in
net income
Comprehensive income
23
24
The value of the goods and services provided by a company in its business operations
Non-operating revenue
Expenses
Bad debts
Depreciation
Interest expense
The sum of all income tax consequences of all transactions during a year
25
26
Expense Recognition
Based on the matching principle
An expense should be recognized in the same period in which the revenue it generates is
recognized
2. Systematic Allocation
The expense is associated more with the passage of time than a specific revenuegenerating activity, for example
Depreciation expense
Insurance expense
3. Immediate Recognition
An expenditure is expensed currently because there is no future benefit or the future
benefit is uncertain
Advertising expense
Research and development expense
27
Recording Transactions
28
29
30
Balance Sheet
Transaction
Issued stock
for $10,000
cash
Cash
+
Asset
+10,000
Cash
Income Statement
Nonca
Contrib
Net
Liabiliti
Earned Revenu
Expens
= Incom
sh =
+
.
+
es
es
es
Capital
e
Asset
Capital
=
+10,000
=
Common
Stock
31
Balance Sheet
Transaction
Cash
+
Asset
Income Statement
Nonca
Contrib
Net
Liabiliti
Earned Revenu
Expens
= Incom
sh =
+
.
+
es
es
es
Capital
e
Asset
Capital
Signed a
+4,000
note and
Cash
received
$4,000 cash
= +4000
Note
Payable
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Balance Sheet
Transaction
Cash
+
Asset
Signed a
1,800
rental
Cash
agreement
and paid an
$1,800
deposit
Income Statement
Nonca
Contrib
Net
Liabiliti
Earned Revenu Expens
sh =
+
.
+
es es =Incom
es
Capital
Asset
Capital
e
+1,800 =
=
Securit
y
Deposit
33
Balance Sheet
Transaction
Purchase
Inventory
on account
for $2,000
Cash
+
Asset
Income Statement
Nonca
Contrib
Net
Liabilitie
Earned Revenu Expens
sh =
+ .
+
es es =Incom
s
Capital
Asset
Capital
e
=
+2,00 +2,000
0
=Accounts
Payable
Invento
ry
34
Liabilities
$12,20
0
Cash
Inventory
2,000
Accounts payable
Note payable
Total current
liabilities
$
2,000
4,000
T-Accounts
ACCOUNT TITLE
DEBIT
CREDIT
(Left Side)
(Right Side)
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ASSET
LIABILITY
EQUITY
DEBIT
CREDIT
DEBIT
CREDIT
DEBIT
CREDIT
36
REVENUE
DEBIT
CREDIT
EXPENSE
DEBIT
CREDIT
DIVIDEND
DEBIT
CREDIT
37
Cr.
Liabilities
Dr.
-
Owners
Equity
Cr.
Dr.
-
Retained
Earnings
Paid-in
Capital
Dr.
-
Cr.
+
Cr.
+
Dr.
-
Expenses
Dr.
+
Cr.
+
Revenues
Cr.
-
Dr.
-
Cr.
+
Dividends
Dr.
+
Cr.
-
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Recording Transactions
The journal is a book in which all transactions are recorded
in chronological order
DR = CR
Each journal entry has its debit amounts equal to its credit
amounts to ensure that the accounting equation remains
in balance
Journalizing involves a three-step process:
1. Identify which accounts are involved
2. For each account, determine if it is increased or decreased
3. For each account, determine by how much it changed
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Accounts
An account is a record of increases and decreases for each asset,
liability, equity, revenue, or expense
Types of accounts:
1.
2.
3.
4.
5.
6.
7.
Transaction 1
Investment of
$700,000 cash
into the business.
Tx #
Account Titles
1 Cash
Paid-In Capital
Ref
Debit
700,000
Credit
700,000
41
Transaction 2
Borrowed
$300,000 cash
from the bank.
2 Cash
Bank Loan Payable
300,000
300,000
42
Transaction 3
Purchased land costing
$50,000 and buildings
costing $400,000. Paid
$100,000 in cash and
signed a mortgage for the
balance.
3 Land
Buildings
Cash
Mortage Payable
50,000
400,000
100,000
350,000
43
Transaction 4
Purchased
equipment for
$650,000 in cash.
4 Equipment
Cash
650,000
650,000
44
Transaction 5
Purchased inventory
costing $90,000 for
$10,000 in cash and
the remaining $80,000
on account.
7 Inventory
Cash
Accounts Payable
90,000
10,000
80,000
45
Transaction 6
Paid $15,000 cash for
an insurance policy.
8 Prepaid Insurance
Cash
15,000
15,000
46
Transaction 7
Sold inventory costing $800,000
to customers for $1,100,000.
The customers paid $200,000 in
cash and the remaining $900,000
was put on the customers
accounts.
10 Cash
Accounts Receivable
Sales
Cost of Goods Sold
Inventory
200,000
900,000
1,100,000
800,000
800,000
47
Transaction 8
Performed
landscaping
consulting services
and billed clients
$200,000 for these
services.
11 Accounts Receivable
Consulting
200,000
200,000
48
Transaction 9
Collected $820,000
cash from customers
as payment on their
accounts.
14 Cash
Accounts Receivable
820,000
820,000
49
Transaction 10
Paid $1,200,000 in
cash to suppliers as
payment on account.
15 Accounts Payable
Cash
1,200,000
1,200,000
50
Transaction 11
Paid cash of $150,000 for
advertising, utilities, and
office supplies.
18 SG&A Expense
Cash
150,000
150,000
51
Transaction 12
Paid cash
dividends of
$5,000.
23 Dividends
Cash
5,000
5,000
52
53
700,000
Paid-in Capital
Cash
700,000
700,000
Paid-in Capital
700,000
54
Trial Balance
A trial balance is a listing of all of the ledger
accounts and their balances
The total of the debit balance accounts should
equal the total of the credit balance
accounts
The equality of the debits and credits provides
some assurance that the posting process
has been completed correctly
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Cash
Accounts receivable
Inventory
Prepaid insurance
Land
Buildings
Equipment
Accounts payable
Wages payable
Unearned franchise revenue
Interest payable
Bank loan payable
Mortgage payable
Paid-in capital
Retained earnings (beginning of year)
Sales revenue
Consulting revenue
Landscaping revenue
Cost of goods sold
800,000
Landscaping supplies expense
100,000
Wages expense
500,000
Selling, general, and administrative expense
174,600
Interest expense
58,000
Depreciation expense
150,000
Dividends
5,000
Totals
$3,478,000
Credit
$180,000
40,000
50,000
58,000
300,000
350,000
700,000
0
1,100,000
200,000
500,000
$3,478,000
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Financial Analysis
57
Evaluating Liquidity
Liquidity
Ability to pay debts when due
The larger current assets are when compared to
current liabilities, the more liquid a company is
Measured by
1.Net working capital
2.Current ratio
3.Quick ratio
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Current Ratio
The current ratio is defined as the ratio of current
assets to current liabilities.
Current Ratio = Current Assets Current Liabilities
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Quick Ratio
The ratio of quick assets to current liabilities
Quick assets include cash and cash equivalents
Quick Ratio = Quick Assets Current Liabilities