Fin Actg Basics
Transcript of Fin Actg Basics
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The Basics1. Accounting Equation:
Assets = Liabilities + Owner’s Equity
2. T Account:
Account Title
Left Side Right Sidedebit credit
3. Rules of Debit and Credit:
STATEMENT OF CASH FLOWSA summary of the cash receipts and cash payments of a businessentity for a specific period of time,such as a month or a year.
6. Accounting Cycle:
1. Transactions are analyzed and recorded in the journal.2. Transactions are posted to the ledger.3. An unadjusted trial balance is prepared.4. Adjustment data are assembled and analyzed.5. An optional end-of-period spreadsheet (work sheet) is prepared.
6. Adjusting entries are journalized and posted to the ledger.
4. Analyzing and Journalizing Transactions
1. Carefully read the description of the transaction to determinewhether an asset, a liability, an owner’s equity, a revenue, anexpense, or a drawing account is affected.
2. For each account affected by the transaction, determine whetherthe account increases or decreases.
3. Determine whether each increase or decrease should berecorded as a debit or a credit, following the rules of debit andcredit.
4. Record the transaction using a journal entry.5. Periodically post journal entries to the accounts in the
ledger.6. Prepare an unadjusted trial balance at the end of the period.
5. Financial Statements:
INCOME STATEMENTA summary of the revenue and expenses of a business entity for aspecific period of time, such as a month or a year.
STATEMENT OF OWNER’S EQUITYA summary of the changes in the owner’s equity of a business enti-ty that have occurred during a specific period of time, such as amonth or a year.
BALANCE SHEETA list of the assets,liabilities, and owner’s equity of a business enti-ty as of a specific date,usually at the close of the last day of a monthor a year.
Owner’s
Drawing Account
Debit for Credit for
inc reases ( ) dec reases ( )
Balance
Revenue Accounts
Debit for Credit for
d ecre ase s ( ) i ncre ase s ( )
Balance
Expense Accounts
Debit for Credit for
i ncrea ses ( ) decr ease s ( )
Balance
The side of the account for recording increases and the normal balance is shown shaded.
ASSETS LIABILITIES OWNER’S EQUITY
Asset Accounts Liability Accounts Owner’s Capital Account
Debit for Credit for Debit for Credit for Debit for Credit for
increases ( ) decreases ( ) decreases ( ) increases ( ) decreases ( ) increases ( )
ecnalaBecnalaB Balance
Income Statement Accounts
7. An adjusted trial balance isprepared.
8. Financial statements areprepared.
9. Closing entries are journal-ized and posted to the ledger.
10. A post-closing trial balance isprepared.
7. Types of Adjusting Entries:
1. Prepaid expense (deferred
expense)2. Unearned revenue (deferredrevenue)
3. Accrued revenue (accruedasset)
4. Accrued expense (accrued lia- bility)
5. Depreciation expense
Each entry will always affect both a balance sheet and an incomestatement account.
8. Closing Entries:
1. Revenue account balances are transferred to an account calledIncome Summary.
2. Expense account balances are transferred to an account calledIncome Summary.
3. The balance of Income Summary (net income or net loss) istransferred to the owner’s capital account.
4. The balance of the owner’s drawing account is transferred to theowner’s capital account.
9. Special Journals:
Providing serviceson account ⎯⎯⎯⎯⎯→ recorded in ⎯⎯→Revenue (sales) journal
Receipt of cash fromany source ⎯⎯⎯⎯⎯→ recorded in ⎯⎯→ Cash receipts journal
Purchase of itemson account ⎯⎯⎯⎯⎯→ recorded in ⎯⎯→ Purchases journal
Payments of cash forany purpose ⎯⎯⎯⎯⎯→ recorded in ⎯⎯→Cash payments journal
10. Shipping Terms:
FOB Shipping Point FOB DestinationOwnership (title)passes to buyer whenmerchandise is ................... delivered to delivered to
freight carrier buyer
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Freight costsare paid by .......................... buyer seller
11. Format for Bank Reconciliation:
Cash balance according to bank statement... .. .. .. .. .. .. .. .. .. . $xxxAdd: Additions by company not on bank
statement.......................................................... $xxBank errors............................................................. xx xx
$xxxDeduct: Deductions by company not on bank
statement.......................................................... $xxBank errors............................................................. xx xx
Adjusted balance.................................................................. $xxx
Cash balance according to company’s records.... .. .. .. .. .. .. $xxxAdd: Additions by bank not recorded by company.. $xx
Company errors .................................................... xx xx$xxx
Deduct: Deductions by bank not recorded by company...................................................... $xx
Company errors .................................................... xx xxAdjusted balance.................................................................. $xxx
12. Inventory Costing Methods:
1. First-in, First-out (FIFO)2. Last-in, First-out (LIFO)3. Average Cost
13. Interest Computations:
Interest = Face Amount (or Principal) ϫ Rateϫ Time
14. Methods of Determining Annual Depreciation:
DOUBLE-DECLINING-BALANCE: Rate*ϫ Book Value at Beginningof Period
*Rate is commonly twice the s traight-linerate (1/Estimated Life).
15. Adjustments to Net Income (Loss)Using the Indirect Method
Increase
(Decrease)
Net income (loss) $ XXXAdjustments to reconcile net income tonet cash flow from operating activities:
Depreciation of fixed assets XXXAmortization of intangible assets XXXLosses on disposal of assets XXX
Gains on disposal of assets (XXX)Changes in current operating assets and liabilities:
Increases in noncash current operat ing assets (XXX)Decreases in noncash current operating assets XXXIncreases in current operating liabilities XXXDecreases in current operating liabilities (XXX)
Net cash flow from operating activities $ XXX
or$(XXX)
STRAIGHT-LINE:Cost —Estimated Residual Value
Estimated Life
16. Contribution Margin Ratio=
17. Break-Even Sales (Units) =
18. Sales (Units) =
19. Margin of Safety =
20. Operating Leverage =
21. Variances
= ×
= ×
= ×
= ×
= –
22.=
Alternative ROI Computation:
ROI = ×
23. Capital Investment Analysis Methods:
1. Methods That Ignore Present Values:A. Average Rate of Return MethodB. Cash Payback Method
2. Methods That Use Present Values:A. Net Present Value MethodB. Internal Rate of Return Method
24.=
25. Present Value Index=
26.=
Amount to Be InvestedEqual Annual Net Cash Flows
Present Value Factorfor an Annuity of $1
Total Present Value of Net Cash FlowAmount to Be Invested
Estimated Average Annual IncomeAverage Investment
Average Rateof Return
SalesInvested Assets
Income from OperationsSales
Income from Operations
Invested Assets
Rate of Return on
Investment (ROI)
Fixed FactoryOverhead
Rate
StandardHours for
Actual UnitsProduced
Standard Hoursfor 100% of
NormalCapacity
Fixed FactoryOverheadVolumeVariance
Budgeted VariableFactory Overhead
Actual VariableFactory
Overhead
Variable FactoryOverhead Controllable
Variance
Standard Rateper Hour
Actual Direct Labor Hours –Standard Direct Labor Hours
Direct LaborTime Variance
Actual HoursActual Rate per Hour –Standard Rate per Hour
Direct LaborRate Variance
StandardPrice
Actual Quantity –Standard Quantity
Direct MaterialsQuantity Variance
Actual QuantityActual Price –Standard Price
Direct MaterialsPrice Variance
Contribution MarginIncome from Operations
Sales – Sales at Break-Even PointSales
Fixed Costs + Target ProfitUnit Contribution Margin
Fixed CostsUnit Contribution Margin
Sales – Variable CostsSales
= ≥£ – ×
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