AccountingPlay.com Apps | Downloads | Books Balance Sheet as of 12/31/2100 Assets = ~—Liabilities + Equity Income Statement, year ended 12/31/2100 Revenue = _Expense Frottorlass recorded 10 Retained Earrings = Net income increases RE Equation Journal Entry debit _eredit [Assets - Liabilities + Equity Cash 100 Equity ~ Assets - Liabilities Common stock 100 Receive cash for common stock Cost of Goods Sold (COGS) Beginning inventory Gross Profit Revenue x + Purchases Revenue (1 -Gross profit, ~ Ending inventory ~cocs rate) Cost of Goods Sold (COGS) ‘Gross Profit cous Peer tes Balance Sheet Asset debit credit Contra asset credit debit Contra assets: Accumulated depreciation, Allowance for doubtful accounts a ee ability credit debit a ee Equity credit. debit Contra equity debit credit Contra equity: Treasury stock rr ee Income Statement Revenue Most transactions: Typically credits re ee ee Expense Most transactions: Typically debits Acerual basis Follows the matching principle and recognizes transactions as they occur (GAAP Method) ‘cash basis Recognizes transactions when cash or equivalents have been exchanged (Not GAAP) US-GAAP Generally Accepted Accounting Principles system ‘established by FASB that governs financial reporting IFRS International Financial Reporting Standards Financial reporting standard adapted widely outside of US (No LIFO permitted, different FMV valuation permitted) Valuation at lower of cost or market Higher ending inventory ~ Lower Cost of Goods Sold Lower Cost af Goods Sold ~ Higher Net Income FIFO First In First Out Early purchases come out of Inventory first UFO Last In First Out Early purchases tend to stay in inventory Average cost Total cost / Quantity = Cost per unit Perpetual inventory tracked in real time Periodic inventory tracked by counting at end of period Rule: In a period of increasing inventory costs, FIFO ‘method results in higher nat income compared toAlFO earn (Price IFO LIF Average Rising Lower Higher Middle Falling Higher lower MiddleAccountingPlay.com Apps | Downloads | Books Comparability Financial statements must be comparable period to period Conservatism Considers all risks | strict rules Consistency Same accounting methods year to year Constraints Information has a cost/benefit and is material Cost principle Keep costs at purchase price or lower (lower of cost or market) Economic entity Maintain separate records for each entity Full disclosure Provides detailed information in addition to financial statements Going concern ‘Assume business is going to and has capability to continue Matching, Recognize cost the same time as benefit, Materiality Significance to the overall financial picture Monetary unit Currency is used to record transactions and is assumed to be constant. Relevance Financial raporting has predictive, feedback, and timeliness value Reliability Financial reporting is neutral, valid, and verifiable Revenue recognition Conditions of how an organization records revenue Time period Report financial activity in specific time periods Race CEC Disposition Sale, scrapping, or removal of nite typically an aset Gro|Net_ Grass total number | Net=sross number minusexsenses Goodwl Purchase price less tangible value of physical assets purchased Netassetvalue Cost basis minus accumulated depreciation (prior total depreciation) NSF Non-sufciont funds, typically a returned check Pincipsl == Thezmountstypicalyofaloan Unrealized gain | loss. Investment that has increased | decreased in value, but not yet sold Monthly interest PX (r/ 12) Sole Proprietorship One owner, no liability protection Compound interest A= P(L + (r/n))Ant Partnership Two or more owners, no liability protection, Limited Partnership Two or more owners, liability proxéetion: A= Amount, P= Principal, r= Rate LLC Limited Liability Company Liability protection, flexible n= compoundings per period, Balance per bank + Deposits in transit = Outstanding checks 4/- Errors, fees, returned items number of periods Corporation Liability protection, double taxationfissues Balance per BooksAccounting Cheat Sheet by John Gillingham, CPA All Rights Reserved AccountingPlay.com eee as TECHNICAL INVENTORY AND COSTING i FOB shipping point Buyer's books at year end, ttle passes when goods delivered FOB destination Seller's books at year end, title passes when goods received Raw materials Direct costs of materials manufactured such as steel Overhead costs Costs typically thought of as expenses that are added to cost of goods Work in process (WIP) Goods in the process of being manufactured (assets) ASSET SALES Sele of Inventory Increase AR, Increase sales, Decrease inventory, Increase cost of goods sold Debits and eredits Debit AR, Credit sales, Credit inventory, Debit cost of goods sold Sell appreciated stock Increase cash, Increase realized gain, Decrease stock Debits and credits Debit cash, Credit realized gain, Credit stock Sell stock for a loss Increase cash, Increase realized loss, Decrease stock Debits and credits Debit cash, Debit realized loss, Credit stock Sell depreciated asset, gain Increase cash, Decrease asset, Decrease accumulated depreciation, Increase gain Debits and credits Debit cash, Credit asset, Debit accumulated depreciation, Credit gain on sale Sell depreciated asset, loss Increase cash, Decrease asset, Decrease accumulated depreciation, Increase loss Debits and eredits Debit cash, Credit asset, Debit accumulated depreciation, Debit loss on sale en i Bonds Financial instrument (agreement) issued by a company to borrow money from investors at a specified term (time) and rate Issuer Company that is raising the money Face value Amount that is repaid at the end of term Stated coupon rate Interest that bond pays investor Effective interest Rate of interest investor receives if the bond is purchased at a discount or premium Premium Amount company is paid in excess of face value, often paid when coupon rate is greater than market rate Premium = Price paid for bond - face value Discount Amount below the face value paid for a bond of Discount = Face value - price paid for bond occurs when coupon rate is less than market rate Cost Price paid for asset (may include costs to ‘Straight line Rate = (Cost - Salvage value / Useful life) install) Book value Cost - Accumulated depreciation Declining Book value x Depreciation rate Salvage value Estimated scrap value at the end of asset (Accelereted method) Rate = Straightline rate x Applicable % Ife Accelerated methods Methods resulting in greater depreciation ‘Applicable % = 150% for 150 DB and during earlier years 200% for double declining MACRS/ACRS/DDB Accelerated depreciation methods Depreciation Expense taken on a physical asset over time ‘Sum-of-years'-digits (Cost - Salvage value) X Applicable fraction Amortization Expense taken on an intangible asset over time (Accslerted methos) Applicable fraction = Years of estimated life remaining / Sum of years digitsAccountingPlay.com Apps | Downloads | Books Accounting Cheat Sheet by John Gillingham, CPA All Rights Reserved GNM BALANCE SHEET Assets Cash 1,497 Accounts receivable 400 Allowance for doubtful accounts (90) Equipment 200 Accumulated depreciation (40) Inventory Total Assets 1,967 abilities Accounts payable Wages payable 300 Note payable 405 Dividends payable Total Liabilities 705 Equity Common stock 4,010 Treasury stock (175) Retained earnings 27 Total Equity 1,262 Liabilities + Equity BALANCE SHEET FEATURES Balance sheet (statement of financial position) shows the tending balances of assets, liabilities, and equity at the end of the accounting period Mechanies Assets always equal liabilities plus equity, (which forms the accounting equation) ASSETS Current assets To be used within one year of the balance sheet date ‘or longer, ifthe operating cycle is greater Current assets Cash and equivalents, accounts receivable, inventory, prepaid expenses to be used within 2 year Long-term assets Expected benefit greater than one year Examples: property, plant, equipment, intangible assets (copyrights, trademarks, goodwill) ‘Accounts receivable (AR) Cash due from customers who have purchased goods or received services not yet paid for Inventory Goods for sale or manufacture, valued under GAAP at lower of cost or market Prepaid expense Expenses paid in advance, considered an asset until used (such as a two year insurance policy) ‘Accumulated depreciation | amortization The sum of all prior depreciation | amortization (contra asset) increases with a credit and offsets the value of depreciable assets reported at cost LIABILITIES: Current liabilities Obligations due in one year or less Long-term liabilities Debts owed to creditors, due in more than one year from the balance sheet date ‘Accounts payable (AP) Money owed to creditors and vendors Notes payable Debts owed to banks or other creditors based on written agreements Accrued expenses Expenses incurred before the end of the accounting periad, but not yet paid for Deferred revenue Cash received in advance, but not yet earned Long-term bonds payable Money borrowed to finance company ‘operations, due in more than one year ‘SHAREHOLDERS’ EQUITY ‘Common stock Sold to investors for ownership of a corporation Preferred stock Investors receive dividends before common, stockholders and usually do not have voting rights ‘Additional paid-in capital investment received by corporation, in excess of par value per share (APIC = Issuance price - Par value) Par (stated) value Per share amount on stock certificates, also, referred to as legal capital (no relation to markot value) Retained earnings Sum of all previous profit and losses, lags dividends Treasury stock Stock repurchased by company Dividends Corporate profits paid to sharcholdersfrom retained! ‘earnings (not an expense)AccountingPlay.com eee as INCOME STATEMENT Year ended 12/31/2100 Income Revenue 930 Cost of goods sold (29) Gross profit 920 Expense Bad debt 90 Depreciation 40 Interest 5 Utilities 50 Wages 300 Total Expense 485, Net Income (Profit) 35 eae ey Income statement (profit and lose) shows the performance of a business by reporting revenue earned minus expenses Incurred to equal net income or loss (profit or loss) Mechanies Reports the business activity for a specific period of time and results in net income or loss, which gats recorded to retained earnings at the end of the accounting period REVENUE AND EXPENSE Revenue recognition Recognize (book into accounting record) revenue when itis earned and realizable Expense recognition Expenses are recognized when incurred, as goods are used and services received [Net income or loss Revenue minus expenses results in net income or net loss also referred to as profit or loss Net income increases retained earnings and net loss decreases retained earnings ‘STATEMENT OF CASH FLOWS FEATURES: i Statement of cash flows Shows the flow of cash in and out of the business Mechanies Starts w h beginning cash from the prior period and reconciles to ending cash in the current period showing the changes Usefulness Shows actual changes in cash on a cash basis, instead of the accrual basis which does not necessarily reflect the flow of cash Indirect met basis accounts Direct method of preparation (uncommon) presents specific cash flows such as cash received from customers and paid to suppliers of preparation uses the changes in accrual Accounting Cheat Sheet by John Gillingham, CPA All Rights Reserved STATEMENT OF CASH FLOWS FEATURES Year ended 12/31/2100 Cash flows from operating activities: Net income Adjustments to reconcile cash used for operations Depreciation and amortization Changes in operating assets and liabilities: Accounts receivable Inventories Accounts payable Allowance for doubtful accounts ‘Accrued expenses Total adjustments Net cash used in operating activities Cath flows from investing activities: Purchase of property and equipment Net cash used in investing activities Cash flows from financing activities: Proceeds from notes payable Proceeds from issuance of common stock Purchase of treasury stock Principal on loan payment Dividend paid Net cash provided by financing activities Netinerease in cash and equivalents ash and cash equivalents, beginning Cash and cash equivalents, ending 435 40 (400) 10 90 300 40, 475. (200) 200) 500 1,000 (175) (95) @) 4,222 1,497AccountingPlay.com Apps | Downloads | Books Statement of owners’ equity shows sources of capital (business funding), addtional paid in capital and common stack breakdown, changes in retained earnings, and treasury stock (stock repurchased) Mechanics The statement stars with boginning balances and reconciles to ending period balance Einstein ease Nd (ER oon sock Retnedesings | Tesuystock |e December 31,2099 10 10 | Netingomefor200 435 435 [a ceretseteweo] «= 100 1000 Treasurystock (175) (175) Dividends @) 6) Balonce December 34,2800AccountingPlay.com Apps | Downloads | Books Accounting Cheat Sheet by John Gillingham, CPA All Rights Reserved eS Make $30 cash sale, 1 unit, cost $10 ett edt Gh x0 SS RTE ans Fa Cosh a Con of goods sod a Common stock 1,000 Inventory 10 Receive $500 loan Repurchase $175 of company stock Cosh Ea Tress acco oa Note payable soo a oa Purchase $200 equipment Close out income statement accounts to income EESES 200 summary ea i 0 sad debt «0 Make $900 credit sale for services performed. Cost of goods sold 10 recone ae 5 oe = Collect $500 credit sale Income summary, 435 a ea Sra 500 [Sa RSS RTS SRST Eo 035 ab SR Awan or dull aoa Reta cis 5 Bad debt expense za Allowance for doubtful 90 Declare $8 dividend Record utilities expense $50 after receiving bill Dividends payable 8 Unies expense 50 ESS Seam RST na 3 Pay utility company $50 in cash for prior bills Cash 8 esau na 50 aa Fy Accrue $300 in wage expense aa si Wage parable 200 ‘Make $100 payment on note payable with cash: $5 interest $95 principal Interest expense 5 Us $7.99 peara % ea 100 Record $40 of depreciation expense www.AccountingPlay.com a z eT