Chapter 1
The process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, control, and evaluate a company's operations.
What is Managerial Accounting?
The underlying theme if the Conceptual Framework.
What is Decision Usefulness?
Permanent Accounts on the Balance Sheet.
What are Real Accounts?
Explain Faithful Representation and list its three "ingredients".
What is Faithful Representation means that the numbers and descriptions match what really existed or happened?
Ingredients: Completeness, Neutrality, and Free from error.
Provides at the least cost the most useful information possible.
What is General-Purpose Financial Statements?
Enables users to identify the real similarities and differences in economic events between companies, also known as Comparability.
What is Consistency?
Temporary Accounts that include Revenues and Expenses.
What are Nominal Accounts?
The relationship between the SEC and accounting standard setting in the US.
What is the SEC relies on the FASB to develop accounting standards, has a mandate to establish accounting standards for enterprises under its jurisdictions?
The requirement for an accounting principle to be called "generally accepted"
What is an authoritative accounting rule-making body has established a principle of reporting in a given area, or that overtime a given practice has been accepted as appropriate because of its universal application?
The purpose of having a Conceptual Framework.
What is to develop a coherent set of standards and rules, GAAP will be more consistent and useful, and to solve new and emerging practical problems?
The primary basis for the preparation of financial statements. Proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments.
What is the Adjusted Trial Balance?
Explain Relevance and its three "ingredients".
What is the accounting information that must be capable of making a difference in a decision, information with no bearing on a decision is irrelevant?
Ingredients: Predictive Value, Confirmatory Value, and Materiality.
Financial Accounting Standards Board (FASB) mission.
What is to establish and improve standards of financial accounting and reporting for the guidance and education of the public, which includes issuers, auditors, and users of financial information?
The four enhancing qualities of the Fundamental Qualities.
What are Comparability, Verifiability, Timeliness, and Understandability?
Take a look at the table on page 42.
Normal Journal Entries
Received golf fees of $1,200 in cash.
From Exercise 3-17.
Cash 1,200
Service Revenue 1,200
Received cash for service performed
Closing Entries
Look at Exercise 3-14 and complete the necessary closing entries.
Sales Revenues 350,000
Income Summary 350,000
Income Summary 329,000
COGS 208,000
Sales Returns & Allowances 13,000
Sales Discounts 8,000
Delivery Expense 7,000
Insurance Expense 12,000
Rent Expense 20,000
Salaries & Wages Expense 61,000
Income Summary 21,000
Retained Earnings 21,000
The objective of financial reporting.
What is information needs to be useful, it identifies investors and creditors as the primary users, and decisions involve buying, selling, or holding equity?
Second level the bridge between levels 1 and 3, provides the qualitative characteristics the make accounting information useful and the elements of financial statements, the fundamental concepts.
Third level the "how" implementation, identifies the recognition, measurement, and disclosure concepts used in establishing and applying accounting standards and the specific concepts to implement the objective.
Adjusting Journal Entries
Purchased $2,000 of supplies on January 1, determined that $450 of supplies were on hand at the end of the month.
Supplies Expense(2000-450) 1,550
Supplies 1,550
To record supplies used during the month.
Income Statement
Look at Exercise 3-11. Prepare the Income Statement for part a.
Revenues
Service Revenue $11,590
Expenses
Salaries/Wages Exp. $6,840
Rent Expense 2,260
Depreciation Exp. 145
Interest Expense 83
Total Expenses 9,328
Net Income $2,262