Basic
Principles of Accounting
Historical Cost Measurement, Revenue-Recognition, Matching Principle , Full Disclosure
Income Statement
Revenue - Expenses = Net Income
Accrued Revenues
A/R
Revenue
Bond Disadvantages
1. bonds can decrease return on equity
2. bonds require cash payment for principle and interest
Disadvantages of Corporation
Double taxation
Government Regulation
Debit Accounts
Credit Accounts
Assets, Dividends, Expenses
Liabilities, Common Stock, Revenue
Retained Earnings
Beginning of Retained Earnings
+ Net Income
- Dividends
= Ending Retained Earnings
Accrued Expenses
Wages Expense
Wages Payable
Premium bond vs. Discount bond
Premium -> sells above its par value
Discount -> sells below its par value
Separate Legal Entity
Limited Liability of Stockholders
Transferable ownership rights
Continuous life
lack of mutual agency
Easy to generate capital
Closing Entries
R E I D
Revenue - > Income Summary
Expenses -> Income Summary
Income Summary -> Retained Earnings
Dividends -> Retained Earnings
Sales
- CGS
= Gross Profit
- Selling expenses
- Admin. expenses
= Net Income
Purchase
Merchandise Inventory
A/P
Sale
A/R
Sale
C. O. G. S.
Merchandise Inventory
Term Bonds -> all mature on same date
Serial Bonds -> Mature in a series of dates
Dividend Dates
1) Date of Declaration
2) Date of Record
3) Date of Payment
Accounting Cycle
1) Analyze Transactions
2) Record in Journal
3) Post
4) Prepare unadjusted Trial Balance
5) Adjust entries and post to journal
6) Prepare Adjusted Trial Balance
7) Make Financial Statements
8) Close Entries and post
9) Prepare post-closing Trial Balance
Assets
Current Assets
PPE
Intangibles
Employee Entry
Salary Expense
SS Tax payable
Medicare payable
Fed Income Tax payable
State Income Tax payable
Salary Payable
Journal Entry for the issuance of a Bond
Cash
Bonds Payable
net income - preferred dividends /
weighted average common shares outstanding
Cost of Goods Sold
Beg. Inventory
+ Purchases
+ Freight In
- Purchases returns/ allows
- Purchase Discounts
= GAFS
- Ending Inventory
= COGS
Current Liabilities
A/P, Current Portion of Long Term Liability, Short-term N/P
A/R = 125,000 ; Estimated that 12% is uncollectible. ADA account has a credit balance of 4500
Bad Debt Expense 10, 500
ADA 10,500
Foreclosure of Mortgage
lender takes possession of the collateral for non-payment
Common Stockholders Rights
Bote
Sell or dispose of their stock
Preemptive right to purchase proportional shares and keep ownership percentage
Receive common dividends
Share assets in liquidations after creditors and preferred stockholders