Chapter 1
•The ____________________________________ (FASB) oversees creation and governance of accounting standards.
Financial Accounting Standards Board (FASB)
What Is the Account Equation?
Assets = Liability + Equity
Differentiate between cash basis accounting and accrual basis accounting
Cash basis accounting
•Revenues are recorded when cash is received
•Expenses are recorded when cash is paid
•Not allowed under G A A P
•Easier method to follow; requires less knowledge of accounting concepts and principles
Accrual basis accounting
•Revenues are recorded when earned
•Expenses are recorded when incurred
•Used by most businesses
•Provides a better picture of a business’s revenues and expenses
•A _______________________places each asset and each liability into a specific category.
•A classified balance sheet places each asset and each liability into a specific category.
Smart Touch Learning purchases land for an office location, paying cash of $20,000
Assets = Liabilities + Equity
Cash+ Land = Common Stock
Bal. 30,000. =. 30,000
(2) - ......... +. ........=. _______
Bal. ........... + ........ =. 30,000
Assets = Liabilities + Equity
Cash+ Land = Common Stock
Bal. 30,000. =. 30,000
(2) - 20,000 + 20,000.= ________
Bal. 10,000 + 20,000 =. 30,000
•Accounting guidelines are called ____________________ ____________________(GAAP).
Generally Accepted Accounting Principles (GAAP)
•An account’s normal balance appears on the __________side of the account.
Increasing
Deferral:
Defintion:
Two types of deferrals:
Deferral:
Defintion: Defer the recognition of revenue or expense to a date after the cash is received or paid
Two types of deferrals:
1.Deferred expenses
2.Deferred revenues
_________transfer revenues, expenses, and Dividends to Retained Earnings
•Closing entries transfer revenues, expenses, and Dividends to Retained Earnings.
Accumulated Depreciation Expense
The company paid $37,500 amount for furniture which will depreciate at a rate of $296 per month. Accumulated depreciation expense and book value of furniture changes over time. Just for one month
Book value of furniture:
Furniture:
Less: Accumulated Depreciation—Furniture =
Book value of furniture=
Book value of furniture:
Furniture: $37,500
Less: Accumulated Depreciation—Furniture = (296)
Book value of furniture= $ 37,204
Accounting is the information system that:
A. Measures business activities
B. communicated the results to decision makers
C. Processes information into reports
D. all of the above
D.all of the above
Measures business activities
communicated the results to decision makers
Processes information into reports
•An account’s normal balance appears on the __________side of the account.
•An account’s normal balance appears on the increasing side of the account.
Accruals
Definition:
Two types of accruals:
Accruals
Definition: Record an expense before the cash is paid, or records revenue before the cash is received
Two types of accruals:
1.Accrued expenses
2.Accrued revenues
The accounting cycle ends with a _______________.
The accounting cycle ends with a post-closing trial balance.
Kohl’s Corporation’s balance sheet for the year ending on February 2, 2019, reported (in millions) total liabilities of $6,942 ($2,730 + $1,861 +$1,523 + $184 + $644) and total assets of $12,469. The debt ratio for Kohl’s as of February 2, 2019, follows:
...............6,942/ 12,469.....................................
= 0.557= 55.7%
The balance sheet reports:
A. financial position of a specific date
B. results of operations on a specific date
C. financial position for a specific period
D. results of operations for a specific date.
A. financial position of a specific date
•A shortened form of the ledger is called the T-account.
–The left side of the T-account is called the _________.
–The right side of the T-account is called a _________.
•A shortened form of the ledger is called the T-account.
–The left side of the T-account is called the debit.
–The right side of the T-account is called a credit.
The allocation of plant asset’s cost over its useful life is called .........
•The allocation of plant asset’s cost over its useful life is called depreciation.
•The operating cycle is the time span when and there steps
•The operating cycle is the time span when
1.Cash is used to acquire goods and services.
2.These goods and services are sold to customers.
3.The business collects cash from customers.
Smart Touch Learning’s $5,000 debit balance in the Dividends account will be closed to Retained Earnings:
Date....... Accounts and Explanation... Debit...Credit
Dec. 31....Retained Earnings.............5,000............
................. Dividends................................ 5,000
Assume Global Cleaning Service had net income of $570 for the year. Global Cleaning Service's beginning and ending total assists were $4,520 and $4,180 , respectively. Calculate Global Cleaning Service's return on assets for the year.
13.1%
The accounting equation is expanded to include the rules of debits and credits for the elements of equity:
The revenue recognition principle tells accountants when to record revenue and requires companies follow a five-step process:
•Step 1: Identify the contract with the customer.
•Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price
•Step 4: Allocate the transaction price to the performance obligations in the contract.
•Step 5: Recognize revenue when (or as) the entity satisfies each performance obligation.
The ________is the process by which companies produce their financial statements for a specific period.
The steps of the accounting cycle:
The accounting cycle is the process by which companies produce their financial statements for a specific period.
The steps of the accounting cycle:
1. start with the beginning account balance
2. analyze and journalize transaction as they occur
3. Post journal entires to account
4. Compute the unadjusted balances in each account and prepare the unadjusted trail balance
5. Enter the unadjusted trail balance on the worksheet and complete the worksheet
6. Journalize and post adjusting entires
7. Prepare the adjusted trail balance
8. Prepare the financial statements
9. Journalize and post the closing entries
10. Prepare the post-closing trail balance.
Kohl’s had the following total current assets and current liabilities, found on the balance sheet.
................ .......As of Feb 2,2019......As of Feb 2,2019
Total Current assets: $4, 835.................$5,380.......
Total Current Liabilities : $2,730 .............$2,709......
................As of Feb 2,2019......As of Feb 2,2019
Total Current assets: $4, 835...............$5,380.......
Total Current Liabilities : $2,730 ...........$2,709......
Current ratio: $4,835/ $2,730 = 1.77
Current ratio: $5,380/ $2,709 = 1.99