Using Balance Sheets
Why do we use a balance sheet?
It is used to determine the financial position of a business.
What is the perpetual inventory system? What is the periodic inventory system?
The perpetual inventory method is a continuous record of all merchandise on hand.
The periodic inventory method will use an actual count of all the merchandise on hand. They do this at the end of the accounting period.
How do you calculate the total profit?
Revenue - Expenses = profit
What is on an Income Statement?
Revenue and Expenses
What three things does the balance sheet show? Describe what they are and give examples of each.
1. Assets - things of value that a business has
Ex: Cash, Accounts Receivable, Equipment, etc...
2. Liabilities - The debts a business has
Ex: Accounts Payable, HST Payable, Mortgage Payable, etc...
3. Owner's Equity - Investment owner(s) have in the business
Ex: (insert name), Capital
True or false.
The perpetual inventory method uses a Purchases account to record purchases of merchandise.
False. The periodic inventory method uses a Purchases account to record purchases of merchandise.
What is the difference between Net Income and Net Loss
Net Income - Is the difference between revenue and expenses when revenue is greater than expenses
Net Loss - Is the difference between revenue and expenses when expenses is greater than revenue
How do you order the revenue on an Income Statement
The largest revenue value is listed first.
What are the 5 main sections of the balance sheet?
1. Statement Heading
2. Assets
3. Liabilities
4. Owner's Equity
5. Bottom Line
What are the two ledger accounts used with the perpetual inventory system?
1) Merchandise Inventory
2) Cost of Goods Sold
How is revenue generated? Which side is it on?
Generated by businesses from the sale of goods or services.
It is on the credit/right side
How do you calculate the net income for a merchandising business?
Revenue – Cost of Goods Sold = Gross Profit
Gross Profit – Expenses = Net Income
List the order for the Statement heading, Assets, Liability, and Owner's Equity
1. Statement heading: Line 1 = Who (name of the business), Line 2 = What, Line 3 = When (month, day, year)
2. Assets - order of liquidity
3. Liabilities - listed according to the "payment due date" from most recent to longest term
4. Owner's Equity - If there are multiple owner's list them separately.
If a journal entry included the Cost of goods sold account, would it be perpetual or periodic?
Perpetual.
What 3 things does the merchandising income statement have that the service income statement doesn't?
1) COGS section
2) It has a gross profit
3) Operating Expenses are divided into Administrative Expenses and Selling Expenses
What does the following term of sale mean?
2/10 n/30
Buyer receives a 2% discount if payment is made within 10 ten days of the invoice date. Otherwise the full amount is due in 30 days
Identify the following accounts by stating if they are an asset, liability, or neither:
1) A company automobile
2) Fees due to Little League Baseball for daughter
3) Interest owed by the company to various organizations
4) Land
5) Personal furniture
1) Asset
2) Neither
3) Liability
4) Asset
5) Neither
The Blue Jeans Bar Company uses the perpetual inventory method. They made a payment to an inventory supplier on account. The amount paid was $535, and they took the following terms: 3/10, n/30.
Choose the correct transaction:
1. DR Accounts Payable: $535; CR Purchase Discount $16.05; Bank $518.95
2. DR Accounts Payable $535; CR Merchandise Inventory $16.05; Bank $518.95
3. DR Bank $535; CR Sales Discount $16.05; Accounts Payable $518.95
2.
What is the condensed income statement? What types of businesses use it?
The condensed income statement eliminate all the zeros and only shows the totals for key figures. merchandising businesses use this financial statement
Which two accounting principles affect the income statement? Describe them.
1) Time-period principle - the accounting period must stay consistent
2) Matching principle - The expenses incurred should be matched with the revenue they helped generate.