Intro+Formulas
Provides information for external decision-makers
Investors who own a portion of the business
Creditors to whom the business owes money
Taxing authorities, to whom the business owes taxes
What does the expanded accounting equation look like?
Assets = Liabilities + Equity
What is the Faithful Representation Concept?
-Accounting information must be relevant, allowing users to make a decision.
-It must be complete, neutral, and free from error.
What is the purpose of adjusting accounts?
-they update the asset and liability accounts
-they are made at the end of the accounting period to record revenues and expenses to the period in which they are earned and in which they occur.
Debt Ratio:
shows the proportion of assets financed with debt
It can be used to evaluate a business’s ability to pay its debts and to determine if the company has too much debt to be considered financially “healthy”
How do you solve for Net Income/Loss?
Revenues - Expenses
What are the four financial statements?
1) Income Statement
2) Statement of Retained Earnings
3) Balance sheet
4) Statement of Cash Flows
Adjustment for office supplies.
Supplies expense xx
Office Supplies xx
What is the Debt Ratio Formula?
Formula: Total Liabilities/Total Assets
Define Return On Assets:
measures the profitability of how a company uses its assets
Adjusting entries for Straight-Line Depreciation? What does the journal entry look like?
Depreciation expense xx
Accumulated depreciation xx
What are deferred expenses?
are advance payments
of future expenses.
• Also called prepaid expenses
• Treated as assets until used
Define: Straight-Line Depreciation
allocates an equal amount of depreciation each year
Return on Assets Formula?
Return on assets=Net Income/average total assets
Average total assets=(Beginning total assets + Ending total assets) / 2
Cash received on account. What is this account called?
Accounts Receivable
What are deferred revenues?
– Occurs when a company receives cash before
it does the work or delivers a product
– Is a liability because the business owes the
customer the product, the service, or a refund
– Also called unearned revenue
Debt Ratio Formula?
Formula: (cost-residual value)/useful life
What are the characteristics of a corporation?
-the separate legal entity
-continuous life and transferability of ownership
-no mutual agency
-limited liability of stockholders (owners of the corporation)
-separation of ownership and management
-corporate taxation
-government regulation
Payment on account for office supplies.
Office Supplies xx
Accounts Payable xx
What are accrued expenses?
- are expenses a
business has incurred but has not yet
paid.
• Examples of accrued expenses:
– Salaries Expense
– Interest Expense
– Utilities Expense