Accounting Notes

In: Business and Management

Submitted By kingBFaisal
Words 4145
Pages 17
Financial Accounting
Chapters 1,2,3

Double Entry Accounting- each business transaction has dual effects. As a result, every transaction affects at least two accounts. One Debit and One Credit ACCOUNT | Debit | Credit | Assets | + | - | Expenses | + | - | Dividends or Withdrawals | + | - | Revenue | - | + | Liabilities | - | + | Capital | - | + | Retained Earnings | - | + |
Normal Balance- side the account increases
Contra Account- has a normal balance opposite of its companion account balance.
Few examples of contra account – Allowance for doubt full account (ADA) for A/R - Sales Discount for Sales Revenue - Sales Return for Sales Revenue - Accumulated Depreciation for Capital Assets - etc.
Accounting Equation- Assets = Liabilities + Owners Equity Assets | Liabilities | Equity | | | | -Cash- Accounts Receivable- Notes Receivable- Prepaid Expenses-Land- Building- Equipment- Furniture & Fixtures | -Accounts Payable- Notes Payable- Accrued Liabilities- Mortgage Payable | - Capital- Withdrawals- Revenue - Expense |

4 Financial Statements- Order Of Preparation 1) Income Statement – presents a summary of the revenues and expenses of a company for a specific period of time (ex: month or year). Net Income/ Net Loss = Revenue – Expense. I/S is for the month ended December 31,20XX 2) Statement of Owner’s Equity- presents a summary of the changes that occurred in the entity’s owner’s equity during a specific period of time (such as a month or a year). The statement is for the month ended December 31,20XX.
Opening Balance + Investment by owner+ Net Income (or subtract net Loss)- Withdrawals by owners = Ending owner’s equity balance.
Beginning Retained Earnings + NI (or subtract NL)- Dividends= Ending R/E. 3) Balance Sheet- lists all the assets, liabilities and owner’s equity of an entity as of a specific…...

Similar Documents

Accounting Notes

...Accounting I 280 Solution to Quick Quiz State the four most common forms of business enterprises and briefly describe them.  Answer: 1. Sole Proprietorship is an unincorporated business owned by one person. 2. Partnership is an unincorporated business owned by two or more persons. 3. Corporation is a type of business organization recognized under the law as an entity separate from its owners. It provides certain legal protection for the owners against lawsuits brought against the company. They are allowed to do many of the same things any person would be able to do: own land and other property; enter into contracts; sue and be sued in court; pay taxes; conduct business, and so forth. 4. Limited Liability Company (LLC) is a type of business organization recognized under the law as an entity separate from its owners. It has features of both a Corporation and Partnership. It provides certain legal protection for the owners against lawsuits brought against the company. LLCs provide certain tax benefits to the company and the owners. The Sole Proprietorship and Partnership forms are often considered "natural" business forms, because they can be created with only the actions of the owners. The mere conduct of business by an individual creates a Sole Proprietorship automatically. Two or more individuals conducing business together automatically creates a Partnership, although that may not have been the intention of the people originally. Corporations and LLCs......

Words: 4363 - Pages: 18

Notes for Intermediate Accounting

...Intermediate Accounting Chapter 1 * Essential characteristics of accounting are (1) the identification, measurement, and communication of financial information about (2) economic entities to (3) interested parties * Financial accounting – process that culminates in the preparation of financial reports on the enterprise for use by both internal and external parties * Users – investors, creditors, managers, unions, and government agencies * financial statements – (1) the balance sheet, (2) the income statement, (3) the statement of cash flows, and (4) the statement of owners’ or stockholders’ equity * president’s letter or supplementary schedules in the corporate annual report, prospectuses, reports filed with government agencies, news releases, management’s forecasts, and social or environmental impact statements * Managerial accounting – process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, control, and evaluate a company’s operations * Capital Allocation – process of determining how and at what cost money is allocated among competing interests * Objective of general-purpose financial reporting is to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in decisions about providing resources to the entity. Those decisions involve buying, selling, or holding equity and debt......

Words: 7392 - Pages: 30

Accounting Lecture Notes

...Chapter 1 Managerial Accounting and the Business Environment Lecture Notes Chapter theme: This chapter serves four main purposes. First, it explains the differences and similarities between financial and managerial accounting. Second, it describes the role of management accountants in an organization. Third, it explains the basic concepts underlying Lean Production, the Theory of Constraints (TOC), and Six Sigma. Fourth, it discusses the importance of upholding ethical standards. I. Globalization A. Import/Export Data i. Imports into the United States (in billions) 1. The data reveal an enormous increase in import activity from 1990 to 2004. In particular, imports from Canada, Mexico, and China skyrocketed. ii. Exports from the United States (in billions) 1. The data reveal an increase in exports to Canada and Mexico. Interestingly, the increase in exports to China pales in comparison to the growth rate in imports from China. iii. Internet Usage 1. The internet fuels globalization by providing companies with greater access to geographically dispersed customers, employees, and suppliers. 2. The number of internet users more than doubled during the first four years of the new millennium. 3. As of 2004, more than 87% of the world’s population was still not connected to the......

Words: 2917 - Pages: 12

Introduction to Cost and Management Accounting Notes

... | | Mfg. OH | | | X | | | | | | | | | Salaries Expense | | X | | | | Salaries Payable | | | X | | | | | | | | | Advertising Expense | | X | | | | Advertising Payable | | | X | | | | | | | | | Finished Goods | | X | | | | W.I.P | | | X | | | | | | | | | COGS | | X | | | | Finished Goods | | | X | | | | | | | | | Accounts Receivable | | X | | | | Finished Goods | | | X | DM issued to a join increase WIP and decrease RM. IM used are charged to Mfg.OH and also decrease RM . In addition to IM and IL When FG are sold, 2 entries are required: 1) To record the sale 2) To record COGS and reduce FG Accounting for Nonmanufacturing Cost Nonmanufacturing costs (period expenses) are charged to expenses when they are incurred. Basic Equation for Inventory Accounts RM, WIP, FG: Beginning, plus, minus, equal (review in text) Problems of Overhead Application The difference between the OH cost applied to WIP and the actual OH costs of a period is referred to as either underapplied or overapplied OH. Underapplied OH exists when the amount of OH applied to jobs during the period using the predetermined OH rate is less than the total amount of OH actually incurred during the period. Overapplied OH exists when the amount of OH applied to jobs during the period using the predetermined OH rate is greater than the total amount of OH......

Words: 1735 - Pages: 7

Chap 6 Accounting Class Notes

...Chapter 6 Class Notes Simple interest vs. Compound interest: o Simple interest amount = Principal * annual interest rate * period o Compound interest amount includes interest not only on the initial investment but also on the accumulated interest in previous periods. Example: Assume we will save $1,000 for three years and earn 6% interest compounded annually. Original balance First year interest Balance, end of year 1 Balance, beginning of year 2 Second year interest Balance, end of year 2 Balance, beginning of year 3 Third year interest Balance, end of year 3 $ 1,000.00 60.00 $ 1,060.00 $ 1,060.00 63.60 $ 1,123.60 $ 1,123.60 67.42 $ 1,191.02 Time value of Money: 1. A single sum: Assume we will save $1,000 for three years and earn 6% interest compounded annually. On 1/1 in Year 1: $1,000 on Dec. 31 in Year3: $ 1,191.02 (a) Future value of a single sum = Present value * (1+ r) n Future value of $1000 after 3 years: 3 $1,000 × [1.06] = $1,191.02 (b) Present value of a single sum = Future value *( 1/ (1+ r) n ) Present value of $1,192.02: 3 $1,191.02 × (1/ [1.06] )= $1,000 Where r = interest rate n= compounding periods 1 Example: Assume you plan to buy a new car in 5 years and you think it will cost $20,000 at that time. What amount must you invest today in order to accumulate $20,000 in 5 years, if you can earn 8% interest compounded annually? i = .08, n = 5 Present Value Factor = .68058 $20,000 × .68058 = $13,611.60 If you deposit $13,611.60 now, at 8%......

Words: 1082 - Pages: 5

Notes 1 for Introduction of Managerial Accounting

...fixed in the short run have no cost drivers * Relevant range—the band or range of normal activity level (or volume) in which there is a specific relationship between the level of activity (or volume) and the cost in question. * For example, fixed costs are considered fixed only within the relevant range. * Inventoriable costs are all costs of a product that are considered assets in a company’s balance sheet when the costs are incured and that are expensed as cost of goods sold only when the product is sold. For manufacturing companies, all manufacturing costs are inventoriable costs. * Period costs are all costs in the income statement other than cost of goods sold (product cost). They are treated as expenses of the accounting period in which they are incurred. Costs that are inventoried are not expensed . * Prime cost is a term referring to all direct manufacturing costs (materials and labor). * Prime Cost = DM + DL * The greater the proportion of prime costs to TC, the more accurate the costs of production * Conversion cost is a term referring to direct labor and indirect manufacturing costs. * Conversion Cost = DL + OH Total labor costs: direct labor cost --Normal wages Manufacturing overhead cost: Indirect labor cost—Idle time, O.P. premium, Fringe Benefits Measuring costs requires judgment * The Value Chain is the sequence of business functions in which a product is made......

Words: 1522 - Pages: 7

Accounting Notes

...get dividends * Creditors – trading bonds – get interest rate; risk is less than if you´re an investor * Managers Financial accounting – provides info for managers and people outside the firm. Managerial accounting – provides confidential info for internal decision-makers (“private” or internal accounting). GAAP – Generally Accepted Accounting Principles. Most countries are converging to US GAAP or IFRS as a generally accepted standards. Private companies do not file IFRS. Qualities of accounting * Relevant * Reliable * Consistent (over time) * Comparable (across companies) Concepts of accounting 1. Accounting entity – хозяйствующий субъект 2. Going concern / Continuity – непрерывность – should be assumed that the business will continue to exist and bring economic benefits 3. Stable monetary unit – usually it is the currency. It is assumed that it has the same purchasing power throughout the time. 4. Time period 5. Concervatism / Prudence – расчетливость, практичность 6. Materiality Principles of accounting 1. Reliability 2. Historical Cost Basis – assets and rights of the Company are accounted for at their historical or production cost 3. Revenue – the company should establish rules when the revenue must be recognized and subsequently recorded. In accrual accounting revenue is recognized when the products are already delivered. 4. Matching – its important to link the income of the period with......

Words: 1584 - Pages: 7

Accounting 2600 Notes

...Midterm Review Notes Okay Everyone, Here is the information you need for our Midterm. We are covering chapters 1-5 of our Managerial Chapters. * Know the differences between financial and managerial accounting. * Know about the ethical components of managerial accounting. * Know about direct materials, direct labor, and manufacturing overhead. * Know period costs vs. products costs. * Know discretionary vs. committed fixed costs. * Know how to use T-accounts. * Know prime costs vs. conversion costs. * Know how to calculate Cost of Goods Manufacturing, Cost of Goods Sold. * Be able to do the inventory cost flow that we have done in class. * Basically, you need to know the High-Low method in every conceivable twist imaginable. Be able to use the formula to calculate variable cost, total cost, fixed cost, cost at a new level of activity, etc. * Understand fixed cost, variable costs, mixed costs and how they react. * Know and understand contribution margin format Income Statement. * Know Break-Even analysis and how to calculate this in both units and sales dollars. * Know how to figure out target profit. * Understand what happens if there are changes in fixed costs, variable costs, sales, etc. * Contribution margin is key to your understanding. * Contribution margin Income Statement will also be critical to know and undertstand. * Know how to calculate pre-determined overhead rate * Know how...

Words: 345 - Pages: 2

Accounting: Tools for Business Decision Making Edition 5 Chapter 1 Notes

...Accounting: Tools for Business Decision Making 5th Edition Chapter 1 1. Forms of Business Organizations * Sole proprietorship: owned by one person * Easy to set up * Gives you control * Examples: barber shops, law offices, auto repair shops * Partnership: business owned by two or more people * More economic resources * Unique skills and resources * Important to have written partnership agreement forms * Examples: retail and service-type businesses, professional practices * Corporation: business owned by stockholders * Easy to sell (transfer ownership) * Consists of stockholders and investors * Easier to raise funds * Examples: Coca-Cola, General Motors, ExxonMobil * Hybrid Business: tax advantages of partnerships and limited liability of corporations * Taxes and legal liability are important * Sole proprietorship have more favorable tax treatments but personally liable for debts and legal obligations 2. Users and Uses of Financial Information * Accounting: information system that identifies, records, and communicates the economic events of an organization to interested users * Users: internal users and external users * Internal Users: managers who plan, organize, and run a business * Examples: marketing managers, production supervisors, finance directors, and company officers * Accounting provides internal reports......

Words: 782 - Pages: 4

Cost Accounting Chapter 17 Notes

...different amount of units if DM and Conv costs have different percentages of completion. 5. Assign total costs to units completed and to units in ending work in process. This step will use the equivalent units. ➢ Weighted-Average (WA) process costing – calculates equivalent units and cost per equivalent unit to all work done to date (regardless of the accounting period in which it was done) and assigns this cost to equivalent units completed and transferred out of the process and to equivalent units in ending work in process inventory. The cost is the total of all costs entering the process (from beginning work in process and current period costs). The weighted average cost of inventory is calculated by merging together the costs of beginning inventory and the manufacturing costs of a period and diving by the total equivalent number of units in the beginning inventory and units produced and then allocate by multiplying that rate times the actual units completed and the equivalent units in process. ➢ First-In, First-Out (FIFO) process costing – (1) assigns the cost of the previous accounting period equivalent units in beginning work in process inventory to the first units completed and transferred out of the process; and (2) assigns the cost of equivalent units worked on during the current period first to complete beginning inventory, next to start and complete new units, and finally to units in ending WIP. Work done on beginning inventory before the......

Words: 1702 - Pages: 7

Accounting Notes

...Doubts: 8. Which of the following statements are true regarding the balance sheet? 1. One cannot determine the true fair market value of a company by reviewing its balance sheet. 2. Certain internally generated assets, such as a trademark, are not reported on a company's balance sheet. 3. A balance sheet shows only the ending balances, in a summarized format, of all balance sheet accounts in the accounting system as of a particular date. a. None are true. b. Statements 1 and 2 only are true. c. Statements 2 and 3 only are true. d. All statements are true. 10. Which of the following is not a financing activity on the statement of cash flows? a. When the company lends money. b. When the company borrows money. c. When the company pays dividends. d. When the company issues stock to shareholders. 11. Conservatism – care should be taken to not overstate assets and understate liabilities and expenses 12. Materiality – small amounts that are not likely to influence a user’s decision can be accounted for in the most cost beneficial manner 13. Relevance – information that can influence a decision. It is timely and has predictive and/or feedback value 1. Which of the following is not a specific account in a company's chart of accounts? a. Gains b. Revenue c. Net Income d. Unearned Revenue 5. On January 1, 2011, Anson Company started the year with a $250,000 credit balance in Retained Earnings...

Words: 667 - Pages: 3

Accounting Notes

...ACCT 1201 Lecture Notes – Hurley Spring 2016 Chapter 1 * Chapter 1 Learning Objectives: * Recognize the information conveyed in each of the four basic financial statements and the way that it is used by different decision makers (investors, creditors, and managers) * Identify the role of generally accepted accounting principles (GAAP) in determining financial statement content and how companies ensure the accuracy of their financial statements. * Why do we need financial accounting and reporting? * Companies want to raise capital to fund their business * Debt from Creditors/Banks * Investments from Investors (in the form of stock) * Who owns a business? * Investors own a business that is publicly traded. * Investors have managers run that business on their behalf. * Investors want to be sure managers are making good use of their money (their investment) * Managers know more about the inner-workings of a company than do investors. (We call this information asymmetry). * Therefore investors need managers to report the operations of the business to them in a useable format. These are what we refer to as FINANCIAL STATEMENTS. * Managers can act in their own self-interest (at the expense of shareholders), even potentially lying to them (fraud) to increase investments in the company. How do we resolve this dilemma? * Financial Reporting according to...

Words: 1969 - Pages: 8

Cost & Management Accounting - Write a Note on the Advantages and Limitations of Budgeting.

...Question paper, contact aravind.banakar@gmail.com www.mbacasestudyanswers.com ARAVIND – 09901366442 – 09902787224 Cost & Management Accounting Note :- Solve any 4 Questions All Questions Carry equal Marks. Questions: 1. a) Are all fixed costs sunk costs? Explain b) What are opportunity costs? Are opportunity costs relevant in decision making? Give examples in support of your answer. c) What are the various methods by which you would split semi-variable costs in its fixed and variable elements? 2. a) What are the characteristics of companies that are like to be using job order cost system? Specify five concrete situations when use of job order cost system is most appropriate. b) Why is it difficult to identify manufacturing overheads with products manufactured? Also, state the difference between the manufacturing overheads control account and manufacturing overhead applied account. 3. a) What do you understand by integrated accounts? State the advantages of integrated accounts. State in brief the procedure of installing such a system in a newly started manufacturing firm. b) Why is it necessary to reconcile cost and financial accounts? 4. a) Explain How budgeting and budgetary control operate together in a total management system. b) Write a note on the advantages and limitations of budgeting. 5. a) What is “standard costing” and how would you distinguish it from......

Words: 252 - Pages: 2

Managerial Accounting Ch1 Note-2

...Managerial Accounting: Chapter 1: Managerial Accounting: An Overview - This chapter explains why managerial accounting is important to the future careers of all business students. It answers three questions: (1) What is managerial accounting? (2) Why does managerial accounting matter to your career? (3) What skills do managers need to succeed? It also discusses the importance of ethics in business and corporate social responsibility. □ What is Managerial Accounting? | Financial Accounting | Managerial Accounting | 1. Users | External persons whomake financial decisions | Managers who plan for and control an organization | 2. Time focus | Historical perspective | Future emphasis | 3. Verifiability versus relevance | Emphasis on objectivity and verifiability | Emphasis on Relevance | 4. Precision versus timelines | Emphasis on precision | Emphasis on timeliness | 5. Subject | Primary focus is on companywide reports | Focus on Segment reports | 6. Rules | Must follow GAAP / IFRS | Not bound by GAAP / IFRS | 7. Requirement | Mandatory for external reports | Not Mandatory | There are seven key differences between financial accounting and managerial accounting: 1. Users: Financial accounting reports are prepared for external parties, whereas managerial accounting reports are prepared for internal users. 2. Emphasis on the future: Financial accounting summarizes past transactions. Managerial accounting has a strong future orientation. 3.......

Words: 2179 - Pages: 9

Accounting Review Notes

...ACCOUNTING REVIEW NOTES Chapter 13 Corporations: Organization and Share Capital Transactions Page 688 Questions and Answers 1. Corporations can be classified in different ways. For example, they may be classified by purpose (e.g., profit, not-for-profit, or income trust) or by ownership (e.g., public or private). Explain the difference between each of these types of classifications. Ans. Corporations can be classified: • By Purpose -Profit: such as Tim Hortons’ -Not-For-Profit: such as Canadian Cancer Society -Income Trust: such as Yellow Pages • By Ownership -Publicly Held Corporation: –may have thousand of shareholders. -shares exchanged in TSX -e.g. Sears, Bombardier -Privately Held Corporation:-few shareholders -shares are not sold to the public -e.g. McCain Foods 2. Pat Kabza, a student, ask for your help in understanding the following characteristics of a corporation: (a) limited liability of shareholders, (b) transferable ownership rights, and (c) ability to acquire capital. Explain how these characteristics work together to create a significant advantage for the corporate form of organization. Ans. (a) Limited liability of shareholders: liability is limited to the amount invested on the......

Words: 631 - Pages: 3