Under the corporate form of business organization
The corporation's life is stipulated in its charter
Stockholders of a corporation directly elect
the board of directors
Those most responsible for the major policy decisions of a corporation are the
board of directors
The officer that is generally responsible for maintaining the cash position of the corporation is the
treasurer
If a stockholder cannot attend a stockholders' meeting, he may delegate his voting rights by means of a
proxy
Par value
the value assigned per share in the corporate charter
The acquisition of treasury stock by a corporation
decreases its total assets and total stockholders's equity
Treasury shares plus outstanding shares equals
issued stock
Dividends in arrears on cumulative preferred stock
must be paid before common stockholders can receive a dividend
the date on which a cash dividend becomes a binding legal obligation is on the
declaration date
The effect of the declaration of a cash dividend by the board of directors is to
increase liabilities and decrease stockholders equity
In the stockholders' equity section of the balance sheet
additional paid-in capital appears under the sub-section paid-in capital
If Norben Company issues 6000 shares of $5 par value common stock for $210000, the account
210000- (6000 X 5)= 180000
Paid in capital in excess of par value will be credited for
Lantz company issued 10000 shares of stock at a states value of $10/share. The total issue of stock sold for 15/share. the journal entry to record this transaction would include a
credit to common stock for 100000 (10000x10)
The following data is available
common stock, par $10 (authorized 30000 shares) --- $270000
treasury stock (at cost $15 per share)----$1200
how many shares of common stock are outstanding
26920
(common stock / Par value)-( Treasury stock/ cost)
(270000/10)-(1200/15)
Stockholders' equity relationships
...
Where are common stock and retained earnings found
in the stock holders equity section of the balance sheet
Where are dividends found
on the retained earnings statement
Where are revenues and expenses found
on the income statement
Trial Balance
lists accounts and their balances at a given, prepared at the end of an accounting period, listed in order they appear on the ledger
-proves the mathematical equality of debits and credits after its posting
-uncovers errors in journalizing and posting
- u
revenue recognition
requires that the companies recognize revenue in the accounting period in which the performance obligation is statisfied
expense recognition
expenses are matched with revenue
perpetual inventory system
companies maintained detailed records of the cost of each inventory purchase and sale. These records continuously show the inventory that should be on hand for every item
advantage: shows better control over inventory,
Periodic inventory system
companies do not keep detailed inventory records of goods on hand, they determine the costs of goods sold only at the end of the accounting period
purchase returns
a purchaser may be dissatisfied with the merchandise and may what to return the goods to the seller for credit if sale was made on credit, or for cash refund if it was made on cash
Acct payable 300
inventory 300
purchase allowance
the purchaser may choose to keep the merchandise if the seller is willing to grant a reduction of the purchase price
Acct payable 3,500
Cash 3430
inventory 70
multiple-step income statement
1. gross profit
2. income from operations
3. net income
how to determine three items of multi step income statement
1. subtract cost of goods sold from net sales to determine gross profit
2. deduct operating expenses from gross profit to determine income from operations
3. add or subtract the results of activities not related to operations to determine net income
determining ownership of goods
1. goods in transit
2. consigned goods
consigned goods
hold the goods of other parties and try to sell all the goods for them for a fee, but without taking ownership of the goods
-ex. if you want to sell a car and take it to a dealership, the dealer will be willing to put the car on the lot and charge you for
First in, First out FIFO
assumes that the earliest goods purchased are the first to be sold
LIFO
assumes the latest goods purchased are the first to be sold
average cost
allocates the cost of the goods available for sale on the basis of the weighted average unit cost incurred
costs of goods sold
(beginning inventory + purchases) - ending inventory=
valuing accounts receivable
-companies report accounts receivable on the balance sheet as an asset
- when accounts are not paid it becomes bad debt expense
Allowance method for uncollectible accounts
-involves estimating uncollectible accounts
-provides better matching of expenses with revenue on the income statement
-receivables are stated at their cash realizable value ( the net amount a company expects to receive in cash from receivables)
three features of allowance method
1. companies estimate collectible accounts receivable and match them against revenues in the same accounting period in which the revenues are recorded
2. companies record estimated uncollectibles as an increase to Bad Debt Expense and an increase to allow
write off
allowance for doubtful accts 500
accts receivable(R Ware) 500
(write off of R ware account
revenue expenditures
...
receivables
are claims that are expected to be collected in cash
accounts receivables are value and reported on the balance sheet at
cash realizable value
The account Allowance for Doubtful Accounts is classified as a(n)
contra account to Accounts Receivable
Under the allowance method, Bad Debt Expense is recorded
for an amount that the company estimates it will not collect
If a company fails to record estimated bad debts expense,
expenses are understated
When the allowance method is used to account for uncollectible accounts, Bad Debts Expense is debited when
management estimates the amount of uncollectibles
When an account becomes uncollectible and must be written off
Accounts Receivable should be credited
A debit balance in the Allowance for Doubtful Accounts
indicates that actual bad debt write-offs have exceeded previous provisions for bad debts
Bad Debt Expense is reported on the income statement as
an operating expense
To record estimated uncollectible accounts using the allowance method, the adjusting entry would be a
debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts
When an account is written off using the allowance method, accounts receivable
decreases and the allowance account decreases.
When calculating interest on a promissory note with the maturity date stated in terms of days, the
payee receives more interest if 360 days are used instead of 365.