Issue Common Stock
Cash Debit, Common Stock Credit
Loan from bank
Cash Debit, Note Payable Credit
Purchase Equipment with Cash
equipment debit, Cash Credit
Purchase Inventory with Cash
Inventory debit, Cash credit
Period of Time Assumption
everything happens within a certain amount of time, accounting period
Entity Assumption
only make entries for things pertaining to the business
Monetary Unite Assumption
only express values in money
Going Concern Assumption
planning on the company staying in business for a long time
Cost principle
write sales at cost, not concerned with if we got a good or bad deal
Common Stock Definition
money earned from owner's investing in the business, part of owner's claim to assets
Retained Earnings Definition
money earned from the operation of the business, part of owner's claim to assets
Journal entry: Sale in a merchandising company
Cash Debit, Cost of Goods Sold Debit, Inventory Credit, Sales Revenue Credit
Income Statement
Includes Revenues and Expenses only, covers a period of time
Balance Sheet
includes assets, liabilities, and dividends and retained earnings, point in time
Calculate Retained Earnings
Beginning Balance of Retained Earnings plus Net Income of the Month
Permanent Accounts
beginning balance is the ending balance from previous month
Temporary Accounts
beginning balance is zero
Sale to a customer for both cash and on account
Sales Revenue Credit, Cash Debit (partial), Accounts Receivable Debit (Partial)
Sale on Account
Accounts Receivable Debit, Sales Revenue Credit
Collect an Account Receivable
Cash Debit, Account Receivable Credit
Make payment on a vendor's Account Payable
Account Payable Debit, Cash Credit
Depreciation Adjusting Entry
Depreciation Expense Debit, Accumulated Depreciation Credit
Error for not recording depreciation adjustment
Income Statement: Net Income overstated,depreciation expense understated, total expenses understated
Balance Sheet: Retained Earnings overstated, acc depreciation understated, total Assets overstated, total equity and liability overstated
Prepaid Asset Depreciation adjustment (Supplies)
Supplies Expense Debit, Supplies Credit
Error for not recording Prepaid adjustment
Income Statement: supplies expense understated, total expenses understated, Net income overstated
Balance Sheet: Retained Earnings overstated, supplies overstated, total assets overstated, total equity and liabilities overstated
Accrued Liability Adjustment (Wages payable)
Wages Expense debit, wages Payable credit
Errors for not recording Accrued Liability Adjustment
Income Statement: wages expense understated, total expense understated, net income overstated
Balance Sheet: wages payable understated, total liabilities understated, retained earnings overstated, total equity overstated
Unearned Revenue
liability account, advanced payment
adjusting Entry for unearned revenue
Unearned Revenue debit, service revenue credit
Dividends Date of Declaration entry
Dividends Debit, Dividends Payable Credit
Dividends Date of Record entry
No entry
Dividends Date of Payment
Dividends Payable Debit, Cash Credit
Closing Dividends
Retained Earnings debit, Dividends Credit
Sarbanes- Oxley Act
response to accounting scandal, must file financial statements with the SEC
Internal Control
company's plan to safeguard assets, improve the accuracy and reliability
Bank Reconciliation: bank side errors
deposits outstanding, checks outstanding, bank error (wrong account, wrong amount)
Bank Reconciliation: company side
bank service charge, notes receivable and interest, NSF check, transcribed number
Transcribed numbers: recorded too much
add cash back, debit cash the difference
Transcribed numbers: recorded too little
subtract more cash, credit cash the difference
NSF Check Entry
Accounts Receivable Debit, Cash credit
Sales Discount Entry
Cash debit (partial), Sales Discount debit (partial), Accounts Receivable credit
Sales Allowances and Return
Sales returns and allowance debit, accounts receivable Credit
Recording a Note Receivable
Notes Receivable debit, Service Revenue credit
Direct Write Off Method entry
bad debt expense dr, accounts receivable credit
Interest Calculation on Notes Receivable
Face value x annual interest rate x fraction of the year
Interest Receivable Entry
Interest receivable debit, interest revenue credit
goodwill
(amount paid + liabilities)- assets
Book value
the original cost of the asset minus the current balance in accumulated depreciation
Sale of Long Term Assets
Cash debit, acc depreciation debit, Equipment credit (Gain credit, loss debit)
Issue Note Payable
Cash debit, Note Payable
Interest entry for Note Payable
Interest expense debit, Interest Payable credit
Paying off Notes Payable
Notes Payable debit, Interest expense debit, interest payable debit, cash credit
Pay Roll- employee withholding
Salaries expense debit, State and Federal Income tax payable credit, FICA tax payable credit, Salaries payable credit
Pay roll employer withholding
Payroll Tax Expense debit, FICA tax payable credit, State and Federal Unemployment tax payable credit
Unearned Revenue Gift Card Initial
Cash debit, Unearned Revenue Credit
Unearned Revenue Gift Card Usage entry
Unearned revenue debit, sales tax payable credit, sales revenue credit
Sales Tax Payable
Cash debit, Sales Revenue credit, Sales Tax payable credit
Corporation
an entity that is legally separate from its owners and even pays its own income tax
Par Value of Common Stock
legal captial per share of stock that's assigned when the corporation is first established
Recording Sale of Common Stock w/ Pd in Capital In Excess of Par Value
Cash debit, Common Stock credit, Additional Pd in capital credit (Common stock is $1 times number of stocks)
Treasury Stock definition
corporation's own stock that it has reacquired
Treasury Stock entry
Treasury stock debit, cash credit
Authorized Stocks
total amount available for sale
Outstanding stocks
stocks sold outside the company
2 for 1 stock split
cut price in half, double amount of shares, equals same total monetary value
Percent Increase
(current year - previous year)/previous year
Asset to Equity Ratio (Leverage)
total assets/total stockholder's equity
Asset Turnover (Efficiency)
Sales/Total Assets
Return on Sales (Profitability)
Net Income/ Sales
Return on Equity
Net Income/ Total Stockholder's Equity
Return on Assets
Net Income/ Total Assets
working capital
current assets minus current liabilities
Current Ratio
current assets/current liabilities
quick ratio
(Cash + acc rec + marketable securities)/ current liabilities
Times Interest Earned Ratio
Earnings before interest and tax/interest expense
Number of Days Sales In Receivables
Avg accts receivable ((beg + end)/2) divided by average daily sales (total sales/ 365)
Number of Days Sales in Inventory
average inventory/ average daily cost of goods sold
Cash Flow to Net Income Ratio
Cash from operating activities/ net income
Cash Flow Adequacy
Cash from operating activities/ (cash used to purchase buildings, equipment, land, other fixed assets, acquisitions of new buildings)
Free Cash Flow
Cash from operating activities minus cash used to purchase prop, plant, equip minus cash used for dividends
Dividends payout ratio
Cash dividends/net income
Price earnings ratio
Market price of 1 share/ earnings per share
Horizontal analysis
used for income statement to find percent change
vertical analysis
used for balance sheet to find percent change
Bond at Par
selling for face value
bond at discount
get less than selling price, effective interest rate is greater than stated interest rate
bond at premium
get more than selling price, effective rate is lower than stated rate