Accounting
the adjustment process
the adjustment process
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what does COGS mean?
Cost of goods sold
what is different on an income statement of a merchandsising company?
Sales revenue/cost of goods sold/gross profit
what is a new asset for merchandising company?
Merchandise inventory
What is the difference between a periodic and a perpetual inventory system?
Periodic --> physical count
Perpetual --> computarized record
What is the difference between FOB Shipping point and FOB Destination?
Shipping point --> buyer owns the goods as soon as it leaves the seller
Destination --> seller has the risk of transport
what does the consistency principles state?
Business should use same accounting methods and procedures from period to period
What does the disclosure principle state?
That a company should report enough information for outsiders to make knowledgeable desicions about the company
What does the materiality concept state?
Company must perform strictly proper accounting only for significant items.
what does the conservatism principle state?
company should report the least favorable figures in the financial statement when 2 or more possible options are presented
what are the 4 basic inventory costing mehtods allowed by GAAP?
1. Specific identification (when company exactly knows wich goods are being sold)
2. FIFO (firs units purchased --> first sold)
3. LIFO (opposite of FIFO)
4. Weighted average (New average cost is calculated after each purchase)
What does LOCAM mean?
Lower of cost or market rule --> inventory has to be reported at thelower of the inventory's original cost or its market value
what are the components of internal control?
CRIME: Control, Risk assesment, Information system, Monitoring controls, Environment
what is the difference between cash transactions and credit transactions?
Cash--> delivery and payment take place at the same time
credit--> time between delivery/billing and payment
what are the 3 types of receivables?
A/R: Customer owes us monex for goods or sercives performed
Notes receivable: Longer terms than accounts receivable, fixed amount + interest
Other receivables: dividends receivable, Interest receivable, taxes receivable
what are plant assets?
Long lived, tangible assets, PPE (property, plant, equipment)
What does the cost of plant assets include?
Purchase price, transportation charges, insurance while in transit, taxes, commsions, installation costs, testing costs
what is a lump-sum purchase?
Company pays a single price for several assets as a group
On what 3 factors is depreciation based on?
Capitalized cost, estimated useful life, estimated residual value
what are the 3 most commonly used depreciation methods?
-straight line method (linear)
-units-of-production method
-double-declining-balance method (progressive)
what is the term for depreciation regarding natural resources?
Depletion
what's the difference between cash basis accounting and accrual basis accounting
Cash basis--> only recorded when cash is received or paid, not allowedunder GAAp
Accrual basis--> revenue is recorded when earned and expensesare recorded when incurred, used by most businesses
what is the Revenue Recognition principle?
Record revenue when earned(when a project is finished), revenue is based on selling price(e.g. sale price)
what is the difference between revenues and gains?
Revenue --> sales to customers,services etc.
Gains --> sale price in excess of book value (real estate)
what is the difference between deferrals and accruals?
Deferrals:cash is involved prior to recognition
Accruals:cash involved after recognition
What is the difference between a deffered expense and an accrued expense?
Deffered expense: advance payments for future expenses
Accrued expense:expenses a business has incurr3ed but has not yet been paid
what is the difference between deferred revenues and accrued revenues?
Deffered revenues: occurs when a company receives cash before it does the work or delivers a product
Accrued Revenue:Company performs a service or delivers a product but has not yet been paid
what is the booking sentence if you paid rent in advance and how can you adjust it on dec. 31
Prepaid Rent/ Cashr
Rent Expense/Prepaid rent
what is the booking sentence if you purchased 500 in booking supplies and by dec.31.only 100 worth of supplies remain on hand?
supplies expense/office supplies 400
what booking sentence can you use to record a depreciation of furniture?
Depreciation Expense-Furniture/Accumulated Depriciation - furniture
what is the booking sentence if you receive moneyfor a service you still have to provide? And how can you adjust the booking if you perform 1/3 of the service?
Cash/unearned Revenue
Unearned Revenue/Service Revenue
what is the booking sentence for owed salaries that will be payed after 31.dec.?
Salaries expense/Salaries payable
what is the booking sentence for a service you already performed but has not yet been paid
accounts receivable/Service Revenue
what is a worksheet?
An internal document that helps summarize data for the preparation of financial statements and is divided in 4 sections: account names,unadjusted trial balance,adjustments,adjusted trial balance
What ar3e the 3 parts of the seperate financial statement according to CO?
-Balance sheet/statement of financial position
-Income Statement/Profit and loss
-Notes
What are the additional requirements according to CO?
-Cash flow statement
-Additional Information in the Notes
-Management Report
What are the parts of the financial statement according to IFRS?
-Statement of financial position/balance sheet
-Statement of profit or loss (income statement) and ohter comprehensive income
-Statement of changes in equity
-Statement of cashflows
-notes
-Statement of financial position as the beginning of the earliest comparative period (last year)
What is a classified Balance sheet?
-Assets are shown in order of liquidity
-Liabilities are classified as current or long-term
What accounts are temporary
Revenues, expenses and dividends
What accounts are Permanent?
Assets Liabilities and Equity
How do we close the accounts?
Transfer revenues, expenses and dividends to retained earnings (or first to income summary and then to retained earnings)
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Flashcards
what is the term for depreciation regarding natural resources?
Depletion
