Accounting Tips and its cheat Sheet..
Financial Accounting standards boards
Securities and exchange commission
American institute of certified public accountants
FASB emerging tasks force
Cost accounting standard board
Internal revenue service
American accounting Association
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Accounting cheat sheat
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Governing bodies influencing GAAP
Financial Accounting standards boards
Securities and exchange commission
American institute of certified public accountants
FASB emerging tasks force
Cost accounting standard board
Internal revenue service
American accounting Association
International accounting standards board
Governmental accounting standard board
Public company accounting oversight board
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Accounting Cycle
* Income statements, Owners’s equity statements, Balance Sheet
Analyze
business
transactions
Journalize the
transactions
Post to
ledger
accounts
Prepare a trial
balance
Journalize and
post adjusting
entries:
Deferrals/
Accruals
Prepare an
adjusted trial
balance
Prepare
Financial
statements*
Journalize
and post
closing entries
Analyze
business
transactions
8
9 1
2
3
4
5
6
7
Optional Steps: If a worksheet is prepared, steps 4, 5 and 6 are incorporated in the worksheet.
If reversing entries are prepared, they occur between steps 9 and 1 as discussed below.
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Forms of Business Organization
Partnerships
Corporations
Sole
Proprietorship
Owned by single person
(proprietor) and owner is
personally liable for debts of
business
Unincorporated business
jointly owned by two or more
people, which is not a
separate legal entity
Perpetual separate legal entity,
with limited liability, where
ownership exist in transferrable
shares.
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Key Financial Statements
Income Statement
The income statement
shows a company’s
revenue, expenses,
gains and losses appear
on this financial
statement.
Balance Sheet
The balance sheets lists
the company’s assets,
liabilities and equity
Cash Flow Statement
This financial statement
reveals how a company
is bringing in and
spending its cash.
Partnership
Partner’s equity is used
instead of Owner's Equity
and listed separately
Proprietorship
The equity section
contains only the equity of
the proprietor
Corporation
Shareholders equity is
divided into capital stock
and retained earnings.
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Pro forma: Income Statement
Multi-step income statement
Ruth's Place
Income Statement
For Year Ended December 31, 2001
Sales
Less: Sales discounts -
Net sales -
Cost of goods sold
Gross profit -
Operating expenses:
Selling expenses:
Total selling expenses -
General and administrative expenses:
Total general and administrative expenses
Total operating expenses -
Net income
-
$
-
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Main Components of Balance Sheet
• Assets are economic
resources that are owned by a
business and are expected to
benefit future operations.
• Examples: buildings,
machinery, accounts
receivable.
• Valued at cost value... that is
what you paid for the asset,
not what it is worth today.
Assets
• Debts of a business
• All businesses have debts. It
is convenient to buy with
credit
• The purchase of goods of
services for credit is an
account payable
• When money is borrowed it
is a note payable
Liabilities
• Represents the resources
invested by the owner
• Residual claim because claims
of creditors come first
• Equal to the total assets minus
the total liabilities
• Increase in Owner's Equity
comes from Investment and
Earnings
• Decreases come from
Withdrawals and Losses
Owners’ Equity
Assets Liabilities
Owner's
Equity
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Performa: Balance Sheet Note As at 31 December
2011 2010
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Deferred income tax assets
Trade and other receivables
Total non-current assets 0 0
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents (excluding bank overdrafts)
Total current assets 0 0
TOTAL ASSETS 0 0
EQUITY AND LIABILITIES
Equity
Share capital
Share premium
Other reserves
Retained earnings
Total equity 0 0
Liabilities
Non-current liabilities
Borrowings
Deferred income tax liabilities
Provisions for other liabilities and charges
Total non-current liabilities 0 0
Current liabilities
Trade and other payables
Current income tax liabilities
Borrowings
Provisions for other liabilites and charges
Total current liabilities 0 0
Total liabilities 0 0
TOTAL EQUITY AND LIABILITIES 0 0
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Journal Entry
An amount entered on the right
side of an account, which cause
increase in revenue and gains and
decrease in assets and expenses
Each bookkeeping or accounting entry
will involve at least two accounts: at
least one account will be debited, one
account will be credited.
An amount entered on the left side
of an account, which causes
increase in assets and expenses and
decrease in liabilities and revenue.
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Accounts Receivable
Accounts
Receivable
Journal entry to create allowance for doubtful
account
Uncollectible Accounts Expense XXX
Allowance for Doubtful accounts XXX
Allowance for Doubtful Accounts will appear on the
balance sheet as a deduction from A/R
Accounts Receivable XXX
Allowance for doubtful accounts XXX
Final A/R Amount XXX
Journal entry to record bad debt entry
Allowance for Doubtful Accounts XXX
Accounts Receivable (Simons) XXX
Any product sold on credit creates an asset which is yet to receive , thus termed as Account Receivable.
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Cash Account and Cash Management
Listed first because it is available to meet
obligations.
Assets are listed in order of liquidity and it
is most liquid asset.
Some short term investments are combined
with cash on the balance sheet because of
their liquidity.
Creditors are interested in how cash
compares with accounts payable, i.e.
Solvency
Cash Account
Creation of Petty cash Funds
Petty Cash XXX
Cash XXX
Replenishing Cash Funds
Office Supply Expenses XXX
Entertainment Expense XXX
Cash XXX