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Accounting Final Part 2

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stlwalk's version from 2016-12-12 04:47

Chapter 8: Receivables, Bad Debt Expense, and Interest Revenue

Question Answer
Pros of extending creditincreases seller's revenues
Cons of extending creditincreased costs, bad debt, delayed payment
Statement for A/R and Allow for DABalance Sheet
Statement for Sales Rev and Bad Debt ExpIncome Statement
Allowance Method for Bad Debt1) make end of period adjustment to record bad debt expense and 2) write-off account when it is uncollectible
How to record Bad Debt at time of purchasedebit Bad Debt Expense and credit Allowance for Doubtful Accounts (as well as debiting A/R and crediting Sales Rev)
How to write-off accountdebit Allow for DA and credit A/R
How to reverse write-offdebit A/R and credit DA -- then -- debit Cash and credit A/R
Methods for Estimating Bad DebtPercentage of Credit Sales Method and Aging of A/R
Percentage of Credit Sales Methodpercentage times sales revenue = bad debt expense (focuses on Bad Debt Expense - income statement)
Aging of A/R(focused on estimating Allow for DA - balance sheet)
How to calculate interest on NotesPrincipal x Interest Rate x Time (months) = Interest
Promissory Note Journal Entry (incl. interest accrual)debit Notes Payable and credit Cash -- debit Interest Receivable and credit Interest Revenue
Receive Note in Full Journal Entrydebit Cash and credit Notes Payable -- (accrual in time since last interest payment) debit Cash (full interest) and credit Interest Receivable and credit Interest Revenue
How to calculate Net Accounts ReceivableA/R (Gross) - Allow for DA = Net A/R
Reason for Allow for DAaccount to make a more accurate number for A/R in balance sheet
factoring accounts receivableselling A/R to a third party at a discount to get cash sooner
memorize

Chapter 9

Question Answer
Acquisition of Tangible (long-term) assets includes:purchase price and all costs included in preparing asset for use
Capitalizerecord costs as assets (on long-term assets) instead of expenses
Expense vs. CapitalizeExpenses include routine repairs or maintenance that do not upgrade -- Capitalizing includes extraordinary repairs that upgrade or are large repairs.
Depreciationcost allocation that stretches costs of assets over a period of time
Straight-line Method(Cost - Residual Value) x 1/Useful Life = Depreciation Expense
Units of Production Method(Cost - Residual Value) x Actual Production for Period/Estimated Total Production = Depreciation Expense
Double Declining Balance Method(Cost - Accumulated Depreciation) x 2/Useful Life = Depreciation Expense
Disposal of Tangible Assets journal entrydebit Cash and debit Accumulated Depreciation and credit Asset and credit (or debit) Gain on Disposal (Loss on Disposal)
How to calculate Book ValueAsset - A/D = Book Value
Amortizationdo not amortize goodwill or unlimited life assets; amortize untangible assets with the straight line method
memorize

Chapter 10

Question Answer
Current liabilities vs. non-currentCurrent liabilities will be paid off within a year; non-current liabilities last longer than a year.
Contingent liabilitiesIf there is a chance you will lose a case, you record the estimated amount (debit expense and credit payable) ; if theres a chance but no amount, write note.
Accrued Payrolldebit Salaries/Wages Exp and credit Withheld Income Taxes Payable and credit FICA Payable and credit Cash
Employer Payroll Taxesdebit Payroll Tax Exp and credit FICA Payable and credit Unemployment Tax (then pay off Payroll Tax Expense -- debit Payable and credit Cash)
Sales tax accountcurrent liability
Journal entry to record sale w. sales taxdebit A/R or Cash and credit Sales Revenue and Sales Tax Payable
When recording debit on balance sheetrecord current portion of debt under current liablities and remainder under long-term debt
Compensation expenseWages Exp plus Payroll Tax Exp
Bonds Journal Entrydebit Cash and credit Bonds Payable and credit (or debit) Premium on Bonds Payable (Discount on Bonds Payable)
Bond Retirement (early)debit Bonds Payable and credit Cash and credit (or debit) Gain on Bond Retirement (Loss on Bond Retirement)
memorize

Chapter 11

Question Answer
Current ratioCurrent Assets divided by Current Liabilities
Corporations and dividendsCorporations do not have to pay dividends.
Equity vs. debtEquity does not have to be repaid and dividends are optional; interest on debit is tax deductible and debt doesn't change stockholder control.
Issued sharesoutstanding shares (owned by stockholders) plus treasury shares (owned by company)
Market priceamount each share will sell for in the market
Issuance of common stock Journal Entrydebit Cash and credit Common Stock (par times number of shares) and credit Additional Paid-In Capital (balance)
Treasury Stockcontra-equity account -- company records treasury stock at cost
Dividendscompanies pay dividends when they have enough cash and sufficient retained earnings
Dividend Journal Entrydebit Dividends (contra equity account) and credit Dividends Payable -- debit Dividends Payable and credit Cash
Closing out Dividends (year-end)debit Retained Earnings and credit Dividends
Stock dividendsno change in SE - reduce market price per share - do not change par value -- debit Retained Earnings and credit Common Stock
Stock splitno journal entry or change in SE
Preferred stock dividendspreferred dividends must be paid before common stock dividends
Dividends in arrearspreferred dividends accumulate over the years and must be paid before common stock dividends (non-cumulative - do not build up)
Earnings per Share(Net Income - Preferred Dividends) / Average Number of Common Shares Outstanding
Treasury stock repurchase journal entrydebit Treasury Stock and credit Cash (re-issuing treasury stock: debit Cash and credit Treasury Stock and credit (debit) Add. Paid-In Capital (loss)
memorize

Chapter 12

Question Answer
Cash Flow Statementfor Year Ended _________ Date
Operatingcash received in day to day activities
Investingcash paid and received from buying and selling long term assets
Financingcash flow from stock and lenders
Receiving Dividendsinflow to Operating
Financing outflowpaying off loans or stocks or bonds or dividends
Operating inflowscash from customers, receiving dividends, receiving interest
Operating outflowspaying services, salaries/wages, income taxes, and interest
Investing inflowscash provided by sale of equipment or sale or maturities of investments
Investing outflowspurchase equipment or stock
Financing inflowsborrowing from lenders
Financing outflowsrepaying debt, repurchasing stock from owners, paying dividends
Indirect cash flow method - OperatingNet Income plus non-cash expenses (depreciation/amortization), changes in non cash current assets and liabilities, plus losses, minus gains
Operatingnet cash flow provided by (used in) operating activities
Investingsubtract purchase of equipment or stock plus sale of equipment equals Net Cash provided by (used in) operating activities
Financingadd long term debts minus payments on debts plus proceeds from issuing stock equals Net Cash provided by (used in) financing activities
Cash flow statementshows investors where money is going and how much money is actually generated from revenue
memorize

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