Accounting 1

no need to be concerned, seemingly fine to continue business

cost at the time of purchase

cost at the time of purchase

match revenues with expenses incurred in order to produce those revenues in a particular period

a years period of time

true

see what is happening in a company, show what's being held in a company

shows how ownership changed over time

"snapshot" picture on the last day of the period that we are talking about

permanent accounts

no records until cash exchages hands

records revenues/sales when they are earned and expenses when they are incurred (regardless of when the cash changes hands)

records all transactions

• Date
• Description
• Posted
• Debit
• Credit

• sole proprietorship
• partnership
• corporation

• Sole proprietorship- Pamela's Equity
• Partnership- Partners name
• corporation- Common stock

• 100% liable personally if sued professionally (if company couldnt cover the assets)
• can't take the house or car (you can keep the basics)
• No state or federal approval
• Hard to find funding

• Must get an agreement!
• 1 person must be the general partner (can come after personal assets)
• Mutual agency- one person speaks for the other partner
• Better for funding

• limited liability (only liable what they contributed or invested)
• double taxed (income)
• very expensive
• Must register with the state and federal govt
• have a charter

Company Books

Economic resources that we use in the future for the production of income

you owe someone else

2 main sources: Common stock and retained earnings

accounts that track every time someone invests in the company

ex: selling ownership or investing in your company

Tracks from inception what you are holding in the company when you do business

• - Revenues
• - Investments
• - Expenses
• - Dividends- DONT show on income stmt, only retained earnings

related to production of income (don't pay taxes)

ex: if you sell soccer balls (cost you $50, sell for $75 expenses $50, tax on $25)

• Sales
• Commissions
• Fees Earned

Revenues-Expenses= Net Income

• Beginning Balance, RE- DATE!!
• + Net Income
• =Sub Total
• -Dividends
• =Ending Balance- RE- DATE!!

Assets= Liabilities+Stockholders Equity

• For every journal entry there is at least 1 debit and 1 credit
• whatever those amounts, the total of the debits amounts must equal the total of the credit amounts
• Eason Rule- Debits 1st, Credits 2nd (indented) 

• 1. What 2 or more specific accounts are effected by this transaction?
• 2. What types of accounts are they
• 3. Is this "type" of account increasing or decreasing?
• 4. Therefore, debit or credit

• Example: Invest 100K in new company
• 1. Cash and Common Stock
• 2. Asset and SE
• 3. Increase and Increase
• 4. Debit and Credit

Inventory is not counted/updated when purchases of merchandise is made from suppliers

inventory is updated/adjusted only once at the end of the year

THS COGS account is not updated when a sale of merchandise occurs

no way to tell from the general ledger accounts the amount of inventory or the COGS

*Constant

Inventory is continuously updated

inventory account is increased with the cost of merchandise purchased from suppliers and it is reduced by the cost of merchandise that has been sold to customers

Purchase account(s) do not exist

COGS debited at the time of each sale for the cost of the merchandise that was sold

• 2 journal entries:
• The sale and the cash/Accounts Receivable
• Reduce inventory and increase COGS

LIFO

• Gross Profit Method
• Retail Method

Income Statement

Sales                                100,000

• Beginning Inventory            22,000
• Net purchases       83,000
• COG Available      105,000
• Ending Inventory    25,000
• COGS                                80,000

Gross Profit                        20,000

                                        Cost      Retail

• Beginning Inventory            11,000  15,000
• Net Purchases                    69,000  85,000
• Goods Available and Cost Ratio 80K   100K
• Sales at Retail                                 90K
• Est Ending Inventory at Retail            10K
• Est Ending Inventory at Cost     8K

• cost ratio= cost to retail ration= 80K/100K= 80%
• Ending Inventory at Retail (10K) time the cost ratio 80%= 8K

uses labor and other inputs to transforms raw materials into finished product and then sells the product

creates products and a merchandiser sells them

• cost of a finished product includes:
• cost of materials used directly in that product
• cost of labor used directly on the product
• a fair share of overhead, or general costs associated with the production process

• direct labor
• dierct materials
• overhead

include both wholesalers and retailers

Purchases-purchase discounts-purchase returns and allowances=Net purchases=Freight In=Net cost of purchases (Net Purchases)

• Beginning Inventory
• +Net Purchases
• =COGAFS
• -Ending Inventory
• =COGS

• Sales (Net Sales)
• -COGS
• =Gross Profit or Gross Margin
• -Operating Expenses
• =Net Income or Loss

• Freight out
• administrative expenses
• selling expenses

if you pay within 10 days you will receive a 3% discount, otherwise the total amount is due in 30 days

Free on board

Stays on US books until it reaches the dock in China

remained inventory in US

• Once the inventory reaches the point where it ships it is no longer on US books, it is on China's books
• (regardless of how it is shipped or how long it takes)

white tee shirt example (all the same no way to identify)

prices change, inflation

conformity rule, if you use LIFO for tax reporting you must also use it for financial reporting

usually results in lower taxes (in times of increasing costs)

Results in lower net income

current assets divided by current liabilities

if less than 1, there are not enough assets to cover liabilities

in times of rising prices results in higher net income, "better" for investors, Higher taxes

•                         FIFO   LIFO  AVG
• Sales                1020   1020  1020
• COGS                356     471    415
• Gross Profit       664      549   605
• Operat Exp        400      400   400
• Net Income       264      149   205

Assets that remain after liabilities are taken into account will be claimed by the equity investors

balanced

Assets= Liabilities + SE

By converting dofferent facts to monetoary amounts we can deal with them arithmetically

Accounts are kept for entities, rather than for the persons who own, operate or otherwise are associated with those entities

mom and pop stores that do not identify the cost of merchandise they withdraw for personal use, telephone calls etc.. do NOT follow the entity concept, thus the financial statements are not accurate.

if reliable information is available, an asset is measured at its fair value

stocks and bonds

securities that are expected to be converted to cash within a year

intangible asset

• Buildings/ Trucks, machines
• Investments (securities and bonds)
• Patents and trademarks
• Goodwill

Each transaction causes at least 2 changes on the balance sheet

• aka
• earnings
• surplus
• income

• Tangible
• intangible
•        - monetary
•        - nonmonetary

temporary

permanent

Cost of the same products whose revenues are included in the sales amount