Accounting Final

  1. Why do companies extend credit?
    to make the sale sooner!
  2. Disadvantages of extending credit to customers:
    • increased wage cost (people to keep track of payments)
    • bad debt cost
    • delayed payment
  3. Recording sales on account
    • dr. Accounts receivable
    • cr. Sales Revenue
  4. Record estimate of bad debt
    • dr. Bad Debt Expense
    • cr. Allowance for Doubtful Accounts
  5. Writing off bad debt
    • dr. Allowance for Doubtful Accounts
    • cr. Accounts Receivable
  6. % of Credit Sales Method
    Credit Sales This Month * Bad Debt Loss Rate = Bad Debt Expense This Month
  7. Aging of Accounts Receivable
    • based on age of each accounts receivable at end of period
    • older age is less likely to pay
  8. Promissory Note:
    documents company's right to collect money from somone
  9. Interest formula:
    Principal * Interest Rate * Time (years)
  10. Receivables Turnover Ratio
    • Net Sale Revenue ÷ Avg. Net Receivables
    • higher = faster collection = better
  11. Tangible:
    • actively used in operations
    • not used up in 1 year
  12. Intangible:
    • value represented by rights to produce benefits
    • only limited life intangibles are amortized
  13. Acquisition cost includes
    • purchase price
    • all expenses needed to prep the asset for intended use
  14. Capitalizing costs:
    when you record costs as part of assets
  15. Basket Purchase:
    total cost of land + buildings
  16. Component allocation:
    different parts wear out at different times
  17. Maintenance cost:
    • small cost that doesn't increase productivity and doesn't extend the life
    • ordinary, expensed
  18. Extraordinary costs:
    large cost that may extend the life of the asset and increase productivity
  19. What sheet does the depreciation expense go on?
    income statement
  20. what sheet does the accumulated depreciation go on?
    balance sheet
  21. Recording the entry for depreciation:
    • dr. Depreciation Expense
    • cr. Accumulated Depreciation
  22. What do you need to calculate depreciation?
    • acquisition cost
    • estimated useful life
    • book value
  23. Straight line depreciation
    (Cost - Residual Value) * 1/useful life
  24. Units of production depreciation
    (Cost- Residual Value) * actual production this period/estimated total production
  25. Double Declining depreciation
    (Cost - Accumulated Depreciation) * 2/Useful Life
  26. Asset Impariment
    • casualty, obsolescence, lack of demand
    • loss recognized when asset suffers a permanent impairment
  27. Impairment:
    estimated future cash flows from a long-lived asset falls below book value
  28. Recording Impairment entry
    • dr. Loss on Impairment
    • cr. Equipment
  29. Record gain on disposal
    • dr. Cash
    • dr. Accumulated Depreciation
    • cr. Gain on Disposal
    • cr. Equipment
  30. Record loss on disposal
    • dr. Cash
    • dr. Accumulated Depreciation
    • dr. Loss on Disposal
    • cr. Equipment
  31. How are intangible assets amortized?
    Straight line
  32. Goodwill:
    • when a company buys another for more than it's worth
    • purchased goodwill is an intangible
  33. Fixed Asset Turnover Ratio
    • Net Sales Revenue ÷ Avg. Net Fixed Assets
    • tell sales dollars made by each dollar invested into asset
  34. Recording amortization entry
    • dr. Amortization Expense
    • cr. Accumulated Amotization
  35. How to make changes in depreciation
    (Book Value at Data Change - Residual Value at Date of Change) ÷ Remaining Useful Life @ Date of Change
  36. When is a liability made?
    • buy goods/services on credit
    • short term loan
    • issues long term debt
  37. Accrued Liabilities:
    liabilities that are incurred and not yet paid
  38. Balance Sheet for Liabilities
    • Accounts Payable
    • Less: Accrued Liabilities
    • Notes Payable
    • Current portion of Long-Term debt
  39. Recording Payroll Deductions
    • dr. Salaries and Wages Payable
    • cr. Cash
    • cr. Withheld Income Taxes Payable
    • cr. FICA Payable
    • cr. Charity (or other deduction payable)
  40. Recording Employer Payroll Taxes
    • dr. Payroll Tax Expense
    • cr. FICA Tax Payable
    • cr. Unemployment Tax Payable
    • *Lump state and federal unemployment together
  41. Recording Accrued income tax
    • dr. income tax expense
    • cr. income tax payable
  42. Recording note establishment
    • dr. cash
    • cr. notes payable
  43. Recording interest paid
    • dr. interest expense
    • dr. interest payable
    • cr. cash
  44. Recording sales tax
    • dr. cash
    • cr. sales tax payable
    • cr. sales revenue
  45. Bonds:
    instrument that outlines future payments as a company needs more NOW
  46. Bond Pricing:
    amount investors are willing to pay you
  47. Recording bonds issued at premium
    • dr. Cash
    • cr. Bonds Payable
    • Cr. Premium on Bond Payable
  48. Recording bonds issued at discount
    • dr. Cash
    • dr. Discount on Bonds Payable
    • cr. Bonds Payable
  49. When depreciating bonds, what values stay constant?
    • Cash paid
    • amortized premium/discount
    • interest expense
  50. Recording bond retirement
    • dr. Bonds Payable
    • cr. Cash
  51. Debt to Asset ratio
    • Total Liabilities ÷ Total Assets
    • lower = better, less money owed
  52. Times Interest Earned Ratio
    • (Net Income + Interest Expense + Income Tax Expense) ÷ Interest Expense
    • to see if you can cover costs and interest
    • higher = better coverage ability
  53. Stockholder benefits
    • voting rights
    • dividends (if enough to pay cash)
    • residual claims
    • preemptive rights
  54. Advantages of equity financing
    • equity doesn't have to be repaid
    • dividends optional
  55. Advantages of debt financing
    • interest on debt is tax deductible
    • debt doesn't change stockholder control
  56. Authorized shares
    max # of shares you can distribute
  57. Outstanding share:
    stockholder owns it
  58. Treasury share
    bought back by company
  59. Par value:
    nominal amount used to record journal entries on balance sheet
  60. Market Price:
    found on stock market, amount each share holds
  61. IPO:
    initial public offering, first time corporation goes public
  62. Recording distribution of common stock
    • dr. Cash
    • cr. common stock (at par value)
    • cr. Additional paid-in capital
  63. Stock Option:
    stock offered to employee at a good price to make up for employee payment
  64. Why would you repurchase stock?
    • send signal that company's stock is worth shit
    • for redistribution or for employee stock option
    • reduce outstanding shares to raise value
  65. Recording reacquiring of stock
    • dr. Treasury Stock
    • cr. Cash
  66. Recording reissuing of stock
    • dr. Cash (@price sold for)
    • cr. Treasury Stock (@price reacquired it for)
    • cr. Additional Paid-in Capital
  67. Recording dividend declaration date
    • dr. Dividends
    • cr. Dividends Payable
  68. Recording dividend date of record
  69. Recording dividend date of payment
    • dr. Dividends Payable
    • cr. Cash
  70. Recording dividend Year End (closing)
    • dr. Retained Earnings
    • cr. Dividends
  71. Stock Dividends:
    • additional shares distributed to stockholders 
    • stockholder still owns same % 
    • equity stays the same
    • small is @ stock value, large is @ par value
  72. Stock Splits:
    • creates more pieces of same pie
    • equity stays same
  73. Preferred Stock:
    • priority over common stock
    • usually fixed dividend rate
    • usually no voting rights
  74. Recording issuing of preferred stock
    • dr. Cash
    • cr. Preferred Stock
    • cr. Additional Paid-in Capital
  75. Current Dividend Preference:
    current preferred dividends must be paid before paying common stock
  76. Cumulative dividend preference:
    any unpaid dividends from past years must be paid before common stock
  77. EPS
    • (Net Income - Preferred Dividends) ÷ Avg. # of common shares outstanding
    • money generated per share ($)
    • higher = better
  78. ROE
    • (Net Income - Preferred Dividends) ÷ Avg. Common Stockholder's Equity
    • higher = higher returns for stockholders (%)
  79. P/E
    • Current stock price per share ÷ Earnings per share (EPS)
    • higher = improvement anticipated for future
Card Set
Accounting Final
numbers and shit