ACG 2021

Assets = Liabilities + Stockholder's Equity

• Owner Investments
• Owner Withdrawals
• Revenues
• Expenses

In order of liquidity

In order of maturity.

Increases in equity as a result of operations of a business (sales).

Decreases in equity (resources used up to help earn revenues).

• Income Statement (Revenues - Expenses = Net Income/Loss)
• Statement of Owner's Equity (SE +/- Net Income = Balance)
• Balance Sheet (Assets = Liabilities + SE)
• Statement of Cash Flows

Generally Accepted Accounting Principles developed to provide guidelines for financial accounting practices. Currently FASB (Financial Accounting Standards Board) has responsibility for developing accounting standards.

• FASB: Financial Accounting Standards Board (establishes GAAP today)
• SEC: Securities & Exchange Commission (determines financial statement rules for public companies)
• PCAOB: Public Company Accounting Oversight Board (auditing standards)
• AICPA: American Institute of CPAs (Pro association of CPAs)
• IASC: International Accounting Standards Board (developing international accounting standards)

• Historical Cost: the amount paid (or exchanged) on the transaction date is used to initially record the elements.
• Revenue Recognition: record revenue only when it is measurable, realizable or realized, and earned.
• Matching Principle: records the expenses when the expense is incurred to generate revenues.
• Full Disclosure: must provide users with information that could impact a decision.

• Unit of Measure: measurements are in monetary units ($$)
• Separate Entity: activities of a business are separate and distinct from its owners
• Periodicity (time period): financial life of a company can be reported in shorter time periods (usually month end, quarter end & year end)
• Continuity (going concern): entity will not be going out of business in the near future

• Relevant: Info provided would impact decision
• Reliable: Can be independently verified to be accurate
• Comparable: Similar accounting methods have been applied accross different companies
• Consistent: Within a company, similar accounting methods have been applied over time

• Cost/Benefit: benefits to providing the information to the users should outweigh the costs to provide it.
• Materiality: determination that relatively small amounts (if omitted or recorded incorrectly) would not affect or impact a decision.
• Industry Practices: acceptable industry specific practices that deviate from the normal GAAP principles.
• Conservatism: when alternative accounting valuations can be used, the amount that is least likely to overstate assets and/or revenues, or to understate liabilities and/or expenses should be used.

• 1) Analyze the transaction: Determine the affects of the transaction and what accounts are affected.
• 2) Apply the rules of double entry (debits=credits)
• 3) Record the entry in the general journal. The general journal is a chronological listing (date order) of each transaction, and what accounts are debited and credited.
• 4) Post the entry to the general ledger (T-accounts)
• 5) At each month end, subtotal each account (called "footing the accounts") and prepare a trial balance to make sure all debits=credits.
• 6) Prepare adjusting entries to ensure proper revenue recognition & matching.
• 7) Prepare an adjusted trial balance to ensure all debits=credits.
• 8) Prepare financial statements: Income Statement, Statement of Retained Earnings, Balance Sheet & Statement of Cash Flows.
• 9) At year-end, prepare closing entries to close all income statement accounts (called nominal accounts) into retained earnings (or owner's equity account).

Financial Leverage Ratio= Avg Ttl Assets [(BB+EB)/2] / Avg Stockholder's Equity [(BB+EB)/2]

• 1.0 means no debt financing
• 2.0 means an equal amount of debt and equity financing
• above 2.0 means more debt is being used to finance than equity

EPS= Net Income/Avg. # of Common Shares Outstanding

• Unearned Revenues (Deferral) : previously recorded liability that was created when cash was received in advance of performing a service (earning the revenue). Amounts must be adjusted for amount of revenue that has now been earned during the period.
• [Debit: Unearned revenues Credit: Revenues] *Got cash early now need to do work

• Accrued Revenues (Accrual) : revenues that have been previously earned but have not yet been recorded.
• [Debit: Accounts Receivable Credit: Revenues] *Did the work now need to get paid

• Prepaid Expenses (Deferral) : Previously recorded assets that were paid for in advance but must be adjusted for the amount of expense that has been incurred during the period. (Amount used up ie. Supplies)
• [Debit: Supplies Expense Credit: Prepaid Supplies] *Paid for early now used up incrementally

• Accrued Expenses (Accrual) : Expenses that have been incurred but have not been recorded or paid.
• [Debit: Expense Credit: Accrued Payable] *Got the Service - pay later

They will ALWAYS effect 1 Balance Sheet account & 1 Income Statement account.

They will NEVER be Cash.

Net Profit Margin= Net Income/ New Sales (Revenues)

• 1) "Did" : Determine what entry was booked
• 2) "S/H/D" : Determine what entry Should Have been Done had it been recorded correctly
• 3) "Fix" : Determine what entry is necessary in order to fix the error