Accounting Principles I

Transcription

1 Cliffs Quick Revie w Accounting Principles I by Elizabeth A. Minbiole, CPA MBA Wiley Publishing, Inc.

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3 Cliffs Quick Revie w Accounting Principles I by Elizabeth A. Minbiole, CPA MBA Wiley Publishing, Inc.

4 C1iffsQuickReviewTM Accounting Principles I Published by: Wiley Publishing, Inc. 909 Third Avenue New York, NY Note: If you purchased this book without a cover, you should be aware that this book is stolen prop - erty. It was reported as "unsold and destroye d" t o the publisher, and neither the author nor the pub - lisher has received any payment for this " strippe d book. " Copyright 1998 Wiley Publishing, Inc., New York, New York ISBN: Printed in the United States of Americ a B/SR/RQ/QS/IN Published simultaneously in Canad a No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section s 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewoo d Drive, Danvers, MA 01923, , fax Requests to the Publisher for permission should be addressed to the Legal Department, Wiley Publishing, Inc., Crosspoint Blvd., Indianapolis, IN 46256, , fax , or permcoordinator@wiley. corn LIMIT OF LIABILITY/DISCLAIMER OF WARRANTY: THE PUBLISHER AND AUTHOR HAVE USE D THEIR BEST EFFORTS IN PREPARING THIS BOOK. THE PUBLISHER AND AUTHOR MAKE NO REP- RESENTATIONS OR WARRANTIES WITH RESPECT TO THE ACCURACY OR COMPLETENESS OF TH E CONTENTS OF THIS BOOK AND SPECIFICALLY DISCLAIM ANY IMPLIED WARRANTIES OF MER- CHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THE DESCRIPTIONS CONTAINED IN THIS PARAGRAPH. NO WARRANTY MAY B E CREATED OR EXTENDED BY SALES REPRESENTATIVES OR WRITTEN SALES MATERIALS. THE ACCU- RACY AND COMPLETENESS OF THE INFORMATION PROVIDED HEREIN AND THE OPINION S STATED HEREIN ARE NOT GUARANTEED OR WARRANTED TO PRODUCE ANY PARTICULA R RESULTS, AND THE ADVICE AND STRATEGIES CONTAINED HEREIN MAY NOT BE SUITABLE FO R EVERY INDIVIDUAL. NEITHER THE PUBLISHER NOR AUTHOR SHALL BE LIABLE FOR ANY LOSS O F PROFIT OR ANY OTHER COMMERCIAL DAMAGES, INCLUDING BUT NOT LIMITED TO SPECIAL, INCIDENTAL, CONSEQUENTIAL, OR OTHER DAMAGES. Trademarks: Wiley, the Wiley Publishing logo, Cliffs, CliffsNotes, the CliffsNotes logo, CliffsAP, CliffsComplete, CliffsTestPrep, CliffsQuickReview, CliffsNote-a-Day and all related logos and trade dress are registered trademarks o r trademarks of Wiley Publishing, Inc., in the United States and other countries. All other trademarks are property of their respective owners. Wiley Publishing, Inc., is not associated with any product or vendor mentioned in this book. For general information on our other products and services or to obtain technical support, please contact our Custome r Care Department within the U.S. at , outside the U.S. at , or fax Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be avail - able in electronic books.

5 PRINCIPLES OF ACCOUNTING 1 Financial Statements 1 Income statement 2 Statement of owner's equity 3 Balance sheet 4 Statement of cash flows 5 The Accounting Equation 6 Assets 6 Liabilities 7 Owner's equity 8 Stockholders' equity 9 Financial Reporting Objectives 9 Generally Accepted Accounting Principles 1 0 Economic entity assumption 1 0 Monetary unit assumption 1 1 Full disclosure principle 1 1 Time period assumption 1 1 Accrual basis accounting 1 2 Revenue recognition principle 1 2 Matching principle 1 2 Cost principle 12 Going concern principle 1 3 Relevance, reliability, and consistency 1 3 Principle of conservatism 13 Materiality principle 14 Internal Control 14 Control environment 14 Control activities 1 5 ANALYZING AND RECORDIN G TRANSACTIONS 17 Analyzing Transactions 1 7 T Accounts 1 8 Double-Entry Bookkeeping 2 0 Journal Entries 2 2 The General Ledger 2 3 ACCOUNTING PRINCIPLES I

6 The Recording Process Illustrated 2 5 The Trial Balance 3 8 ADJUSTMENTS AND FINANCIAL STATEMENTS 41 Accrued Revenues 4 1 Accrued Expenses 44 Unearned Revenues 4 6 Prepaid Expenses 4 7 Depreciation 4 8 The Adjustment Process Illustrated 50 Financial Statements 60 Income statement 60 Statement of owner's equity 62 Balance sheet 6 3 Statement of cash flows 6 5 COMPLETION OF TH E ACCOUNTING CYCLE 67 The Work Sheet 67 Closing Entries 70 The Post-Closing Trial Balance 76 A Summary of the Accounting Cycle 77 Reversing Entries 78 Correcting Entries 82 ACCOUNTING FOR A MERCHANDISING COMPANY 85 Recording Sales 85 Sales Returns and Allowances 86 Sales Discounts 8 8 Net Sales 89 Inventory Systems 90 Recording Purchases 90 CLIFFS QUICK REVIEW

7 Purchases Returns and Allowances 9 1 Purchases Discounts 9 2 Net Purchases and the Cost of Goods Purchased 9 3 The Cost of Goods Available for Sal e and the Cost of Goods Sold 9 3 Gross Profit 94 Financial Statements for a Merchandising Company 9 4 Adjusting the Inventory Account 9 6 Inventory Adjustments on the Work Sheet 9 8 Closing Entries for a Merchandising Company 9 8 The Work Sheet When Closing Entries Update Inventory 10 2 SUBSIDIARY LEDGERS AND SPECIAL JOURNALS 103 Subsidiary Ledgers 10 3 Special Journals 10 5 Sales journal 106 Purchases journal 108 Cash receipts journal 11 0 Cash disbursements journal 112 General journal entries 114 CASH 11 5 Cash Controls 11 5 The Petty Cash Fund 11 7 Bank Reconciliation 12 0 Deposits in transit 12 1 Outstanding checks 12 1 Automatic withdrawals and deposits 122 Interest earned 12 5 Bank service charges 126 NSF (not sufficient funds) checks 127 Errors 128 Credit Card Sales 129 ACCOUNTING PRINCIPLES I

8 RECEIVABLES 133 Evaluating Accounts Receivable 13 3 Direct write-off method 13 4 Allowance method 13 4 Estimating Bad Debts Under the Allowance Method 14 0 Percentage of total accounts receivable method 14 0 Aging method 14 1 Percentage of credit sales method 14 2 Factoring Receivables 14 2 Notes Receivable 14 3 Calculating interest 144 Recording Notes Receivable Transactions 14 6 Discounting Notes Receivable 14 9 INVENTORY 153 Determining Quantities of Merchandise Inventory 15 3 Consigned merchandise 154 Goods in transit 154 The Cost of Inventory 15 5 The Valuation of Merchandise 15 5 Comparing Perpetual and Periodic Inventory Systems 15 8 Inventory Subsidiary Ledger Accounts 16 0 Cost Flow Methods 16 2 Specific cost 162 Average cost 164 First-in, first-out 16 5 Last-in, first-out 16 6 Comparing the assumed cost flow methods 16 8 The Effect of Inventory Errors on Financial Statements 169 Income statement effects 169 Balance sheet effects 169 Estimating Inventories 170 Gross profit method 170 Retail inventory method 172 CLIFFS QUICK REVIEW

9 OPERATING ASSETS 175 The Cost of Property, Plant, and Equipment 176 Land 176 Land improvements 17 7 Buildings 17 7 Equipment, vehicles, and furniture 17 7 Depreciation 17 8 Straight-line depreciation 17 8 Units-of-activity depreciation 18 2 Sum-of-the-years'-digits depreciation 18 3 Declining-balance depreciation 18 4 Comparing depreciation methods 18 5 Partial-year depreciation calculations 186 Revising depreciation estimates 18 8 Depreciation for income tax purposes 189 Repairs and Improvements 190 The Disposition of Depreciable Assets 19 1 Retirement of depreciable assets 192 Sale of depreciable assets 19 3 Exchange of depreciable assets 19 3 Natural Resources 19 6 Cost of natural resources 19 7 Depletion 19 7 Intangible Assets 19 9 Patents 19 9 Copyrights 20 0 Trademarks and trade names 20 1 Franchise licenses 20 1 Government licenses 20 1 Goodwill 20 1 ACCOUNTING PRINCIPLES I