Professional Documents
Culture Documents
1.1
Evolution of accounting
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The
Reliability Accounting records and statements
(Objectivity)
should be based on the most reliable
Principle data available so that they will be as
accurate and useful as possible.
Acquired assets and services should be
recorded at their actual cost not at what
they are believed to be worth.
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1.4
3. Managers.
4. Owners.
5. Customers
6. Employers.
7. Regulatory. SEC, IRS, EPA.
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Cash flows
1. From operation.
2. From finance.
3. From investing.
Decision supporting
1. Cost /volume/ profit analysis.
2. Performance evaluation.
3. Incremental analysis.
4. Budgeting.
5. Capital allocation.
6. Earnings per share.
7. Ratio analysis
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Transaction
Journal
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Balance sheet
Ledger
Final account
Trial balance
1.7
Financial statements
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Revenues
$xx,xxx
- Expenses
xx,xxx
= Net Income
$ x,xxx
Statement of Owners Equity
- a summary of the changes that
occurred
in
the
companys
owners
equity during a specific period of time.
Statement of Owners Equity Format:
Capital, Jan 1 2000
$xx,xxx
$x,xxx
x,xxx
x,xxx
$xx,xxx
$x,xxx
x,xxx
x,xxx
$xx,xxx
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Accounts
Notes
Total
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Liabilities
Cash
$xx,xxx
Payable
$xx,xxx
Accounts Receivable
x,xxx
Payable
x,xxx
Supplies
x,xxx
Liabilities
$xx,xxx
Assets
Owners Equity
Capital
$xx,xxx
Liabilities and
Total Assets
$xx,xxx
1.8
Total
$xx,xxx
Owners Equity
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Assets
liabilities
Cash
notes payable
Notes payable
accounts payable
Debtors
creditors
Land, building etc
capital
Fixed assets
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2. Income statement
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Revenue
Less all expenses
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Net profit
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1.9
Constraints on relevant or reliable information
1.10
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1. Investors
2. Creditors
3. Managers
4. Owners
5. Customers
6. Employees
7. Regulatory agencies
8. Trade associations
9. General public
10.
Labor union
11.
Government agencies
12.
Suppliers.
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1.11
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1. Financial accounting
2. Management accounting
3. Cost accounting
4. Tax accounting
5. Operational accounting
6. Advance accounting
UNIT 2:
2.1
Business event and business transaction
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2.2
Evidence and authentication of transaction
2.3
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2.4
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2.5
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2.6
Chart of accounts
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Asset Accounts
1 is used to represent Current Assets
2 is used to represent Plant Assets
3 is used to represent Investments
4 is used to represent Intangible Assets
Liability Accounts
1 is used for Current Liabilities
2 is used for Long Term Liabilities
Expense Accounts
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All other digits are used just to indicate the order in which
the accounts are listed in the chart of accounts.
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2.10 to 2.14
Adjusting Entries:
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?
asset
up
Prepaid Asset
$xxx
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(1) If the original asset account was used then the original
cost of the asset would not be reflected
in any of the asset accounts.
(2) The original cost is needed when assets are sold or
disposed
(3) The original cost of the asset must be reported on the
income tax return of the company
Adjusting Journal entry:
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$xxx
$xxx
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Depreciation Expense,
Accumulated Depreciation,
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Expense
? Payable
$xxx
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$xxx
$xxx
Unearned Revenue
services
Revenue
provided
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$xxx
or products
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The Worksheet:
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2.15
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Step 1: List the accounts and enter their balances from the
general ledger into the appropriate trial balance column (Dr
or Cr). Total both columns.
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2.16
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Closing Entries:
Income Summary
Total of all
Revenues
(2) Close all expense accounts - by debiting Income
Summary
and
crediting
each
individual
expense account.
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Journal Entry:
Income Summary
Rent Expense
Misc. Expense
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Withdrawals account
Owner, Capital
account balance
Withdrawals
UNIT 3:
3.1
between
manufacturing
and
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Difference
merchandising
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UNIT 4:
4.1
Steps in Performing a Bank Reconciliation:
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Journal Entries:
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Cash
Cash Short and Over
Sales Revenue
register tape totals
For a cash overage:
Cash
Difference
Sales Revenue
register tape totals
Over
Cash
Petty Cash:
Petty cash is a fund containing a small amount of cash that
is used to pay for minor expenses.
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setup
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Petty
Cash:
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Journal Entries:
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Petty Cash
Cash in bank
fund
Amount of fund
Amount of
For
replenishment
of
petty
cash:
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Total of
4.2
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Office Supplies
Delivery Expense
Postage Expense
Misc. Expense
Cash in bank
receipts
Receivables:
Accounts Receivable - amounts to be collected from
customers for goods or services provided
Notes Receivable - a written promise for the future
collection of cash
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Adjusting Entry:
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Amount
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Cash
Acct.
Rec.
Amount received
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name
received
Customer
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Cash
Amount owed
Acct. Rec. - credit card name
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Amount owed
Bankcard sales - cash is considered to be received at the
point of sale (Visa, MasterCard)
Journal Entry for Bankcard Sale:
Cash
Difference
Credit card discount Exp.
Sales Amount * %
Sales
Sales amount
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Notes Receivable:
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Time = (# of months) / 12
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Notes Receivable
Value of Note
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Interest Received
Interest Receivable
% * Time
Principal * Interest
Interest Revenue
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Proceeds
Notes Receivable
Interest Revenue
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Cash
Difference
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Cash
Interest Expense
Proceeds
Difference
Note Receivable
Face Value
Accounting for Dishonored Notes:
If a note is dishonored (not paid on time) by the maker of
the note, then the note receivable must be transferred to
accounts receivable for the maturity value of the note.
Accounts Receivable
Maturity Value
Note Receivable
Face Value
Interest Revenue
Interest Earned
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Accounts Receivable
Value + Protest fee
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Financial Ratios:
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UNIT 6:
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Inventory Systems:
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Quantity discounts
Purchase discounts
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Credit terms:
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3/15, n/30
means you get a 3% purchase discount if
payment is made within 15 days or the net (full) amount is
due in 30 days
n/eom
means that the net amount is due at the end of
the month
Purchase amount
Accounts Payable
Purchase
amount
Payment within the discount period:
Purchase amount
Amount paid
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Accounts Payable
Cash
Inventory
Purchase amount * discount %
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Inventory
return or allowance
Amount of
Accounts Payable
allowance
Transportation Costs:
FOB determines
(1) When legal title to merchandise passes from the seller
to the buyer
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costs
Freight
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Freight costs
Freight costs
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(xxxx)
(xxxx)
Journal Entries:
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(xxxx)
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Inventory
Less: Purchases Discounts
Purchases Returns & Allowances
Net Purchases of Inventory
Add: Freight In
Total cost of Inventory
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Amount
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Accounts Payable
of return or allowance
Purchases Returns & Allow.
Amount of return or allowance
Purchase discount
Accounts Payable
Amount due
Cash
Amount paid
Purchase discount
Amt due * discount %
Freight costs (buyer)
Freight In
Freight
costs
Cash (or Accounts Payable)
Freight costs
Sales of Inventory:
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(1) To record the actual amount the goods were sold for
(2) To record the cost we paid for the goods sold
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Sales
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Total
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Amount
received
Accounts Receivable
Amount received
Sales discounts and Sales returns & allowances:
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Accounts Receivable
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Amount due
Amount Received
Amount due *
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Cash
Sales Discount
discount %
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Sales returns required two journal entries just like the sale
of merchandise
$xxx
$xxx
Inventory
Cost of Goods Sold
$xxx
$xxx
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$xxx
$xxx
$xxx
$xxx
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Revenues:
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Goods
Expense
Sold
$xx,xxx
x,xxx
$xx,xxx
$xx,xxx
x,xxx
$xx,xxx
$xx,xxx
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Total
Expenses:
Cost
of
Wage
Total
Expenses
Net Income
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Net
Sales
Interest
Revenue
Revenues
$x,xxx
x,xxx
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Expenses:
$ x,xxx
x,xxx
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xx,xxx
Gross
Margin
$xx,xxx
Operating
Wage Expense
Supplies Expense
Total Expenses
xx,xxx
Operating
Income
$xx,xxx
Other
Revenues
and
Interest Revenue
Interest
Expense
(x,xxx)
Net
Income
$xx,xxx
UNIT 7:
Characteristics of a Partnership:
Expenses:
$ x,xxx
x,xxx
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Cash
Amount invested
Asset
MV of assets contributed
Liabilities
MV of
liabilities assumed by the partnership
Partner A, Capital
Total
Investment by A
Partner B, Capital
Total
Investment by B
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Net Income
Net
Partner B, Capital
Income * 55%
Net
on
the
capital
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$22800
34200
$57000
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Partner A, Capital
Partner B, Capital
Total Capital
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Step 1: Add the capital account balances for all the partners
together
to
find
the
total
capital
of
the
business
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Partner A, Capital
$22800 (Account Balance) /
$57000 (Total Capital) = 40%
Partner B, Capital
34200 (Account Balance) /
57000 (Total Capital) = 60%
Step 3: Allocate the net income or loss to each partner by
multiplying
their
investment
percentage
to the amount of net income or loss
Partner As share
$28000
Partner Bs share
42000
$70000
Step 4: Now enter the Journal Entry.
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Income
Summary
Partner
A,
Capital
Partner B, Capital
$70000
$28000
42000
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Income
Summary
Partner A, Capital
Partner B, Capital
$96000
$51200
44800
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Amount
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other
asset)
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Amount
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Partner A, Withdraws
withdrawn
Partner B, Withdraws
withdrawn
Cash
(or
Total withdrawn
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Partnership
capital
of
existing
partners
$xxxxx
New
partners
investment
xxxxx
Total
partnership
capital
including
new
partner
$xxxxx
New partners capital interest (total capital * partnership
%)
xxxxx
Bonus to existing partners (total cap. - new
partner)
$xxxxx
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Amount
invested
New
interest
Partners
share
of
bonus
Partners
Partner B, Capital
share of bonus
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Partnership
capital
of
existing
partners
$xxxxx
New
partners
investment
xxxxx
Total
partnership
capital
$xxxxx
New partners capital interest (total part. Cap. * partnership
%)
xxxxx
Bonus to new partner (total cap. - new partners
interest)
$xxxxx
Step 2: Allocate the new partners bonus to the old partners
Bonus to new partner
Partner As share (Bonus * partner's %)
xxxxx
Partner Bs share (Bonus * partner's %)
xxxxx
$xxxxx
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Cash
Partner A, Capital
Partner B, Capital
Partner C, Capital
interest received
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Loss * partner's %
Loss * partner's %
Loss * partner's %
Amount
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Partner A, Capital
Partner B, Capital
Partner C, Capital
Asset
of Loss in asset value
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Asset
value
Partner A, Capital
partner's
Partner B, Capital
partner's
Partner C, Capital
partner's %
Gain *
%
Gain *
%
Gain *
Capital
balance
Amount
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Capital
partner's
balance
Amount
%
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Partner C, Capital
Cash
received
Partner
A,
Capital
Difference
*
Partner
B,
Capital
Difference * partner's %
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Capital
balance
partner's
partner's
%
Amount
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Journal Entry:
Cash
Amount
of
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partners
Partner B, Capital
partners %
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Noncash Assets
received
Book Value
assets
Gain *
%
Gain *
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Amount
owed
Amount
Journal Entry:
Partner A, Capital
Partner B, Capital
Cash
cash paid to partners
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Note: If there was not enough cash to pay off the liabilities,
then the partners would have been responsible for investing
more cash into the partnership so that the liabilities could
be paid off. Below is an example of the journal entry
needed to record the additional investment by the partners.
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Journal Entry:
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Cash
Amount of additional cash
needed
Partner A, Capital
Amount
Partner
A
invested
Partner B, Capital
Amount
Partner B invested
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