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ACTG 340 Final

External Events (2) Exchanges between the business and others involving the exchange of assets and services from one company for other assets or promises to pay from another company
Internal Events (2) Two simple ideas are used when analyzing transactions: Certain events that are not exchanges between the business and others, but which have a direct and measurable effect on the entity.
Two simple ideas are used when analyzing transactions: (2) Duality of Effects Every transaction affects at least two accounts. Balancing the Equation Assets = liabilities + owner’s equity must remain in balance.
Transaction Analysis Steps (2) Identify the accounts affected. Classify them by the type of account. Determine the direction of the effect. Verify that the accounting equation remains in balance.
Summary of the Accounting Cycle During the Period (Chapters 2 and 3) (2) Analyze transactions Record journal entries in the general journal Post amounts to the general ledger
Summary of the Accounting Cycle At the End of the Period (Chapter 4) (2) Adjust revenues and expenses and related balance sheet accounts Prepare a complete set of financial statements and disseminate it to users Close revenues, gains, expenses, and losses to owner’s equity
Financially useful information should be....(1)
Cash basis (3) accounting records revenues when cash is received and expenses when cash is paid.
Accrual Basis Accounting (3) Revenues are recognized when they are earned and expenses are recognized when they are incurred, regardless of the timing of cash receipts or payments.
Net Income is not = (3) Cash generated, Change in Value, Counting
Unearned Revenues (4) Previously recorded liabilities that were created when cash was received in advance, and that must be adjusted for the amount of revenue actually earned during the period.
Accrued Revenues (4) Revenues that were earned but not recorded because cash was received after the services were performed or goods were delivered.
Accrued Expenses (4) Expenses that were incurred but were not recorded because cash was paid after the goods or services were used.
Analyzing Adjustments(4) Identify the type of adjustment. Determine the amount. Record the adjusting entry.
Temporary Accounts (4) Revenues, Expenses, Drawing
Permanent Accounts (4) Assets, Liabilities, Equity
Net Profit Margin (4) (Net Income/Totals Sales Revenue)x100
Advantages of Partnership (12) Pass-through taxation. Ease of formation. Simplified record-keeping. Favorable taxation. Increased ability to raise funds.
Disadvantages of Partnership (12) Unlimited liability. Co-ownership of property. Non-deductible costs. Limited life. Mutual agency. Partner disagreements.
Advantages of LLC (12) Limited liability. Ease of formation. Simplified record-keeping. Favorable taxation. Flexibility of operations.
Disadvantages of LLC (12) Limited corporate characteristics. Limited life. Lack of legal precedents.
Division of Income (or Loss) Four Methods Fixed-ratio method. Interest on partners’ capital balances method. Salaries to partners method. Salaries to partners and interest on partners’ capital balances method.
Perpetual Inventory System (6) In a perpetual inventory system the inventory record shows the number of units and cost of each type of merchandise stocked
Periodic Inventory System (6) Rather than updating the inventory record each time an item is sold, bought, or returned, the periodic system updates the inventory record at the end of the accounting period
Inventory Control (6) Add any purchases, subtract any goods that are sold, quantity per accounting records, count inventory to determine what is actually there, Shrinkage (theft fraud, error)
Gross Profit Percentage (6) (Net Sales- COGS)/Net Sales x 100
Internal Control (8) Protect Assets, Efficient Operations, Reliable Information, Compliance with Laws
Inter Control Common Control Principles (8) Establish Responsibility. Separate Duties. Restrict Access. Document Procedures. Independently Verify.
Control Limitations (8) An organization should implement internal controls only to the extent that their benefits exceed their costs. Internal controls can fail as a result of human error or fraud.
Banks help businesses control cash by offering services that: Safeguard Cash , Improved Efficiency and Effectiveness , Independent Verification
Bank Reconciliation (8 slides)???
Acquisition of Tangible Assets (10) Acquisition cost includes the purchase price and all expenditures needed to prepare the asset for its intended use
Depreciation Methods (10/p.426) Straight-line Units-of-production Declining balance
Disposal and Exchange of Tangible Assets (10) Slide 11 If Cash > BV, record a gain (credit). If Cash < BV, record a loss (debit). If Cash = BV, no gain or loss ???
Types of Intangible Assets (10) Trademarks Copyrights Patents Licensing Rights Franchises Goodwill
Fixed Asset Turnover Ratio (10) Net Sales Revenue/ Average Net Fixed Assets
The dollar amount that is reported for a liability depends on three considerations: (11) The initial dollar amount of the liability. Additional amounts owed to the creditor. Payments or services provided to the creditor.
Current Ratio (11) Current Assets/Current Liabilities
Current Portion of Long-Term Debt (11) When long-term debt has a portion of the principal due within one year, that portion of the loan must be reported in the current liabilities section of the balance sheet
Warranties Payable (11) According to the matching principle, warranty costs should be reported as an expense when the sale is recorded. Because these costs are not paid by the company at the time of the sale, a liability is also recorded.
Operating Activities (16) Cash inflows and outflows directly related to earnings from normal operations.
Investing Activities Cash inflows and outflows related to the acquisition or sale of productive facilities and investments in the securities of other companies.
Financing Activities Cash inflows and outflows related to external sources of financing (owners and creditors) for the enterprise.
Indirect Method??? (Slide 11+13 on 16) The indirect method adjusts net income by eliminating noncash items.
Depreciation (16) Depreciation does not affect cash, so we must eliminate its effect by adding it back to net income.
Gains (16) Gains must be subtracted from net income to avoid double counting the gain.
Losses (16) Losses must be added to net income to avoid double counting the loss.
Free Cash Flow (16) Net Cash Flow from Operating Activities – Purchases of Property and Equipment – Dividends Paid...In general, this measures a firm’s ability to pursue long-term investment opportunities.
Quality of Income Ratio (16) Net Cash Flow from Operating Activities /Net Income...
Quality of Income Ratio (16) this ratio measures the portion of income that was generated in cash. All other things equal, a higher quality of income ratio indicates greater ability to finance operating and other cash needs from operating cash inflows.
Horizontal (Trend) Analysis (17) Horizontal analysis compares a company’s financial condition and performance over time.
% Change Current Year’s Total ̶ Prior Year’s Total /Prior Year’s Total x100
Vertical (Common Size) Analysis (17) Vertical analysis focuses on important relationships within financial statements by expressing each financial statement amount as a percentage of another amount on that statement.
Common-size Percent (17) Analysis Amount/Base Amount x 100......The base amount is total assets for the balance sheet and sales revenue for the income statement.
Profitability Ratios (17)...p.737 Profitability ratios provide us with measures of a company’s ability to generate income in the current period.
Liquidity Ratios (17) Liquidity ratios focus on a company’s ability to convert its assets into cash in order to pay current liabilities as they come due.
Net profit margin (17) Net profit margin represents the percentage of sales revenue that remains in net income after expenses have been deducted.
Gross profit percentage (17) Gross profit percentage indicates how much profit was made, on average, on each dollar of sales, after deduction of cost of goods sold.
Asset turnover (17) The asset turnover ratio indicates the amount of sales revenue generated for each dollar invested in assets.
Fixed asset turnover (17) The fixed asset turnover ratio indicates the amount of sales revenue generated for each dollar invested in fixed assets such as store buildings and land used in the business.
Return on Assets (ROA)(17) The return on assets ratio measures how much a company earns for each dollar of investment in assets
Return on Equity (ROE)(17) The return on equity ratio measures the amount earned as a percentage of each dollar invested by stockholders
Earnings per Share (EPS)(17) Earnings per share indicates the amount of earnings for each share of outstanding common stock.
Price/Earnings (P/E) Ratio(17) The P/E ratio measures the relationship between the current market price of the stock and its earnings per share.
Liquidity Ratios(17) Liquidity ratios focus on a company’s ability to convert its assets into cash in order to pay current liabilities as they come due.
Receivables turnover (17) The receivables turnover ratio is a measure of how fast a company collects its receivables
Inventory Turnover(17) The inventory turnover ratio indicates how many times inventory is bought and sold during the period.
Days to Sell(17) The days to sell ratio converts inventory turnover into the number of days need to sell inventory.
Current Ratio(17) The current ratio measures the ability of a company to pay its current debts as they become due.
Quick ratio (17) The quick ratio is similar to the current ratio, but measures the company’s immediate ability to pay it current debts.
Solvency Ratios(17) Solvency ratios focus on a company’s ability to repay debt, pay interest, and finance replacement and/or expansion of long-term assets.
Debt-to-assets Ratio(17) Solvency ratios focus on a company’s ability to repay debt, pay interest, and finance replacement and/or expansion of long-term assets.
Times Interest Earned Ratio (17) The times interest earned ratio indicates the number of times a company’s interest expense was covered by its operating results.
Free Cash Flow(17) Free cash flow measures a company’s ability to make capital investment decisions and pay cash dividends from its operating cash flows.
Created by: vollstedt