Ultimate Accounting Guide Sheet

Lesson 6,
cont...
PERIOD
1
2
3
4
Bond interest: Two year semiannual bond w/ par value of $500 and
a stated rate of 7% was priced to yield 8%.
-Calc the issue price, find the pres value of both lump-sum principle pymt of $500
and the interest stream of $35 per year. - Pres val of principle = $427
- Pres val of interest stream = $64
BEGINNING
INTEREST
INTEREST
ENDING
EXPENSE
PAYMENT
BALANCE
BALANCE
- Issue price = $491
$491.00
$493.25
$495.50
$497.75
$19.75
$19.75
$19.75
$19.75
$17.50
$17.50
$17.50
$17.50
EFFECTIVE
RATE = 4%
$493.25
$495.50
$497.75
$500.00
STATED
RATE = 3.5%
Record first semi-annual interest payment

Disc on Bonds Pyble Interest Expense
Cash
bal 9.00
19.75
17.50
2.25
BALANCE SHEET
ASSETS = LIABILITIES + EQUITY
Interest Expense
Cash
Bonds Payable
-19.75
Issue 3000 shares of common stock for $15,000

15,000
Cash
15,000
Common stock
Cash
15k
Assets = Liabilities + Equity

+15,000
+15,000
Pay $250 for advertising

Advertising Expense
Cash
Common
Stock
15k
Asset
Amount
Liability
Equity
Revenue
Expense
Amount
Dividends Amount
Totals
Total DRs

+2,000 +2,000
250

-250
-250
Pay $1,500 in dividends

Dividends
Cash

-1,500
-1,500
1,500
2,000
Equipment depreciation of $600 per month

Depreciation Expense 600
600
Accumulated Depreciation

-2,000 +2,000
Cash
2k
Credit
R=revenue
E=expense
A=asset
Net sales = Credit sales - Sales returns & allowances L=liability
Net Book Value = Cost - Accumulated Depreciation SE=Stockhld eq
Net income = Revenue - Expenses

Retained Earnings = Net Income - Dividends
ITEMS, STATEMENTS, & ACCOUNTS
IS=income statement | RE=retained earnings | BS=balance sheet
-Freedom from Error
Dividends
Cash
1.5k 1.5k
Unearned SVC
Revenue Revenue
2k
2k
Depreciation Accum
Expense Deprec
600
600
-600
-600
STATEMENT ACCOUNT
Retained Earnings
Equipment
Common Stock
Unearned Revenue
Sales
Rent Expense
Inventory
BS, RE
BS
BS
BS
IS
IS
BS
SE
A
SE
L
R
E
A
Aging of Bad debt expense is a

plug to force
Accounts allowance for bad
Receivable debt to the proper
balance
Allowance for Bad

Debts is calculated
based on balance in
Accounts Receivable
Depreciation Expense = Asset Cost - Salvage Value

Estimated Useful Life
Acquire PP&E
+10,000
Year 1 depreciation
Year 2 depreciation
Year 3 depreciation
Balances
Increase on the
Credit Side
Debit Side
Realized
*General Rule
Recognition @ time of sale provides
a uniform/reasonable test
Recognition Principle: Revenue should be
recorded when a resource has been earned
Receivable = Asset
Allowance method | Bad Debt Expense (BDE)

Recognize BDE in the period of sale by estimating doubtful accounts
-Record estimate in contra-asset acct "Allowance for Doubtful Accts"
-3,000
-3,000
-3,000
+10,000
-9,000
Double Declining Balance
-9,000
Depreciation Expense = Net Book Value * 2

Estimated Useful Life
OR
Determine by taking the straight-line rate of depreciation and
double it. Example: Asset w/ 4-year life = straight-line rate 25%,
calc'd by 100%/4years. The straight-line rate doubled = 50%.
Asset w/ a 5-year life would = 20% straight-line * 2 = 40%.
Doubled rate is then multiplied by Net Book Value:
Depreciation Expense = Depreciation rate * Net Book Value
-DO NOT REDUCE! cost by = (Straight-line rate *2)
* (Cost - Accumulated Depreciation)
salvage value
-STOP DEPRECIATING
when salvage value is reached
BALANCE SHEET ASSETS
PP& E
ACCUM. DEPR
INCOME STATEMENT
DEPR. EXPENSE
Acquire PP&E
+10,000
Year 1 depreciation
Year 2 depreciation
Year 3 depreciation
-6,667
-2,222
-111
-6,667
-2,222
-111
Balances
-9,000
-9,000
+10,000
Natural Resources
Net Book Value = $1,000

Intangible Assets
-As extracted the asset is depleted

and transferred to inventory
-As sold the expense is Xferred to
income statement as COGS Exp
-Lack physical existence

-Not financial instruments
-Normally classified as long-term
assets
Percentage of sales method
Estimate results in
Bad Debt Expense
Bad debt is estimated as a % of credit sales that

occured during the period
-Percent is based on historical trends
& company policies
-Estimate results in balance of

Aging of AR method
allowable account
Estimate how much of the ending balance of AR is bad debt
-Bad Debt Expense is a "plug"
-Amount becomes ending balance of Allowance for Bad DebtBALANCE SHEET
INCOME STATEMENT
-Based on the age of account making up ending bal of AR ASSETS = LIABILITIES + EQUITY
REVENUE - EXPENSES = NET INCOME
Allow. for Bad Debt -4,500

Bad Debt Exp
INCOME STATEMENT
DEPR. EXPENSE
-3,000
-3,000
-3,000
example
Seller has received cash or will at

some point in the future (AR)
Amount the company expects to collect (GAAP Requirement)
EXAMPLES
Lower of Cost or Market

When future revenue-producing ability < purch Px
the inventory asset write down will reflect loss
-Ensures inventory is not overvalued
-Accelerates future losses to current Inc Stmt
Compare historical cost (balance sheet value)
to Market Value. Report the lower of the two.
-Market value is cost to replace inventory today
BALANCE SHEET ASSETS

PP& E
ACCUM. DEPR
DETAILED EXAMPLES
Receivables
Net realizable value
=1,000
=500
$10k asset has salvage of $1k, use life is 3 years

=(10000 - 1000)/3 = 3000 per year
Ignores revenue recognition & matching principles

Not in conformity with GAAP
Goods/services are delivered & related obligs

are complete
Seller has performed duties under terms of
sales agreement- title has passed to buyer
w/o right of return or contingencies
=-500
+1,000 +1,000
+500 +1,000 -500
+500
example
DOUBLE-ENTRY ACCOUNTING
Earned
-500
Straight-Line Depreciation

D
C D
C D
C
Lesson 3 | Revenue & Receivables

Revenue recognition recognized/recorded when BOTH

D
C D
C D
C
Balance Sheet
Income Stmt
Allowance does not
Percentage % of current credit
sales is matched with necessarily reflect the
of credit current sales revenue receivables that are
sales as bad debt expense
uncollectible
Recognizes economic
events when cash has
been exchanged
-500
+1,000
For info to be relevant, it

should have predictive or
confirming value, & be
material for the
reporting entity.
Revenues increase Equity
Expenses decrease Equity
INCOME STATEMENT
-500
-Inclusion/omission would
influence judgement
Reliability, or faithful representation, is a

necessity for individuals who neither have
the time nor the expertise to evaluate
the factual content of the information.
Recognizes economic
events in the period
in which they occur
BALANCE SHEET
ASSETS = LIABILITIES + EQUITY
Other inventory issues
-Feedback can be used

to set expectations
-Contains no errors/omissions
-Does not require perfect accuracy
Lesson 2 | Accounting Building Blocks

Recording transactions accounting equation
Adjusting entries
Accrual
Cash
Inventory
COGS Expense
Cash
Sales Revenue
Totals
-Materiality
-Info cannot be manipulated; free from bias
Advertising
Cash
Expense
250 250
ACCT for Inventory
-Confirming value
-Includes all info necessary for user to understand
Unearned
Revenue
2k
Inventory is valued using Inventory is valued using

older lower acquisition Px current (higher) acquisition Px
SHEET
Lesson 5 | Fixed
& Intangible Assets
Property, Plant,
a difference in a decision
& Equip
-Predictive value
economic situation
-Completeness
-Neutrality
BALANCE
-Predict outcomes of past,

present, & future events
Primary advantage
is tax benefit
Current, higher acquisition Px Older, lower acquisition Px

mtchd w/ curr, higher sales px matched w/ higher sales Px
STMT
Relevance
1Info
capable of making
2InfoReliability
strives to faithfully represent the
Total CRs
Accounts Service
Receivable Revenue
3.5k
3.5k
--Liabilities & Equity-A/P

LT Debt
Equity
Total
LIFO & FIFO
-4,500
EXAMPLES
ITEM
Balance Sheet
--Assets-Cash
Inventory
PPE
Total
Qualitative characteristics | primary qualities (TWO)
Amount
Amount
Amount
Balance sheet: Reports a company's resources & claims against @ a given point in time.
Income Stmt: Rev & Exp over period. Stmt of RE: Shows RE over period. Stmt of Cash Flows: use of $$
HANDY FORMULAS
Sole proprietors
Partnerships
Corporations
LLC's
Capital market
Product market
Government
Internal users - execs
INCOME
DETAILED EXAMPLES

+3,500
+3,500
1,500
Beginning Cash
Operating Activities
Investing Activities
Financing Activities
Net Change in Cash
Ending Cash
Trial Balance Form
Do work and leave an invoice for $3,500

Accounts Receivable 3,500
3,500
Service Revenue
Serviced pre-paid client ($2k)

Unearned Revenue
2,000
Service Revenue
MY SIDE
=-19.75
Financial stmts
Footnotes
Auditors's report
Mgmt's discussion
& analysis (MD&A)
Stmt of Retained Earnings
Stmt of Cash Flows
2,000
250
Beginning RE
+ Net Income
Ending Retained Earnings
Debit
+2.25
Receive $2,000 for future services

Cash
2,000
Unearned Revenue
Income Statement
Revenues
-Expenses
Net Income
Lesson 4 | Inventory & Payables

Inventory costing methods
through
Lesson 1 | Accounting Concepts

Purpose of accounting: 1) Provide financial information
about 2) Reporting entities
Basic financial
to 3) Primary users
statements (FOUR)
Record bond proceeds

Cash
491.00
Bonds Payable
500.00
Disc on Bonds Pyble
9.00
INCOME STATEMENT
-19.75
-17.50
STUDY GUIDE
Lesson 6
Effective/stated rates
-Effective = market rate, or yield
-Stated = Specified on the face of
the bond.

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Lesson 6,

Record first semi-annual interest payment

Issue 3000 shares of common stock for $15,000

Assets = Liabilities + Equity

Pay $250 for advertising

Assets = Liabilities + Equity

Assets = Liabilities + Equity

Pay $1,500 in dividends

Assets = Liabilities + Equity

Equipment depreciation of $600 per month

Assets = Liabilities + Equity

Net income = Revenue - Expenses

ITEMS, STATEMENTS, & ACCOUNTS

IS=income statement | RE=retained earnings | BS=balance sheet

-Freedom from Error

Aging of Bad debt expense is a

Allowance for Bad

Depreciation Expense = Asset Cost - Salvage Value

Allowance method | Bad Debt Expense (BDE)

Depreciation Expense = Net Book Value * 2

Net Book Value = $1,000

-As extracted the asset is depleted

-Lack physical existence

Percentage of sales method

Bad debt is estimated as a % of credit sales that

-Estimate results in balance of

Allow. for Bad Debt -4,500

Seller has received cash or will at

Amount the company expects to collect (GAAP Requirement)

Lower of Cost or Market

BALANCE SHEET ASSETS

$10k asset has salvage of $1k, use life is 3 years

Ignores revenue recognition & matching principles

Goods/services are delivered & related obligs

Assets = Liabilities + Equity

Lesson 3 | Revenue & Receivables

Assets = Liabilities + Equity

For info to be relevant, it

Reliability, or faithful representation, is a

Other inventory issues

-Feedback can be used

Lesson 2 | Accounting Building Blocks

-Info cannot be manipulated; free from bias

ACCT for Inventory

-Includes all info necessary for user to understand

Inventory is valued using Inventory is valued using

-Predict outcomes of past,

Current, higher acquisition Px Older, lower acquisition Px

--Liabilities & Equity-A/P

LIFO & FIFO

Qualitative characteristics | primary qualities (TWO)

Assets = Liabilities + Equity

Trial Balance Form

Do work and leave an invoice for $3,500

Serviced pre-paid client ($2k)

Stmt of Retained Earnings

Stmt of Cash Flows

Receive $2,000 for future services

Lesson 4 | Inventory & Payables

Lesson 1 | Accounting Concepts

Record bond proceeds

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