Midterm Prep

 

• The partner ship form of business organization is NOT  a separate legal entity, does NOT have shares that are traded in a stock exchange, does NOT enjoy unlimited life and does NOT have limited liability

• A corporation is characterized by it being eaier to transfer ownership and raise funds, no personal liability.

• All private corporations are not small

• Dividends are reported on the statement of changes in equity

• Retained earning at the end of the period is equal to retained earnings at the beginning of the period plus profit minus dividends

• If the retained earnign accounts increases form the beginning of the year to the end of the year then profit is greater than dividends

• A currents asset is expected to be converted into cash or used in the business within a relatiely short period of time

• An intangible asset derives its value from the rights and privileges it provides the company

• Collection of a $1,500 accounts receivable has no effect on total assets

• When a company has performed a service but has not yet received payment it debits accounts Receivable and credits services revenue

• Invoice for thigns used in the month of jan should be recognized in Jan

• Some accounts need to be adjusted because they are not up-to-date at the time financial statements are prepared

• Cost of goods sold is determined at the end of an accounting period under a period inventory system

• A sales discount does not increase an operating expense account

• Inventory needs to be counted at the end of each period because inventory must be reported at the lower of cost and net realizable value. (b) a proper inventory count will help detect inventory lost due to events such as shrinkage and spoilage. (c) the inventory counters can determine the quantity of items physically in the corporation’s possession. (d) All of the above

• Purchaser Inc. and Supplier Inc. both have December 31 year-ends. Purchaser Inc. purchases inventory from Supplier Inc. and the terms include FOB destination. If the inventory is in transit on December 31, the following is correct about this inventory: The amount of the inventory should not be included in Purchaser’s ending inventory and the amount of the inventory should be included in Supplier’s ending inventory

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  Chapter 1 Review Quiz
  
  

• Statement of Financial Position- A financial statement that reports that assets, liabilities and shareholder's equity at a specific date

• Fiscal year - An accounting period that is one year long

• Assets- The resources owned or controlled by a business that are expectd to provide future economic benefit

• Net loss- the amount by which expenses exceed revenues

• Share capital - Shares representing the ownership interest in a corporation.

• Accounting - The info system that identifies, records and communicates the econoimc vents of an organization users to interested that information

• Accounting equaiton - Assets = Liabilities + Shareholder's equity

• Date analytics - the process of analyzing data to find patterns and ocrreltion, trends and other valuable insights to enhance decision-making

• Deficit - negative balance in retained earning

• Devidends- the distribution of retained earning from a corp to its shareholders

• Reporting entity concept - a the concept that econoimc activity that can be identified with a particular company must be kept separate and distinct from the activities of the owner and of all other economic entities

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Key standard differences	Internation Financial reporting Standards (IFRS)	Accounting Standards for Private Enterprises (ASPE)
Accounting Standards	Publicly traded corps must use IFRS; Private corps normally use ASPE but can choose to use IFRS	Private corps normally ASPE bu can choose to use IFRS. Has to be consistent. Sole and partners follow ASPE generally
Statement of Changes in Equity vs staement of retained earnings	A statement of changes in equity must be presented that shows the changes in all components of shareholder's equity	A statement of retained earnigns is presented that shows the change in only one component of shareholder's equity: retained earnings

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  Chapter 4
  
  

• Accrual Basis

1. Revenus are recognized when earned; expenses are recognized when incurred; regardless of when the cash is received or paid

• Types of adjustments

1. Prepayment

1. Cash has been paid out or received when adjusting entreis are made

1. Prepaid Expenses

2. Unearned Revenue

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  Chapter 5
  
  

• Identify the differences between service and merchandising companies and inventory systems they use.

1. Services

1. Has service revenue or fees earned and operating expenses.

2. Merchandising

1. Sales revenue, cost of goods sold, gross profit in addition to operating expenses

3. Both

1. Non-operating expenses

2. Income tax expense

• Record Purchases under a perpetual inventory system

1. Inventory account is debited for all purchases of merchandise and for frieght costs if those costs are paid by the buyer (freight terms Fob Shipping point)

2. The inventory system is credited or purchase discounts and purchase returns and allowances.

3. Freight terms are used to determine when the ownership of inventory changes hands.

4. Fob Destination

1. Inventory remains an asset of the seller until it reaches the buyer's place of business

5. FOB Shipping point

1. Inventory becomes an asset of the buyer as soon as it is shipped

6. Purchase discounts are provided by the seller to encourage the buyer to pay for credit purchases in advance of the due date.  When they are taken they are accounted for bc they reduce cost of inventory purchases that hace already been recorded.

7. Inventory count must be taken at least once per year so that any inventory shortages can be determined and accounted for. This is doen by adjusting cost of goods sold and inventory

• Record sales under a perpetual inventory system

1. When inventory is sold 2 entries are required

1. Cash or Accounts Receivable is debited and sales is credited for the selling price of the merchandise

2. Cost of goods sold is debited and inventory is credited for the cost of inventory items sold.

3. Record Refund Liability

2. When a sales return occurs 2 entries are required

1. Debit (Reduce ) the refund liability and credit cash or accountings receivable

2. Debit inventory by the cost of the returned merchandise ( if he condition is resellable) or cost of goods sold ( if unsellable) and will credit estimated inventory returns.

3. Freight costs paid by the seller (Desitination) are recorded as an operating expense

• Prepare a single-step and a multiple-step statement of income

1. Single step

1. All data(excpet income tax expense) are classified under 2 categries revenues or expenses and income before incometax is determined in one step. Income tax is seperated form the other expenses and reported separtely after income beforeincome taxto determine net income (loss)

2. Multiple step

1. Deducts cost of goods sold from sales to determine gross profit

2. Deducts operating expenses from gross profit to determine income from operations

3. Adds or deducts any non-operating items to determine income before income tax

4. Deducts income expense to determine net income (loss)

3. Statement of comprehensive income

1. Sum of net income and other comprehensive incoem amounts

2. Unrealized gains and losses

• Calculate gross profit margin and profit margin

1. Gross profit = Gross Profit/Sales

1. Measures the income earned for each dollar of sales.

2. Profit margin = net income/sales.

1. Income earned for each dollar of sales

• Record purchases and sales under a periodic inventory system

1. Separate temportary accoutns are sued in the periodic system to record purchases, pirchases returns and allowances, purchase discounts, and freight costs that are paid b the buyer (Shipping point)

1. Formula for cost of  goods purchased

1. Purchases-purchase returns and allowances - purchase discounts = net purchases, net purchases + freight in = cost of good purchased

2. One entry to record a sale of merchandise

1. Cost of goods purchases

2. Cost of goods sold

1. Beginning inventory + COG purchased= COG available for sale; and COG available for sale - ending inventory = cost of goods sold

3. Is adjusted at the end of the period to reflect its proper balance.

• Contra expense account - an account that is offset against a revenue account onn the statement of income

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  Chapter 6
  
  

• Steps in determining inventory quantities

1. Determine ownership of goods in transit, on cosignment and in similar situations

2. Take a physical count of goods on hand

3. If the cost of the physical inventory counted is defferent from the balance, adjust it along the COGS account.

• Cost formulas using specific dientif