Lecture Notes 2
Terms
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- Flow of Accounting Info
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1. people make decisions
2. business transactions occur
3. Businesses prepare reports to show the results of their operations - Income Statement
- difference between inflows and outflows. results in net income or net loss. revenue-expense
- Statement of reatained earnings
- earnings that are left in the business. Retained earnings + net income - dividends = retained earnings
- Balance Sheet
- Answers what the assets liabilities and stockholders equity are at a certain point in time
- Journal
- chronological record of all transactions listed by date
- Ledger
- grouping of all the accounts; it shows their balances
- Posting
- data being copied to the ledger
- Increase and Decrease in Assets
- Debit increases and credit decreases
- Increase and Decrease in Liabilities
- Debit decreases and Credit increases
- Increase and Decrease in Stockholders' Equity
- Debit decreases and Credit increases
- Income Statement Format
- Revenues-Expenses=Net income
- Income Statement Format (Multi)
- (sales revenues-cost of goods sold=gross profit) - (selling and administrative expenses) = Operating income
- Income statement (multi)
- Earnings before taxes-income=net earnings
- Acceptable current Ratio
- 1.5-1 Answers whether or not will get paid from selling a product to a customer
- Acceptable Debt Ratio
- Want as low as possible; beware of a ratio > .65-1; measures ability to pay total liabilities
- Accrual Accounting
- Recognizes the impact of a business even as it occurs (revs as earned and exp as incurred)
- Deferral
- An adjustment of an asset or a liability for which the business paid or recieved cash in advance
- Depreciation
- Systematic allocation of the cost of a plant asset to expense over the asset's useful life
- Accrual
- Recording of an expense or a revenue before paying or reveiving cash