Income Statement

Retained Earnings Statement

Balance Sheet

Statement of Cash Flows

This reports assets and claims to assets at a specific point in time. These are then subdivided into two categories: claims of creditors and claims of owners.

Its ability to pay obligations expected to become due within the next year or operating cycle.

Its ability to pay interest as it comes due and to repay the balance of a debt due at its maturity.

This measures the operating success of a company for a given period of time.

Simple to establish

Owner Controlled

Tax Advantages

Simple to establish

                        Shared Control

                        Broader skills and resources

                        Tax advantages

Easier to transfer ownership

 Easier to raise funds           

 No personal Liability

A measure to provide additional insight regarding a company’s cash generating ability.

It describes the cash remaining from operating activities after adjusting for capital expenditures and dividends paid. 

Operating

Investing

Financing

This states that the life of a business can be divided into artificial time periods and that useful reports covering those periods can be prepared for the business.

This states that the business will remain in operation for the foreseeable future. 

This relates to a financial statement item’s impact on a company’s overall financial condition and operations. An item is material when its size makes it likely to influence the decision maker. 

In accounting this means that when preparing financial statements, a company should choose the accounting method that will be least likely to overstate assets or income. 

Relevance

Reliability

Comparability

Consistency 

Accounting information is considered this if it would make a difference in a business decision. 

The information can be depended on. In order to do this, accounting information must be a faithful representation of what it purports to beà it must also be factual.

This results when different companies use the same accounting principles.

Assets with relatively long useful lives that a company is currently using in operating.

These are generally:

1.     Investments in stocks and bonds of other corporations that are held for more than one year

2.     Long-term assets such as land or buildings that a company is not currently using in its operating activities. 

The two-sided effect of each transaction is recorded in appropriate accounts. This system provides a logical method for recording transactions. It also helps to ensure the accuracy of the recorded amounts and helps to detect errors. 

This lists accounts and their balances at a given time. It is usually prepared at the end of an accounting period.

It’s purpose is to prove the mathematical equality of debits and credits after posting. 

1.     List the account titles and their balances

2.     Total the debit column and total the credit column

3.     Verify the equality of the two columns

A measure of liquidity in which the difference between the amounts of current assets and current liabilities.

This means that transactions that change a company’s financial statements are recorded in the periods in which the events occur, even if cash was not exchanged.

This requires that companies recognize revenue in the accounting period in which is earned

The practice of expense recognition is this because it dictates that efforts (expenses) be matched with accomplishments (revenues)

This ensures that the revenue recognition and matching principles are followed. These are required every time a company prepares a financial statement. Every adjusting entry will include one income statement account and one balance sheet account.

Companies record payments of expenses that will benefit more than one accounting period

Companies record cash received before revenue is earned by increasing (crediting) a liability 

Expenses incurred but not yet paid or recorded at the statement date 

Revenues earned but not yet recorded at the statement date

The primary source of revenues for merchandising companies is the sale of merchandise. 

The total cost of merchandise sold during the period. This expense is directly related to the revenue recognized from the sale of goods. 

The cost of assets consumed or services used in the process of generating revenues

With this system, companies determine the cost of goods sold only at the end of the accounting period that is, periodically.

To determine the cost of goods sold under a period inventory system, the following steps are necessary:

To determine the cost of goods sold under a period inventory system, the following steps are necessary:

1.     Determine the cost of goods on hand at the beginning of the accounting period

2.     Add to it the cost of goods purchased

3.     Subtract the cost of goods on hand at the end of the accounting period

This means that the seller places the goods free on board the carrier, and the buyer pays the freight cost.

This means that the seller places the goods on board to the buyer’s place of business, and the seller pays the freight

On outgoing merchandise are an operating expense to the seller. These costs increase an expense account titled Freight-Out or Delivery Expense.

The portion of manufactured inventory that has begun the production process but is not yet complete

This requires that companies keep records of the original cost of each individual inventory item. 

This assumes that the latest goods purchased are the first to be sold. Companies obtain the cost of the ending inventory by taking the unit cost of the earliest goods available for sale and working forward until all units of inventory have been costed. 

This allocated the cost of goods available for sale on the basis of weighted average unit cost. 

This is done by valuing the inventory in the period in which the price decline occurs. It is an example of the accounting concept of conservation, which mean that the best choice among accounting alternatives is the method that is least likely to overstate assets and net income.

This is a dishonest act by an employee that results in personal benefit to the employee at a cost to the employer. 

This consists of all the related methods and measures adopted within an organization to safeguard its assets, enhance the reliability of its accounting records, increase efficiency of operations, and ensure compliance with laws and regulations. 

1.     A control environment

2.     Risk Assessment

3.     Control Activities

4.     Information and Communication

5.     Monitoring.

1.     Establishment of responsibility

2.     Segregation of Duties

3.     Documentation Procedures

4.     Physical Controls

5.     Independent Internal Verification

6.     Human Resource Controls

Time lags and Errors

1.     Deposits in transit

2.     Outstanding Checks

3.     Errors

4.     Bank Memoranda

Amounts customers owe on account. They result from the sale of goods and services. Companies generally expect to collect accounts receivable within 30 to 60 days. They are usually the most significant type of claim held by a company.

A service organization records a receivable when it provides service on account. A merchandiser records accounts receivable at the point of sale of merchandise on account. When a merchandiser sells goods, it increases both the Accounts Receivable and Sales Accounts.

The seller records these losses from extending credit. Such losses are normal and necessary rick of doing business on a credit basis.

This involves estimating uncollectible accounts at the end of each period. This provides better matching of expenses with revenues on the income statement. It also ensure that receivables are stated at their cash (net) realizable value on the balance sheet.

Management establishes a percentage relationship between the amount of receivables and expected losses from uncollectible accounts.

A schedule in which it classifies customer balances by the length of time they have been unpaid.

This involves estimating uncollectible accounts at the end of each period. This provides better matching of expenses with revenues on the income statement.

When a company determines receivables from a particular company to be collectible, it charges the loss to Bad Debts Expense. This shows the actual loss from uncollectibles.

Deduct from net income increased in current asset accounts, and add to net income decreases in current asset accounts, to arrive at net cash provided by operating activities.

This represents the value of all favorable attributes that relate to a company that are not attributable to any other specific asset.

Useful life is expressed in terms of the total units of production or the use expected from the asset. 

This represents the total amount subject to depreciation. It is calculated as the cost of the plant asset less its salvage value. 

Companies simply retire, rather than sell, some assets at the end of their useful life.

If the proceeds from the sale exceed the book value of the plant asset then it is a gain on disposal.

If the proceeds from the sale are less than the book value of the plant asset sold, a loss on disposal occurs.

This is used to indicate the relationship between time and money.—that a dollar received today is worth more than a dollar promised at some time in the future.

This gives the lender written documentation of the obligation in case legal remedies are needed to collect the debt. Companies issue these to meet short-term financial needs.