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ACC 100 Notes ENTIRE COURSE.docx

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ACC 100
Raymond Moss

ACC 100 Vocab List Week 1: Chapter 1: Introduction to Accounting  Business o sole proprietorship o Partnership o Corporation  Unlimited liability  Business activities o Financing – raising funds o Investing – buying/selling land, building, equipment o Operating – selling goods/services  Internal users – management  External users – banks, customers, financial analysts, competitors, suppliers, stockholders  Accounting: A system & process for identifying, measuring, analyzing, summarizing, reporting economic information about an entity to various users  Financial statements o Income statement (results of operations)  Revenues  Expenses  Net income o Statement of retained earnings (changes in earnings)  Beginning balance  Net income  Dividends  Ending balance o Balance sheets (financial position at a point in time)  Assets  Liabilities  Owner’s equity o Cash flow statement (cash consequences of transactions)  Operating  Investing  Financing activities Week 2: chapter 2: Financial Statements and the Annual Report  Liquidity ratio = current assets / current liabilities  Qualitative characteristics o Understandability o Relevance (capacity to make a difference) o Reliability o Verifiability o Representational faithfulness o Neutrality o Conservatism (when in doubt think negative) o Comparability o Consistency o Materiality o Benefit vs cost  Financial o Going concern o Monetary unit Week 3: Chapter 3: Processing Accounting Information  External events  Internal events  Measurable  Realized  Transaction  Source document – evidence needed in an accounting system to record transactions Week 4: Chapter 4: Part 1  Recognition – formally recording an item in the financial statements of an entity  Measurement – quantification of the effects of the item on the entity  Economic events are recognized and measured  Cash basis accounting – records revenue when cash is received, records expenses when cash is paid  accrual basis accounting – record revenue when earned, records expenses when incurred, used, consumed to generate revenue  Adjusting entries o Prepaid expense  Rent, insurance, office supplies, plant & equipment o Unearned revenue  Rent, subscriptions collected in advance  Overstated, understated  Depreciation expense per year = (orig cost-salvage value)/useful life Lecture 4: Ch 4 pt 2:  Accrued liability (expense) o Expense incurred before cash is paid  Wages, taxes, interest  Never an initial entry  Always has increase to liability account, increase to expense account  Never cash!  Wages earned but not yet paid  Income taxes owed at end of year  Accrued asset (revenue) o Revenue earned before cash is received  Sell a product, provide a service  never has initial entry  increase to asset, increase to revenue  rent owed by tenant not yet collected  interest earned on customer loan not yet collected  Deferred Expense  Paid in advance  Office building purchased for cash  Deferred Revenue  Cash collected from subscriptions in advance of publishing a magazine  Rent collected in advance from tenant Chapter 5: Merchandising Operations  Wearing two hats o Purchaser of inventory o Seller of inventory  Revenue Recognition Principle (Good) o Risk/rewards transferred from seller to buyer o Collectability is reasonably assured o Measureable  Revenue Recognition Principle (Service) o Collectability is reasonably assured o Measureable o Performance  Interest = principle * rate * time (# of months passed/12)  FOB Destination ( paid by seller)  FOB Shipping Point (paid by buyer)  Credit Terms o Ex. 2/10, n/30 o Pay within 10 days, get 2% discount o Otherwise pay the amount within 30 days, no discount  Bought inventory on account  + inventory, +account/payable  Get discount  -cash, -inventory, -a/p   Sell item o +sales, +a/r o –inventory, -COGS  Customer receives discount because they paid early o +cash, -a/r, -sales discount expense  If inventory is returned but damaged o ONLY FIX SALES ENTRY NOT COST ENTRY  Expense recognition o Assets  Inventory when sold  Supples/prepaid assets when consumed  Pp&E, intangibles over period as incurred o Expenses  COGS when sold  Expense when consumed  Ammoritzation expense o Direct expenses (connected to revenue) o Indirect expenses (hydro costs)  Sales returns and allowances + sales descounts expense accounts are contra revenue accounts  Perpetual inventory (inventory is always updated) Chapter 6: Inventory and COGS  What is inventory o Assets held for resale (finished goods) o Processing goods (wips) o Materials, components, supplies o Measurement: existence, quantities, valuation o Management: Justin in time, controlling quantities/access  Corner store o Cash register manual o Inventory records update periodically o No transaction analysis o Physical inventory count  Grocery store o Scanning system o Perpetual o Inventory records update after each sale o Inventory + COGS up to date o Still need to count, does not log perishable items, breakage, theft, misplacement, human error, items on consignment, in shipping  Transit: o FOB Destination (seller) o FOB Shipping Point (Buyer)  Owns inventory in transit  Cost of freight  Responsibilities  In order to value inventory we need: opening inventory, purchases during year, quantity on hand at end of year o # of units available for sale = beg inv + purchases o Sold = units available – units left o COGS = units sold * price/unit o End inv value = # of units left * price/unit  Even if you buy from same supplier throughout the year, the COG may vary due to: duty, taxes, exchange rate, freight costs  Specific identification o Only used when inventory can be specifically identified  Car  Electronics  Appliances o Able to match actual expenses with revenues o However net income can be manipulated by selling specific units o o o  Weighted average o Assigns same unit cost to all units available for sale during period o Easy approach to costing inventory o Av cost/unit = COGS/units available for sale  FIFO (First in, first out) o Assigns first items purchased to the COGS and most recent costs to ending inventory o o o FIFO HINTS  Create chart, calculate value of available for sale FIRST  Start at TOP of chart to calculate COGS  Start at BOTTOM to calculate ENDING INVENTORY o o o Items bought first were cheaper, FIFO has greater profit b/c COGS is cheaper o Higher inventory av. Is FIFO, inventory left is cost more, FIFO is based on most recent inventory which are more expensive  FIFO results in highest income taxes during periods of inflation  LIFO is not permitted for financial reporting and tax purposes in Canada  FIFO results in highest income during periods of inflation  FIFO results in highest ending inventory during periods of inflation  AV. Cost smooths out costs during periods of inflation  Specification is not practical for most businesses  Av cost puts more weight on the cost of the larger number of units purchased  FIFO is an assumption that most closely reflects the physical flow of goods for most businesses     Charged as a loss account on income statement o Lower cost in market (LCM)  Conservatism  Don’t overstate assets o Pg 279 ex 6-15 o If they don’t report the new market value, their inventory will be overstated, need to follow conservatism or else it will be misleading o Inventory will be affected,
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