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Midterm

Midterm Compiled Notes.docx
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Department
Business
Course
BU127
Professor
James Moore
Semester
Fall

Description
Bu127 Midterm Compiled Notes Chapter 1 The Players: • Investors, Creditors-lend money for a length of time/ charge interest, Managers The Business Operations 1. Purchase materials and labour 2. Manufacture product 3. Sell products to customer 4. Collect cash from customers and pay creditors Business Owners seek gains: • Sell ownership interest in the future for more than they paid • Receive a portion of the company’s earning in cash (dividends) 4 Basic Financial Statements- IFRS 1. Statement of Financial Position (Balance Sheet) 2. Statement of Comprehensive Income (Income Sheet) 3. Statement of Changes in Equity (Shareholders’Equity) a. Owners Equity: measure of the wealth of the owners in the firm (input money = increase in wealth of company) 4. Statement of Cash Flows a. Report the movement of cash within a business b. Accrual system: when the transaction occurs but not necessarily when cash changes hands Share Capital- amount of money the owners have contributed to the business Retained Earnings- Profit that a company has made without redistributing Accrued Expenses- future obligation for work that is being down, an approximate value instead of “Trade payable” which is an exact value Revenue: is recognized in the period in which goods and services are sold, not necessarily the period in which cash is received. Expense: is recognized in the period in which goods and services are used, not necessarily the period in which cash is paid. Notes: 1. Describe accounting rules applied 2. Present additional detail about an item on the financial statements 3. Provide additional info about an item not on the financial statements Types of Business Entities • Sole Proprietorship: owned by a single individual • Partnership: owned by 2 or more individuals • Corporation: ownership represented by shares of stock (emphasis in this course) o Limited liability, opportunity to raise large amounts of money o Double taxation Chapter 2 The Conceptual Framework • Produced for investors and creditors • Information should be relevant, reliable, comparable with other international companies • We want the information to be timeliness, regular updates and quick production of financials Assumptions Separate Entity Concept • Keeping business and personal transaction separate Continuity • The entity will not go out of business in the near future Unit of Measure • Currency Principle Historical Cost • Valuing the cost of assets and liabilities at time of transaction Matching Principle • Recognize expenses when we generate sales Full disclosure Principle • We will give all information that will be useful for investors and creditors Materiality Principle • Not necessary to produce every dollar on the financials of a company if it is not material Cost Principle • Assets should be recorded at the historical cash-equivalent cost, which is cash paid plus the current monetary value of all non-cash considerations Contributed Capital • The sum of share capital and contributed surplus Chapter 3 Operating Cycle 1. Purchase or manufacture products on credit 2. Pay Suppliers 3. Deliver product or provide service on credit 4. Receive payment from customers Gain or Losses • Peripheral transactions through selling something at higher/ lower then you have in your books AccrualAccounting • Assets, liabilities, revenues and expenses should be recognized when the transaction that causes them occurs, not necessarily when cash is paid or received Cash Basis Accounting • Records revenues when cash is received and expenses when cash is paid Revenue Principle • Revenue is recognized when o The ownership is transferred to the buyer o The entity retains neither continuing managerial involvement or control over the goods sold o Revenue can be reliably measured o Collection is reasonably assured o Cost can be measured Matching Process • Resources consumed to earn revenues in an accounting period should be recorded in that period, regardless of when cash is paid • Revenues are recorded when earned • Expenses are recorded when incurred Chapter 4 Accounting Cycle 1. Journal entries/ post to general ledger 2. Adjustments 3. Prepare financials 4. Close revenues, gains, expenses into retained earnings Deferrals • Receipts of assets or payments of cash in advance of revenue or expense recognition o Unearned Revenue Revenue o Expense Prepaid Expense Accruals • Revenues earned or expenses incurred that have been previously recorded o Revenue Receivable Revenue o Expense Payable Depreciation Depreciation Expense Accumulated Depreciation Closing the Books 1. Close revenues and gains to Income Summary 2. Close expenses and losses to Income Summary 3. Close the Income Summary account to Retained Earnings 4. Close Dividends to Retained Earnings Chapter 7 Credit Card Sales Cash 2910 Credit Card Discounts 90 Sales Revenue 3000 Sales Discounts to Business Interest Rate for 20 Days = Amount Saved Amount Paid Annual Interest Rate = 365 Days x Interest rate for 20 Days 20 Days Cash 980 Sales Discount 20 Trade Receivables 1000 Net Sales Revenue Less: Credit card discounts Sales Discounts Sales Returns andAllowances Bad Debt Bad Debt Expense Allowance for DoubtfulAccounts And Accounts receivable Less:Allowance for Doubtful accounts Net realizable value ofA/R Uncollectible Accounts (Write Offs) Allowance for DoubtfulAccounts 500 Trade Receivables
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