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Chapter 16

MGST 217 Chapter Notes - Chapter 16: Retained Earnings, Income Statement, Accounts Payable


Department
Management Studies
Course Code
MGST 217
Professor
Staff
Chapter
16

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Basic&Accounting&Procedures
The&accounting&cycle
The&process&of&generating&financial&statements
Analyze&data&collected&from&many&different&sources
Accounts&for&any&transaction&that&has&a&financial&impact&in&the&company
Transactions&are&recorded&in&journals&which&are&in&turn&kept&in&ledgers,&
the&summary&of&the&ledgers&is&represented&in&a&trial&balance
The&accounting&equation
Assets&=&Liabilities&+&Owner's&Equity
Assets&is&what&you&own
Liabilities& is&what&you&owe,&also&known&as&debts
Includes&loans
Owner's&equity&is&the&total&amount&of&investments&in&the&company
To&balance&the&equation&each&entry&is&recorded&in&two&parts,&an&equal&and&
opposite&transaction,&this&method&is&known&as&double&entry&bookkeeping&
The&T-Account
Used&to&analyze&financial&transactions,&named&by&its&shape&resembling&a&T
Left&side&of&the&T&is&the&debit&record
Right&side&of&the&T&is&the&credit&record
The&rule&is&that&a&rise&on&one&side&of&the&T&corresponds&to&an&equal&
decrease&in&the&other&side&of&the&T
The&trial& balance
A&list&of&each&account&and&its&net&balance
Debits-Credits&=&Assets
Credits-Debits&=&Liability& and&Owner's&equity
Debit&corresponds&to&our&assets&and&credit&refers&to&our&"cash"
The&Statement&of&Financial&Position&(Balance&Sheet)
One&of&the&three&financial&statements&generated&from&the&accounting&system
Summarizes&a&company's&financial&position&at&a&specific&point&in&time
Assets
Current&Assets:&Assets&that&can&or&will&be&converted&into&cash&in&the&next&
12&months
Cash:&funds&on&hand&or&in&a&bank
Marketable&securities&(trading&securities):&temporary&investments&of&
excess&cash&that&can&be&readily&converted&to&cash
§Accounts&receivable:&amounts&owed&to&the&company&by&customers&
who&bought&goods&or&services&on&credit
§Notes&receivable:&amounts&owed&to&the&company&by&customers&or&
others&to&whom&it&lent&money
§Inventory:&stock&of&goods&being&held&for&production&or&sale&to&
customers
Liquidity:&the&speed&with&which&an&asset&can&be&converted&to&cash
§Cash&is&the&most&liquid&asset
Capital&assets:&Long-term&assets&used&by&a&company&for&more&than&a&year
§Land
§Machinery
§Fixed&assets
§Property
Depreciation:&the&allocation&of&an&asset's&original&cost&to&the&years&in&
which&it&is&expected&to&produce&revenue
Intangible&assets:&Long&term&assets&with&no&physical&existence
§Patents
§Copyrights&
§Trademarks
Goodwill:&The&value&that&has&been&paid&for&a&company&that&exceeds&the&
value&of&its&net&tangible&assets
Liabilities
Current&liabilities:& Liabilities& that&are&due&to&be&paid&within&the&year&of&the&
date&on&the&balance&sheet
§Accounts&payable&
§Notes&Payable:&short&term&loans&from&banks,&must&be&repaid&within&
a&year
§Accrued&expenses:&Represent&expenses&like&wages&and&taxes
§Income&taxes&payable:&taxes&owed&for&the&current&operating&period
§Current&portion&of&long&term&debt:&Any&payment&on&a&long&term&
debt&due&within&the&year
Long&Term&Liabilities:& Due&more&than&one&year&after&the&date&on&the&
balance&sheet
§Bank&loans
§Mortgages
Owner's&Equity
The&owner's&total&investment&in&the&business&after&all&liabilities& have&been&
paid
Amounts&of&cash&put&in&by&the&owner&are&recorded&as&capital
Retained&Earnings:&the&amount&left&over&from&the&profitable&operations&
since&the&company's&beginning
§Total&profits&-all&dividends
The&Statement&of&Income&(Income&Statement)
Summarizes&the&company's&total&revenues&and&expenses&in&order&to&show&its&
total&profit&or&loss
Income
Income:&the&dollar&amount&of&a&company's&sales&plus&any&other&income&
resources
Gross&sales:&Total&dollar&amount&of&a&company's&sales
Net&sales:&The&amount&left&after&deducting&sales&discounts&and&returns&and&
allowances&from&the&gross&sales
Expenses
Expenses:&the&costs&of&generating&revenues
Cost&of&goods&sold&(COGS):&is&the&total&expense&of&buying&or&producing&a&
company's&goods&or&services
Net&Profit&or&Loss
Gross&Profit:&the&amount&a&company&earns&after&paying&to&produce&or&buy&
its&products&but&before&deducting&operating&expenses
Operating&expenses:&the&expenses&of&running&a&business&that&are&not&
directly&related&to&the&buying&or&producing&of&a&product&or&service
Net&loss:&subtracting&all&of&the&company's&expenses&from&its&revenues
Chapter(16
Tuesday,& October& 18,&2016
7:39&PM
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