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Accounting (3 - Basics - Income Statement :checkered_flag: (Typical…
Accounting
3
- Basics - Income Statement :checkered_flag:
Revenues :star:
Expenses :fire:
Net Income(Loss)
Temporary Account
Typical Accounts
Sales Revenue
SG&A Expense
Costs of Goods Sold
R&D Expense
Interest Income
Interest Income
Income Tax Expense
Basic Transactions
Revenues
Issues of Capital Stock
Expenses
Journal Entries
Revenue Transaction
Dr. Asset increase or Liability decrease
Cr. Revenue
Expense Transaction
Dr. Expense
Cr, Asset decrease or Liability Increase
Dividents
Income Statment Steps
2.-
Expenses of business operations =Operating Income
3. +
Other sources of Income =Income Before Income Taxes
1.
Top line: Sales Revenues
4. -
Income Tax Expense =
Net Income
Shareholders’ Equity
+
Contributed Capital
Common Stock
Additional Pur-In Capital
-
Retained Earnings
+
Net Income for Period
+
Revenues for P.
-
Expenses for P.
-
Dividents for Period
+
Beginning of the Period
Divident declaration and Payment :red_flag:
Declaring Dividends
Dr. Retained Earnings
Cr. Dividents Payable
Payung Dividents
Dr. Dividents Payable
Cr. Cash
Adjusting Entries :red_flag:
1) Unearned Revenues :pen:
Liab. overstated
Dr. Liabilities
Revenues understated
Cr. Revenues
2) Accrued Revenues :pen:
Assets understated
Dr. Assets
Revenues understated
Cr. Revenues
3) Prepaid Expenses :pen:
Assets overstated
Dr. Expenses
Expenses understated
Cr. Assets
Depreciation expense :red_flag:
Dr. "Appropriate expanse account"
Cr. Contra Asset Account
4) Accrued Expense :pen:
Expenses understated
Dr. Expenses
Liabilities understated
Cr. Liabilities
Closing Process
When adjusting entries are made
1.
Balance in each revenue and expense account -> Retained Earnings
2.
Reduces the balance in each income statement account to zero
3.
???
4.
PROFIT
5.
Last step: Link it to the retained earnings account
Def.: Statement of Cashflow (refresh) he-he
Def.: General Ledger.
1
- Overview :check:
Business activities
Establishing
goals and strategies
End result
Means of achieving the goals
Obtaining
financing
Liabilities
Equity
Making
investments
Productive capacity
Conducting
operations
1) Purchasing
2) Production
3) Marketing
4) Administration
5) Research and development
Accounting standarts
Us-Gaap
IFRS
Standards of other countries (local GAAP)
Principal financial statements :red_flag:
Annual report
Statement of cash flows
:red_flag:
Objektive
Operating activities
Investing activities
Financing activities
Relationship
Income statement
Revenues
Expenses
Net income = Revenues - Expenses
Relationship
Statement of shareholders’ equity
Balance sheet
Assets
Liabilities
Asset = Liabilities + SE
Shareholders' equity
Examples!
Classification
Current
Noncurrent
Notes to the financial statements
Management’s Discussion and Analysis (US)
Financial statement participants
Standard setters
Auditors
Management Responsibility
Maintenance a system of controls
Hire of outside independent auditors
Formation of Committee of the board of directors
Users
Basic accounting conventions and concepts :red_flag:
Accounting period
Recognition
Materiality
Realization
Methods for Measuring Performance
Cash basis :pencil2:
Accrual basis
2
- Basics - Balance Sheet :checkered_flag:
Accounts
Balance sheet accounts
Assets
Noncurrent
Property, Plant, Equipment (P.P.E)
Accumulated Depreciation
Net book value
Intangible Assets
Goodwill
Current
Cash
Inventory
Types
Marketable security
Accounts Receivable
Notes Receivable
Interest Receivable
Advances to suppliers
Prepaid rent
Prepaid insurance
Shareholders’ Equity
Common Stock --- at Par
Additional Paid-In Capital
Preferred Stock
Retained Earnings
Other comprehensive Income
Liabilities
Current
Accounts Payable
Advances from Customers
Notes payable
Interest payable
Income Taxes Payable
Noncurrent
Bonds Payable
Mortgage Payable
Deferred income taxes
Characteristics
Transactions
Dual effects of transactions
Check-Question
T-Accounts
Earnings
Ending balance
Accounting equation
Credit (Cr.)
Debit (Dr.)
Supplement terms :red_flag: :checkered_flag:
Journal entries
Examples
4
- Analyzing the Financing resources
:checkered_flag:
German HGB
Core Principles (GoB)
Principles of Orderly Bookkeeping
Prudence Principle
Imparity Principle
General Valuation Principle
Objektives
Capital Preservation
Providing the basis for taxation
Creditor Protection
Result
Outside -> less informed
Insiders -> access to private info.
Hidden Reserves
Measurment
Lowest value principle
Accrual principle
Historical Cost
Maximum value of debt principle
IFRS and US GAAP
Main objective
Provide Information
Quality Criteria
Reliability
Conservatism
Relevance
Balance Sheet Format
Order of the balance sheet
Order of Assets (liquidity)
Order of Liabilities (time)
Special German requirements
IFRS may reverse
Recognition
Asset
Def. :pen:
Recognition criteria
Control
Result of a transaction
Measurement of benefit (reliable)
Measurement
Current Replacement Cost (Entry value)
Historical cost :pen:
Net realizable value (Exit value)
Fair Value
Present Value of Future Net Cash Flows
:pen:Specific approaches
Going concern assumption
Salvage value
Examples
Capitalizing vs. Expensing
L4 S 36 Example :red_flag:
Liability
Def
Recognition criteria
Result of a past transaction
Probable future economic sacrifice :pen:
Present obligation
Measurement
Noncurrent liability, financial
Financial
the present value of future cash flows
Current liability,
Financial
the amount required to discharge the obligation
Nonfinancial
the amount that will eventually be recognized as revenue
Examples
Case
Classification of payments by the degree of certainty
:fountain_pen:
Shareholders’ Equity
Contributed Capital
Par value
Additional paid-in capital
Retained Earnings
Accumulated Deficit
Internal financing
Calculation
:red_cross:
:red_cross:
:red_cross:
:red_cross:
Transactions before
.
Dr. Any asset
Cr. Advances from Customers
.
Cr. i.e. Cash
Dr. Prepaid smth.
