Financial accounting, Dispense di Cost Accounting

Scarica Financial accounting e più Dispense in PDF di Cost Accounting solo su Docsity! FINANCIAL ACCOUNTING Accounting= a system made to analyze, record and summarize the activities affecting the performance and financial condition of a company and report the results to managers. ● ORGANIZATIONAL FORMS: -SOLE PROPRIETORSHIP=(simplest= it doesn’t require legal maneuvers)= 1 owner that’s responsible for the debts of his organization. He has to pay using his personal resources. There is no division between the owner and the organization. -PARTNERSHIP= There is more than 1 owner of the company(2 or more) that collect money to run the company and to pay its debts. They are all responsible.It needs a lawyer to draw a partnership agreement that says how profit is split between owners and how that changes when a new partner joins or an old one leaves. -CORPORATION= The owner and the organization are completely separated. The owner buys shares of the company and receives a stock certificate(the amount of capital owned by the owner). The owners cannot lose more than what they invested(advantage) but both the corporation and owners have to pay taxes and legal fees to form it(disadvantage). [There are 2 types of accountants: 1. Private Accountant= is employed by the company he works for 2. Public Accountant= he works for several companies ] ● THE ACCOUNT SYSTEM: -OPERATING+INVESTING+FINANCING ACTIVITIES It produces 2 types of REPORTS which show the performance of the company: 1. MANAGERIAL REPORT= for internal users (managers,supervisors)- they use this to run their company 2. FINANCIAL REPORTS= (financial statement) for external users*- they use this to evaluate the company *-creditors=(they use it to know if the credit invested will be repaid by the company)(ex. bank)(people who we owe money to) -investors=(they use it to know if they’re making profit, to estimate a company’s value) -directors= board(they use it to make sure the managers make good decisions) -government=(they use it to ensure companies pay the right amount of taxes) ● BASIC ACCOUNTING EQUATION: (What a company owns must be the same as what the company owes to its creditors and stockholders.) There’s a separation between the personal dealings of stockholders and the activities of the business= separate entity assumption Assets= Liabilities+Stockholders’ Equity -Assets= Resources owned by the company used to run the business and to make profit(ex. cash+supplies+furniture+equipment) -Liabilities= Amount of money the company owes to creditors and expects to give away in the future: 1. NOTES PAYABLE= a company owes money to the bank(promise to pay back)(they charge interests) 2. ACCOUNTS PAYABLE= a company buys goods and pays for them later(on account) -Stockholders’ Equity= Owner’s claim on assets (over the resources since he gave money to participate to profit) [owners claims can be: 1. Paid-in capital= owners claim what they directly invested(common stock) 2. Earned capital= owners claim what the company earned(retained earnings)] 3. BALANCE SHEET= it reports assets, liabilities and stockholder’s equity. It recalls the Basic Accounting Equation. You write first Assets, then liabilities and stockholders’ equity(in order of how soon they will turn into cash) To know if the company has enough assets to repay its liabilities 4. STATEMENT OF CASH FLOW= (Profit is not equal to cash because revenues and expenses are reported when generated without caring for when cash will be paid or received.) It summarizes how a business’s operating(buying goods, paying supplies, receiving money from customers)-investing(buying new equipment, selling old equipment)-financing(money provided from bank and other investors)activities causes its cash balance to change. It shows the variation in cash in a specific period of time. it’s needed to know if the business will be able to pay its short term debts - OUTFLOW= cash is exiting the company (-) - INFLOW= cash is coming to the company(+) [A company can GO PUBLIC in 2 ways: 1. Issuing an IPO(initial public offering) 2. Through direct listing PROS CONS company keeps the money it raises through issuing shares there is a bigger public reporting that affects the company company can raise money by selling more shares accounting disclosures increase ASSETS(+cash 10.000$)= Liabilities Stockholders’ equity(common stock + 10.000$)[it works] ex. Assets(-cash,+ 300$ logo cost)= liabilities stockholders’ equity[it works] ex. Assets(+ cash)= liabilities(notes payable +20.000$)+ stockholders’ equity [it works] ex. Assets(+9600$ equipment)= liabilities(+9600$ account payable)+stockholders’ equity [it works] ex. Assets(- 5000$ cash)= liabilities(-5000$ account payable)+ stockholders’ equity[it works] ex. no accounts= you still have to pay and you still need to receive the product[it works] ex. Assets(-4000$ cash+9000$ assets)= liabilities(+ 5000$ account payable)+ stockholders’ equity [it works] ex. Assets(supplies + 600$)= liabilities(account payable + 600$)[it works] ex2. yes cash, notes payable assets, liabilities Assets(+ 15000$)= liabilities(+15000$) it does ex3. yes equipment,cash Assets(-cash, + equipment)=liabilities+stockholders’ equity ex4. yes supplies, account payable (it says on account) Assets(+ 300$supplies)= liabilities(+ 300$ accounts payable)+stockholders’ equity yes ex5. no didn’t receive and didn’t pay —------ ex.6 a. Assets(+cash15.000$)=stockholders’ equity(+15.000$ common stock) b. Assets(+8000$ cash)=liabilities(+8000$ notes payable) c. Assets(+900$ equipment)=liabilities(+ 900$ account payable) d. Assets(-2500$cash, +14500$ land)=liabilities(+12.000 account payable) e. Assets(+4250$ equipment, -1750$ cash=+ 2500$cash)= liabilities(+4250-1750$ account payable=+2500$) Assets(15000+8000+900-2500+12000+2500=38400$)=Liabilities(23400 $)+ Stockholders’ equity(15000$)[it works] 2. RECORD 3.SUMMARIZE To record and summarize you can use a spreadsheet(excel). Transactions are analyzed, then entered into journals and finally the journals are summarized into ledger accounts. ● T ACCOUNT =DEBIT\CREDIT FRAMEWORK It’s used to summarize the increase or decrease of each account, to check variations. It is the simplified version of a Ledger account. It’s based on rules: 1. Account increase on the same side as they appear in A= L+ SE(If they are on the left of the basic equation they are increasing on the left side) 2. Left= debt(Debit side=increase in assets), Right= credit(credit side=increase in liabilities and stockholders’ equity) 3. The normal balance for an account is the side on which it increases(credit must be equal to debit) Journals are used to record transactions(journal entries)(-date, name of account, reference(will be used later to say if the journal has been summarized in the ledger accounts), debit(left), credit(right), dollar sign isn’t used) [you can skip the ref and explanation of transactions. Include the type of account(A,L,SE) and if it’s increased(+) or decreased(-).] ex. cash ex. note payable 1000 | 500 500 | 5000 increase | | increase 500$ |4500$ ex. a. cash=+10.000 10.000| common stock | 10.000 Assets= Liabilities + Stockholders’ equity +10.000= +10.000 b. cash(A)= +15.000 15.000| note payable(L)= +15.000 |15.000 Assets= Liabilities + Stockholders’ equity 15.000= 15000 c. cash(A)+= +20.000 +20.000| cash(A)-= -20.000 |20.000 Assets. = Liabilities + Stockholders’ equity ex. Current Ratio= current assets/= 5300/= 18 current liabilities 300 Working capital= Mantainance(ordinary one is and Expense(Se) the one to improve value is Equipment(A) —----------------------------------------------------------------------------------------------------- ● INCOME STATEMENTS aims to record day to day operating activities involved in running a business.Summarize the impact of activities. -OPERATING ACTIVITIES= buying goods and services and selling them. Regular transactions that have a short duration effect.(they are the primary source for revenues and expenses) 1. Buy goods and services 2. Pay cash to suppliers and employees = OPERATING CYCLE* 3. Sell goods and services 4. Collecting money from customers The income statement records REVENUES(prices a business charges his customers=sales revenues and service revenues. They result in + assets or - liabilities) and EXPENSES(costs of operating the business= wages, rent, utilities, insurance, advertising, income tax. They result in - assets or + liabilities) *period between selling goods and receiving money(the 4 steps take a different amount of time for each company) Revenues- Expenses= Net Income The income statements is recorded in accounting period( portion of the life of the company)= a time period assumption we make to have more frequent information about the company= monthly, quarterly, yearly BALANCE SHEET INCOME STATEMENT has a financial impact beyond the end of the current period=PERMANENT has a financial impact only on the current period=TEMPORARY ex. Bank charges customers a monthly service fee=revenue= it’s recorded(it affects the company) ex. I buy a building to use as a retail store= it’s an assets= no expense= not recorded ex. Pay for delivery= expense=recorded ex. buy supplies to use next month= it’s an asset= not an expense= not recorded ex. pay for wages= expense= recorded ● CASH BASIS ACCOUNTING -It records revenues when cash is received and it records expenses when cash is paid -the problem is that often(when transactions use credit and not cash) there’s a delay between the time you buy goods and the time you pay for them (or between the time you sell something and the time you receive something) ● ACCRUAL BASIS ACCOUNTING Better than the previous method(only acceptable one for GAAP and IFRS) - Revenues are recorded when I provide the service even if I don’t receive cash - Expenses are recorded in the same period as revenues to which they relate This is based on 2 principles: 1. REVENUES RECOGNITION PRINCIPLE Revenues are recorded when the seller provides goods and services to its customers in price he expected. It’s based on 5 steps: - identify the contract(agreement between customer and seller) - identify the seller’s performance obligations(the work the seller has to provide to its customer= one or many obligations) - determine the transaction price - allocate the transaction’s price to the seller’s performance obligations - record revenues when you receive goods -when are you supposed to pay: CASE A= CASH BEFORE SERVICE= you pay before receiving the service(ex. airline)(at first a Deferred Revenue(promise to pay later)is recorded(L) to indicate its promise to give the service to the customer, then when the service is given the revenue is recorded) CASE B= CASH wITH SERVICE= when you receive the service you pay(ex. pizza)(increase in revenues and cash at the same time) CASE C= SERVICE BEFORE, CASH AFTER= you receive the service but pay on account after(cash after)(the company records the Revenue and the Account Receivable(A), when the payment is concluded then cash increases and accounts payable decrease) 3) May. REVENUE=3900 ACCOUNT RECEIVABLE=3900 June. CASH= + 3900 ACCOUNT RECEIVABLE= - 3900 July. CASH= + 400 LIABILITY(DEFERRED REVENUE)= + 400 August. REVENUE= + 400 LIABILITY(DEFERRED REVENUE)= - 400 ● THE EXPANDED ACCOUNTING EQUATION ASSETS= LIABILITIES + STOCKHOLDERS’ EQUITY +| - -|+ -|+ debit credit credit = COMMON STOCK + RETAINED EARNINGS -|+ -|+ credit credit = * EXPENSES + REVENUES -SE| |+SE *Revenues are on the right because SE increases on the right and Revenues increase SE(same with Expenses) -PREPAID RENT(EXPENSES)= PROMISE TO RECEIVE SERVICE LATER -ACCOUNTS RECEIVABLE= RIGHT TO COLLECT MONEY IN THE FUTURE d) AMORTIZATION=depreciation but is for intangible assets, software has a limited period of usefulness.Just as depreciation we have accumulated amortization(BS) and amortization expense(IS) e) GIFT CARDS REDEEMED=integrate revenues(ex. 100$ gift cards are accepted as a payment. 2. ACCRUAL ADJUSTMENTS= it is needed to record revenues and expenses that haven't been recorded yet(because we still have to receive or pay cash) (ex. income tax expenses, they are calculated at the end of the accounting period and are paid in the next year, ex2. interest expenses, cash is paid the following accounting period) They involve 1 asset and 1 revenue or 1 liability and 1 expense(opposite from deferral adjustments) The process for making adjustments is Analyzing, Recording and Summarizing. There are many types of accrual adjustments: a) SERVICES GIVEN BUT REVENUE NOT YET RECORDED= Account Receivable(+A), Service Revenue(+R+SE)(we record the revenue with an account receivable since the cash will arrive next month.They didn’t pay when revenues occurred because there wasn’t a contract or document) b) WAGES EXPENSE INCURRED BUT NOT YET RECORDED= wages payable(+L), wages expenses(+E-SE)(we haven’t paid wages to employees for work done last month) c) INTEREST EXPENSE INCURRED BUT NOT YET RECORDED= interest payable(+L), interest expense(+E-SE)(the interest refers to last month but is just being paid and recorded now) d) INTEREST TAXES INCURRED BUT NOT YET PAID= income tax payable(+L), income tax expenses(+E-SE). (we have to estimate before the amount of taxes that we need to pay by applying the tax rate (ex. 20%) to the net income. Taxes are paid at the end of the accounting period) -with adjustments CASH is NOT involved, each adjusting entry always includes 1 balance sheet and 1 income statement account -Create adjusted Balance Sheet and then prepare financial statements: Income statements, Statement of retained earnings, Balance sheet. Last part of the process is the CLOSING PROCESS:(done at the end of the year) 1. Transfer Net Income to Retained Earnings 2. Establish 0 balances in all statement and dividend section There are 2 types of accounts: 1. TEMPORARY ACCOUNTS= they track financial results of only a limited accounting period. Each time at the beginning we start from 0 again. a) We debit Revenue accounts(left) and credit Expense(right)(Usually expenses are on the left and revenue on the left, during the closing process we do the opposite to make it be that Revenues and Expenses are 0 while Assets and Liabilities are not changing value)(the credit of retained earnings has to equal the net income) b) We credit Dividends and debit Retained Earnings. 2. PERMANENT ACCOUNTS= they track financial results that are involved in other accounting periods. Its ending balance from one year becomes the beginning one for the next one. 12000 =81.400 equipment(A) 18.000 common stock(SE) 40000 ST notes payable(L) 25000 account payable(L) 18.000 5200 account receivable(A) 17.200 service revenue(SE, R) 34.400 prepaid rent(A, E) 3600 deferred revenue(L, R) 12.000 A L SE Cash 81.400 Equipment 18.000 Notes Payable +25.000 Account Payable Expenses -4000 Revenues +34.400 Common Stock 40.000 NET INCOME= 34.400-4000= 30.400 ex 2- a)A(cash + 120.000)= L(ST notes payable +120.000) + SE b)A(cash +10.000 + account receivable +70.000)= L + SE(service revenue(-E)+80.000) c)A(cash -90.000, equipment + 90.000)= L + SE d)A(cash -2000)= L + SE(wages expense -2000) e)A(cash +15.000, account receivable -15.000)= L + SE f)A(cash -3000)= L + SE(travel expenses -3000) g)A(cash -6000)= L(-6000 account payable) h)A(cash -6000)=L(+3000 account payable) + SE(utility expense -9000) NET INCOME= 80.000-(3000 + 2000 + 9000)=66.000 cash(A) 120.000 10.000 90.000 2000 15.000 3000 6000 6000 =38.000 notes payable(L) 120.000 account receivable(A) 70.000 15.000 =55.000 service revenue(SE) 80.000 equipment(A) 90.000 EXAM ● Record the transactions fai così: Cash. 3000 Acc.Pay. 3000 ● Record and analyze transactions fai così: Cash.(+A) 3000 Acc.Pay(+L). 3000 ● Se dice note è un Note Payable ● Provided on account: Acc Rec(+A). 3000 Service Rev(+SE). 3000 ● Received membership fees for the month/this month: Cash(+A). 3000 Memb.Rev(+A). 3000 ● Pay Next month: Acc.Pay(+L). 3000 Elec.Exp(-SE). 3000 ● Paid an arena for the next 4 months: Prepaid Expense(+A)3000 Cash(-A). 3000 ● Received 3000 for future service; Cash(+A). 3000 Deferred Rev(+L). 3000 ● Collect cash on account: Cash(+A). 3000 Acc.Rec(-A). 3000 ● Adjusting Journal Entries:(segna solo gli adjustments) Supplies Exp(E). 2000