Notesale: Turn your study into money

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PROBLEM  1:  TRANSACTION  ANALYSIS  
WHEN  NO  EXCHANGE  IS  MADE  IT  IS  N/A  AND  DON’T  MAKE  A  CHART/T-­‐ACCOUNT  -­‐    
Example:  X  Inc
...
 lease  agreement  to  rent  space  beginning  immediately  at  a  monthly  fee  of  $3,500  
Accounts  Receivable  –  money  owed  to  a  company  by  its  debtors  (Balance  Sheet,  current  asset)  
Accounts  Payable  -­‐  money  owed  by  a  company  to  its  creditors  (Balance  Sheet,  current  liab)  
Additional  Paid-­‐in  Capital  –  excess  paid  by  an  investor  over  the  par-­‐value  price  of  a  stock  issue
...
 (Balance  Sheet,  
stockholder’s  equity)  
Cash  –  physical  money  (bank  notes,  cash,  checks,  deposits)  (Balance  Sheet,  current  asset)  
Common  Stock  –  shares  entitling  their  holder  to  dividends  that  vary  in  amount  (Balance  Sheet,  stockholder’s  equity)  
Interest  Payable  –  the  amount  of  interest  that  has  been  incurred  (earned)  but  has  not  yet  been  paid  (Balance  Sheet,  liability)  
Maintenance  Expense  –  cost  incurred  to  keep  an  item  in  good  conditions  and/or  good  working  order
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 Includes  loans  from  banks
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 Cost  to  operate  office  equipment
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 Remained  on  hand  (Income  Statement)  
Prepaid  Rent  –  future  rent  expense  that  was  paid  in  advance  of  the  rental  period  (Balance  Sheet,  asset)  
Rent  Expense  –  cost  incurred  (earned/given  to)  by  a  business  to  utilize  property  (Income  Statement)  
Service  Revenue  –  operating  revenue  account  and  includes  work  that  has  been  fully  performed,  irrespective  of  whether  or  not  it  has  yet  been  
billed  for  (Income  Statement)  
Unearned  Service  Revenue  –  liability  account  that  reports  amounts  received  in  advance  of  providing  goods  or  services  (Balance  Sheet,  liability)  
PROBLEM  2:  YEAR  END  ADJUSTMENTS  (also  vocab  for  PROBLEM  3)  
(Transaction  Analysis  is  INCLUDED  so  ADD  from  ABOVE)  
Accumulated  Depreciation  –  total  amount  of  depreciation  that  has  been  taken  on  a  company’s  assets  up  to  date  on  the  (Balance  Sheet)  (decrease  in  
value  of  an  asset  w/  passage  of  time)  
Advertising  Expense  –  reports  the  $  of  ads  that  run  during  the  period  shown  (Income  Statement)  
Buildings  –  buildings  owned  by  the  business  (Balance  Sheet,  asset)  
Cost  of  Goods  Sold  –  beginning  inventory  +  purchases  –  ending  inventory  (formula)  (Income  Statement)  
Depreciation  Expense  –  distributed  portion  of  the  cost  of  a  company’s  fixed  assets
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 Owing  to  federal,  state/provincial  and  municipal  governments
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 (Balance  Sheet,  liab)  
Insurance  Expense  –  expired  premium  paid  by  a  business  to  an  insurer  (Income  Statement)  
Interest  Expense  –  Used  borrowed  money  bonds,  loans,  convertible  debt,  lines  of  credit  (Income  Statement)  
Interest  Payable  –  amount  of  interest  that  has  been  incurred  but  not  yet  paid  (Balance  Sheet,  liability)  
Interest  Receivable  –  income  a  business  has  earned  but  for  which  a  debtor  has  yet  to  pay  (Income  Statement)  
Interest  Revenue  –  non-­‐operating  income  for  companies  not  in  the  business  of  lending  money  (Income  Statement)  
Inventory  –  goods  &  materials  held  by  a  business  for  the  purpose  of  sale  (Balance  Sheet  asset)  
Land  –  includes  cost  of  all  the  land  owned  by  the  business  &  cost  of  land  with  building  on  it  (Balance  Sheet,  asset)  
Sales  Revenue  –when  the  place  sold  goods  w/  discount  (2/10,  n/30)
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 W/  Accounts  Receivable    (Income  Statement)  
Notes  Receivable  –  money  owed  to  a  business  by  outsiders  for  which  there  is  a  formal  document  for  proof  of  debt  (interest,  loans)  (Balance  Sheet)  
Prepaid  Advertising  –  paid  for  advertising  that  has  not  yet  taken  place  (Balance  Sheet)  
Prepaid  Insurance  –  insurance  has  been  paid  in  advance  and  has  not  expired  (Balance  Sheet,  asset)  
Prepaid  Interest  –  Interest  that  is  paid  in  advance  (usually  mortgage)  (Balance  Sheet)  
Prepaid  Salaries  –  pay  salaries  in  advance  (Balance  Sheet)  
Purchases  –  when  the  place  purchased  goods  w/  discount  (2/10,  n/30)  (debit)
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   Paired  with  Accounts  Receivable  (credit)  
Sales  Return  –  merchandise  sent  back  to  seller  by  buyer  (debit)
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02)  =  Sales  Discount  (A
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=debit)(A
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=credit)  
Subtract  Accounts  Receivable  w/  Sales  Discount  =  Cash  (A
...
=debit)(A
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=credit)  
FOB  DESTINATION:  
Date:  of  transaction/arrival  
Ownership  transfers:  at  buyers  place  of  business  
Who  owns  goods  while  in  transit:  the  seller  
Freight-­‐Out:  shipping  cost  to  be  paid  by  seller  of  merchandise  
FOB  SHIPPING:  
Date:  of  transaction/arrival  
Ownership  transfers:  at  the  seller’s  place  of  business  
Who  owns  goods  while  in  transit:  the  buyer  
Freight-­‐In:    shipping  cost  to  be  paid  by  buyer  of  merchandise  
DATE:  when  the  goods  arrived  
PROBLEM  4:  MERCHANDISING  INCOME  STATEMENT  
Net  Sales  (Revenue)  =  (Gross)  Sales  Revenue  –  Sales  Returns  &  Allowances  –  Sales  Discounts  
Net  Purchases  =  (Gross)  Purchases  –  Purchases  Returns  &  Allowances  –  Purchases  Discounts  
Cost  of  Goods  Sold  =  (Beginning  Inventory  +  Net  Purchases  (ABOVE)  +  Freight-­‐in)  =  COGS  Available  for  Sale  –  Ending  Inventory  =  COGS  
Gross  Profit  =  Net  Sales    (ABOVE)  –  Cost  of  Goods  Sold  (ABOVE)  
PROBLEM  5:  ACCOUNTING  FOR  INVENTORY  
Cost  of  Goods  Available  for  Sale  =  (Units  *  Cost  per  Unit)  à  Add  all  costs  together  
Units  Available  for  Sale  =  Add  all  units  up  (from  beginning  inventory  –  last  date/end)  
Units  Sold  =  Units  Available  for  Sale  (ABOVE)  –  What  remains  on  hand  (in  description)  
Sales  Revenue  =  Units  Sold  (ABOVE)  *  Average  Price  Per  Unit  (in  description)  
WEIGHTED-­‐AVERAGE  METHOD  
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Accurate  approximation  method  when  items  are  small-­‐dollar  items  @  diff
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68  
21,000  *  5
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65  
4,500  *  5
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45  
22,000  *  5
...
52  
3,500  *  5
...
 LIFO  Reserve  example:  $144,705  -­‐  $139,220  =  $5,485  
Other  Notes:  
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Balance  sheet  &  related-­‐ratios  become  more  distorted  over  time  
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Company  NOT  have  been  allowed  to  choose  if  it  prepared  its  financial  statements  using  IFRS  
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Wanted  to  conserve  cash  by  saving  on  income  taxes

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