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Accounting
This mind map is about the accounting, all about the accounting knowledge.
Edited at 2020-10-10 03:31:05- Mind Map Kingdom
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- Team Communication Strategies
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- Types of Vitamins
Vitamins and minerals are essential elements of a well-balanced meal plan. They help in ensuring that the body is properly nourished. A mind map can be used to map out the different vitamins a person requires.
Accounting
- Mind Map Kingdom
Mind maps are a great resource to help you study. A mind map can take complex topics like plant kingdom and illustrate them into simple points, as shown above.
- Team Communication Strategies
Mind maps are useful in constructing strategies. They provide the flexibility of being creative, along with the structure of a plan.
- Types of Vitamins
Vitamins and minerals are essential elements of a well-balanced meal plan. They help in ensuring that the body is properly nourished. A mind map can be used to map out the different vitamins a person requires.
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- Outline
Accounting-Mind-Map
Accounting Equation Asset = Liability + Owner's Equity
- Asset (Norm. Bal.; Debit)
- Contra-asset
- Accumulated depreciation
- Allowance for uncollectible accounts
- Cash
- Accounts receivable (A/R)
- Notes receivable
- Prepaid expenses
- Property (land, building)
- Liability (Credit)
- Accounts payable (A/P)
- Notes payable
- Accrued liabilities
- Unearned revenue
- Interest payable
- Salary payable
- Owner's Equity (Credit)
- Increase
- Revenue (Credit)
- Contra-revenue
- Sales returns/allowances
- Sales discount
- Sales
- Service
- Interest
- Owner's investment
- Decrease
- Expense (Debit)
- Rent
- Salary
- Utilities
- Supplies
- Cost of goods sold
- Owner's withdrawal
What?
- 1. Measures
- 2. Processes
- 3. Communicates
Principles
- GAAP Principles
- Entity concept
- Each accounting entity is stands apart as a separate economic unit
- Reliability (objectivity) concept
- Accounting information must be verifiable
- Cost principle
- Record costs at their actual value, not at the value you think is worth
- Going-concern concept
- Assume entity will remain in operation
- Stable-monetary-unit concept
- Assume there is no inflation
- Accounting Principles
- Accrual vs. Cash-basis
- Accrual accounting
- Correct way
- Accounting is done when the transaction occurs
- Cash-basis accounting
- Accounting is done only when cash is exchanged
- Only have Revenue and Expense accounts
- Cash receipts treated as Revenue
- Cash payments treated as Expense
- Accounting period
- Yearly/fiscal yearly
- Interim periods
- Quarterly
- Monthly
- Revenue principle
- When: revenue recorded when it has been earned, not before
- Amount: actual cash value of the item transacted
- Matching principle
- 1. Measure all expense incurred during period
- 2. Match expenses against revenues of the period
- Goal: find net income or loss during period
Receivables (Incomplete)
- On Account
- Purchase
- Paid
- Revenue
- Collected
- Uncollectibles
- Reconciliation
- Card sales
- Notes receivable
Merchandising
- Perpetual (incomplete)
- Purchase
- Sales
- Cost of Goods Sold
- No. of units sold
* Unit Cost
- Costing methods
(to obtain unit cost)
- Specific unit cost
- For unique or high-priced items
- Average cost
- Third most popular
- First-in, first-out (FIFO) cost
- Most popular
- Usually gives the highest net income due to rising prices of inventory
- Attracts investors
- Last-in, first-out (LIFO) cost
- Second most popular
- Usually gives the lowest net income due to rising prices of inventory
- Conserves cash from taxes
- Periodic
- Purchase
- Purchases are not recorded into an Inventory account
- Rather, there are separate accounts for Purchases, Purchase Discounts, Purchase Returns and Allowances and Freight In
- Ending inventories are simply brought over to the next period
- There is no actual Inventory account to keep track of the current inventory
- Sales
- Same as perpetual, except there is no accompanying entry to Inventory/Cost of Goods Sold
- Cost of Goods Sold
- Cost of Goods Available
- Ending inventory
- Unit Cost
- Purchase price
- Purchase discounts
- Credit Terms
- Purchases usually paid on account,
then paid later in cash
- Usually stated as: x/y
- x = % discount
- n = net (no discount)
- y = cash payment due in days
- eom = end of month
- Freight
- In (for purchases)
- Transportation cost on purchased goods
- Thus, applies only to the buyer
- Out (for sales)
- Transportation cost on goods sold
- Thus, applies only to the seller
- FOB (free on board)
- Shipping point
- Buyer owns goods while in transit
- Thus, buyer pays for freight
- Cost is added to buyer's
Inventory account
- There is no account for
transportation costs
- Destination
- Seller owns goods while in transit
- Thus, seller pays for freight
- Cost is added to seller's
Delivery expense account
- Gross Profit Method
- Used to estimate inventory if some force majeure occurs
- a. Estimate gross profit
- Past usual Gross Profit Percent
* Current Sales Revenue
- b. Estimate cost of goods sold
- Current Sales Revenue
- Estimated Gross Profit
- c. Estimate ending inventory
- Cost of Goods Available
- Estimated Cost of Goods Sold
- Closing
- Closing is done by matching the value in the Inventory account against the value of the actual inventory on hand
- Any differing amount is adjusted for shrinkage
- Lower-of-Cost-or-Market Rule (LCM)
- Demonstrates accounting conservatism
- Requires inventory to be reported at the lower of:
- Historical cost of inventory
- Actual purchase price
- Market value of inventory
- Cost to replace the inventory on hand
- Errors
- Errors in the counting of actual inventory on hand
- Understated
- Cost of goods sold overstated
- Gross profit understated
- Net income understated
- Overstated
- Cost of goods sold understated
- Gross profit overstated
- Net income overstated
- Only Cost of Goods Sold, Gross Profit and Net Income are affected
- Simply remember that Gross Profit and Net Income follows the Ending Inventory's under or overstatement
- Principles
- Consistency
- Same accounting methods from period to period
- Disclosure
- Report enough information for outsiders to make wise decisions about the company
- Materiality
- Account only for significant items—"material"—items that may cause someone to change a decision
- Accounting Conservatism
- Goal: to report realistic figures
- Exercise caution in reporting figures
- Terminology
- Net Sales Revenue
(or simply "Net Sales")
- Sales revenue
- Sales returns and allowances
- Sales discounts
- Gross Profit
- Net sales revenue
- Cost of goods sold
- Cost of Goods Available
- Beginning inventory
+ Net purchases
- Ending Inventory (Actual)
- Obtaining the actual number of units on hand
* Unit Cost
Ratios
- Current ratio
- Total current assets / Total current liabilities
- Measures ability to pay its current liabilities
- In general, 1.5 is safe
- 1.0 is considered risky
- Debt ratio
- Total liabilities / Total assets
- Measures overall ability to pay debts
- In general, 0.6 is safe
- 0.8 is considered risky
- Gross Profit Percentage
(Gross margin percentage)
- Gross profit / Net sales revenue
- Net sales revenue = Sales revenue
- Sales returns and allowances
- Sales discounts
- Gross profit = Net sales revenue
- Cost of goods sold
- Measures profitabilitiy
- Small increase may signal an important rise in income, and vice versa
- Rate of Inventory Turnover
- Cost of goods sold / Average inventory
- Average inventory = (Beginning inventory + Ending inventory) / 2
- Measures how quickly inventory is sold
- Higher is desirable
- Means more profits
- Acid-test (Quick) ratio
- (Cash + short-term investments +Net current receivables) / Total current liabilities
- Net current receivables = Accounts receivable - Allowance for uncollectible accounts
- Measures ability to pay current liabilities with current assets
- In general, 1.0 is safe
- It depends on company too. Wal-Mart has a Quick ratio of 0.2 but it is fine.
- Days' Sales in Receivables- Used to evaluate companies
- Average net receivables / Net sales revenue * 365
- Average net receivables = (Beginning net receivables + Ending net receivables) / 2
- Net sales revenue = Sales revenue
- Sales returns and allowances
- Sales discounts
- Measures how many days it takes to collect the average level of receivables
- Shorter the period, the faster cash is available, and vice versa
Accounting Cycle
- During the Period
- 1. Journalize Entries
- 3 Questions + Map
- a. What are the accounts involved?
- Think cash first
- b. Increase or decrease?
- c. Debit or credit?
- i. Debit comes first in the journal
- ii. Debit = Credit
- 2. Post to Ledger
- Posting to the T-accounts
- 3. Prepare Trial Balance (unadjusted)
- Part of the Accounting Worksheet
- Balance of the accounts during the period
- NOT a financial statement
- p.77 ex.2-12
- At the End of Period
- 1. Prepare Adjusted Trial Balance
- Part of the Accounting Worksheet
- p.198 ex.4-2 to 4-6
- p.143 ex.3-10
- 2. Prepare Statements
- a. Income Statement
- Multi-step
- Lists several important subtotals like gross profit and operating income
- p.270 ex.5-7
- Single-step
- Groups revenues and expenses together without drawing other subtotals
- p.271 ex.5-8
- p.202 ex.4-7
- b. Statement of Owner's Equity
- p.202 ex.4-7
- c. Balance Sheet (unclassified)
- p.202 ex.4-7
- d. Statement of Cash Flow
- How to prepare this is not tested
- p.20 ex.1-8
- 3. Record Adjustments
- a. Journalize adjustments
- b. Post adjustments
- 4. Close Accounts
- Closing involves owner's equity only
- Income Summary Account
- Left (debit) = Expenses
- Right (credit) = Revenues
- Steps
- a. Close Revenue to Income Summary
- b. Close Expenses to Income Summary
- c. Compute Income Summary Balance
- Balance is on the left side (expense revenue) = net loss
- Balance on the right side(revenue expense) = net profit
- d. Close Income Summary to Capital
- Net loss goes to Capital's Dr. (-)
- Net profit goes to Capital's Cr. (+)
- e. Close Withdrawals to Capital
- Withdrawals to Capital's Dr. (-)
- f. Compute Capital Balance
- 5. Prepare Post-closing Trial Balance
- Part of Accounting Worksheet
- 6. Classify Assets and Liabilities
- Current
- Can be liquidated (converted to cash) or paid within 12 months
- Assets
- Cash
- A/R
- Supplies
- Prepaid expense
- Inventory
- Liabilities
- A/P
- Notes payable (in one year)
- Salary payable
- Interest payable
- Unearned revenue
- Long-Term
- Anything that is not current is long-term :)
- Assets
- Property
- Plant assets
- Long-term investments
- Liabilities
- Long-term notes payable
- 7. Prepare Classified Balance Sheet
- Account format
- Report format
Adjustments
- Prepaid (cash now, exp/rev later)
- Expense
- a. Cash- (Cr) - Asset+ (Dr)
- Adjusting entry:
b. Asset- (Cr) - Expense+ (Dr)
- Prepaid rent
- Supplies
- Revenue
- a. Liability+ (Cr) - Cash+ (Dr)
- Adjusting entry:
b. Revenue+ (Cr) - Liability- (Dr)
- Unearned revenue
- Accruals(exp/rev now, cash later)
- Expense
- a.Liability+(Cr)- Expense+(Dr)
- Adjusting entry:
b. Cash- (Cr) - Liability- (Dr)
- Interest exp. (i.e. loan interest)
- Salary expense
- Revenue
- a.Revenue+ (Cr) - Asset+ (Dr)
- Adjusting entry:
b. Asset- (Cr) - Cash+ (Dr)
- Interest rev. (i.e. bank interest)
- Depreciation
- Dr. Depreciation Expense+
(expense)
- Cr. Accumulated Depreciation+
(contra-asset; thus +)
- Inventory Shrinkage
- Dr. Cost of Goods Sold+expense
- Cr. Inventory-asset