Accounting Cheat Sheet by John Gillingham, CPA All Rights Reserved eTAccountingPlay.com Pee acy Balance Sheet as of 12/31/2100 Assets = __Uablities + Equity i ls Income Statement, year ended 12/31/2100 |= TAccoue revenue - pense HE als ele pebit | creait pfroe otda als =Net income increases RE + > Equation Journal Entry debit _credlt Assets = Liabilities + Equity cash 100 Equity = Assets - Liabilities Common stock 100 Receive cash for common stock Cost of Goods Sold (COGS) Beginning inventory Gross Profit Revenue x + Purchases Revenue (1- Gross profit Ending inventory ‘Cost of Goods Sold (COGS) OGs rate) (Gross Profit cos DEBITS & CREDIT: Balance Sheet Asset debit credit Contra asset credit debit Contra assets: Accumulated depreciation, ‘Allowance for doubtful accounts Income Statement Revenue credit debit ‘Most transactions: Typically credits a Expense debit credit ‘Most transactions: Typically debits ‘Accrual basis Follows the matching principle and recognizes transactions as they occur (GAAP Method) CCash basis Recognizes transactions when cash or equivalents hhave been exchanged (Not GAAP) US-GAAP Generally Accepted Accounting Principles system established by FASB that governs financial reporting IFRS International Financial Reporting Standards Financial reporting standard adopted widely outside of US (No LIFO permitted, different FMV valuation permitted) TN CelsNy I Valuation at lower of cost or market Higher ending inventory = Lower Cost of Goods Sold Lower Cost of Goods Sold = Higher Net Income FIFO First In First Out Early purchases come out of inventory first UFO Last In First Out Early purchases tend to stay in inventory ‘Average cost Total cost / Quantity ost per unit Perpetual inventory tracked in real time Periodic inventory tracked by counting at end of period Net income Comparison Price FIFO. IFO Average Rising Higher Lower ali Lower Higher Rule: Ina period of increasing inventory costs, FIFO. ‘method results in higher net income compared to LIFO. (ere en eee Rising Falling Lower Higher Higher Lower Middle iddleAccountingPlay.com eee cy PRINCIPLES, GUIDELINES, ASSUMPTIONS Comparability Conservatism Consistency Constraints Going concern Matching. Materiality Monetary unit Relevance Reliability, Revenue recognition Time period Accounting Cheat Sheet by John Gillingham, CPA All Rights Reserved Financial statements must be comparable period to period Considers all risks | strict rules ‘Same accounting methods year to year Information has a cost/benefit and is material Keep costs at purchase price or lower (lower of cost or market) ‘Maintain separate records for each entity Provides detailed information in addition to financial statements ‘Assume business is going to and has capability to continue Recognize cost the same time as benefit Significance to the overall financial picture Currency is used to record transactions and is assumed to be constant Financial reporting has predictive, feedback, and timeliness value Financial reporting is neutral, valid, and verifiable Conditions of how an organization records revenue Report financial activity in specific time periods BEI ore ES Disposition Sale, scrapping, or removal of an item, typically an asset Goodwill Purchase price less tangible value of physical assets purchased ‘Non sufficient funds, typically a returned check Unrealized gain | loss Investment that has increased | decreased in value, but not yet sold INTEREST FORMULAS Monthly interest ‘Compound interest PX (0/12) A=P(L+ (r/n))ant ate number of periods ‘A= Amount, P = Principal, -ompoundings per period, Sole Proprietorship One owner, no liability protection Partnership Two or more owners, no liability protection Limited Partnership Two or more owners, liability protection, LLC Limited Liability Company Liability protection, flexible Corporation Liability protection, double taxation issues: BANK RECONCILIATION Balance per bank + Deposits in transit = Outstanding checks 4/- Errors, fees, returned items Balance per b00ksAccountingPlay.com eee as Accounting Cheat Sheet by John Gillingham, CPA All Rights Reserved TECHNICAL INVENTORY AND COSTING i FOB shipping point Buyer's books at year end, title passes when goods delivered Work in process (WIP) Goods in the process of being manufactured (assets) Debits and credits Debit cash, Credit asset, Debit accumulated depreciation, Debit loss on sale BONDS I Bonds Financial instrument (agreement) issued by a company to borrow money from investors ata specified term (time) and rate Issuer Company that is raising the money Face value Amount that is repaid at the end of term. Stated coupon rate Interest that bond pays investor Effective interest Rate of interest investor receives if the bond is purchased at a discount or premium Premium Amount company is paid in excess of face value, often paid when coupon rate is greater than market rate Premium = Price paid for bond - face value Discount Amount below the face value paid for a bond often occurs when coupon rate is less than market rate Discount = Face value - price paid for bond Cost Price paid for asset (may Include costs to Straight line Rate = (Cost - Salvage value / Useful Ife) install) Book value Cost - Accumulated depreciation Declining Book value x Depreciation rate Salvage value Estimated scrap value at the end of asset (Wecetersted method) Rate = Straight line rate x Applicable % life ‘Applicable % = 150% for 150 DB and ‘Accelerated methods Methods resulting in greater depreciation 200% for double declining during earlier years MACRS / ACRS/DDB Accelerated depreciation methods Depreciation Expense taken on a physical asset over time ‘Sum-oF years’ its (Cost - Salvage value) X Applicable fraction (Wccelersted method) Applicable fraction = Years of estimated life remaining / Sum of years digits ‘Amortization Expense taken on an intangible asset over timeAccountingPlay.com eee Accounting Cheat Sheet by John Gillingham, CPA All Rights Reserved GES Eee Assets Cash 1,497 ‘Accounts receivable 400 Allowance for doubtful accounts (90) Equipment 200 ‘Accumulated depreciation (40) Inventory Total Assets abilities ‘Accounts payable : ‘Wages payable 300 Note payable 405 Dividends payable E ‘otal Liabilities 705 Equity ‘Common stock 1,010 ‘Treasury stock (a75) Retained earnings 427 ‘otal Equity 1,262 ilties + Equity 1967 BALANCE SHEET FEATURES I Balance sheet (statement of financial position) shows the ending balances of assets, liabilities, and equity at the end of the accounting period Mechanics Assets always equal liabilities plus equity, (which forms the accounting equation) ASSETS Current assets To be used within one year of the balance sheet date or longer, if the operating cycle is greater Current assets Cash and equivalents, accounts receivable, inventory, prepaid expenses to be used within a year Long-term assets Expected benefit greater than one year Examples: property, plant, equipment, intangible assets (copyrights, trademarks, goodwill) Accounts receivable (AR) Cash due from customers who have purchased goods or received services not yet paid for Inventory Goods for sale or manufacture, valued under GAAP at lower of cost or market Prepaid expense Expenses paid in advance, considered an asset until Used (such as a two year insurance policy) ‘Accumulated depreciation | amortization The sum of all prior depreciation | amortization (contra asset) increases with a credit and offsets the value of depreciable assets reported at cost ABILITIES: Current liabilities Obligations due in one year or less Long-term liabilities Debts owed to creditors, due in more than one year from t Accounts payable (AP) Money owed to creditors and vendors Notes payable Debts owed to banks or other creditors based on written agreements Accrued expenses Expenses incurred before the end of the accounting period, but not yet paid for Deferred revenue Cash received in advance, but not yet earned Long-term bonds payable Money borrowed to finance company operations, due in more than one year fe balance sheet date SHAREHOLDERS’ EQUITY ‘Common stock Sold to investors for ownership of a corporation Preferred stock investors receive dividends before common stockholders and usually do not have voting rights Additional paid-in capital Investment received by corporation, in excess of par value per share (APIC = Issuance price - Par value) Par (stated) value Per share amount on stock certificates, also, referred to as legal capital (no relation to market value) Retained earnings Sum of all previous profit and losses, leis dividends ‘Treasury stock Stock repurchased by company Dividends Corporate profits paic to shareholders'from retained earnings (not an expense)AccountingPlay.com eee as [ees Year ended 12/31/2100 Income Revenue 930 Cost of goods sold (29) Gross profit 920 Expense Bad debt 90 Depreciation 40 Interest 5 Utilities 50 ‘Wages 300 ‘Total Expense 485 Net Income (Profit) 435, Neos ees) Income statement (profit and loss) shows the performance of a business by reporting revenue earned minus expenses incurred to equal net income or loss (profit or loss) Mechanics Reports the business activity for a specific period of time and results in net income or loss, which gets recorded to retained earnings at the end of the accounting period REVENUE AND EXPENSE Revenue recognition Recognize (book into accounting record) revenue when itis earned and realizable Expense recognition Expenses are recognized when incurred, as goods are used and services received Net income or loss Revenue minus expenses results in net income or net loss also referred to as profit or loss Net income increases retained earnings and net loss decreases retained earnings STATEMENT OF CASH FLOWS FEATURES I ‘Statement of cash flows Shows the flow of cash in and out of the business Mechanics Starts with beginning cash from the prior period and reconciles to ending cash in the current period showing, the changes Usefulness Shows actual changes in cash on a cash basis, instead of the accrual basis which does not necessarily reflect the flow of cash Indirect method of preparation uses the changes in accrual basis accounts Direct method of preparation (uncommon) presents specific cash flows such as cash received from customers and paid to suppliers by John Gillingham, CPA All Ri ‘STATEMENT OF CASH FLOWS FEATURES Year ended 12/33/2100 Cash flows from operating activities: Net income ‘Adjustments to reconcile cash used for operations Depreciation and amortization, Changes in operating assets and liabilities: Accounts receivable Inventories ‘Accounts payable Allowance for doubtful accounts Accrued expenses Total adjustments ‘Net cash used in operating activities Cash flows from investing activities: Purchase of property and equipment ‘Net cash used in investing activities Cash flows from financing activities: Proceeds from notes payable Proceeds from issuance of common stock Purchase of treasury stock Principal on loan payment Dividend paid [Net cash provided by financing activities Net increase in cash and equivalents Cash and cash equivalents, beginning Cash and cash equivalents, ending. Accounting Cheat Sheet hts Reserved 435, (400) 10 300 475, (200) (200) 500 1,000 (175) (95) (8) 1,222 497AccountingPlay.com ena Statement of owners’ equity shows sources of capital (business funding), additional paid in capital and common stock breakdown, changes in retained earnings, and treasury stock (stock repurchased) Mechanics The statement starts with beginning balances and reconciles to ending period balanceAccountingPlay.com eee Accounting Cheat Sheet by John Gillingham, CPA All Rights Reserved eee Pee Ts ee ‘Make $30 cash sale, 1 unit, cost $10 eR ret ash 30 ST aa 7 cna Tn CoH RSA ra cornea so aay ma Receive $500 loan Repurchase $175 of company stock ea an aa rs To a a 7 Ta ST TSS TSS TS Ee 200 aaa cea Em aan 35 ends sa ‘Make $900 credit sale for services performed Cost of goods sold 10 as 55) eer a ara mae 3 ao 900 TH a vlogs oon Collect $500 credit sale. Income summary, 435 aa Sa FETE RSE 500, NN Income summary 435 Establish $90 Allowance for doubtful accounts Retained earnings 435 Allowance for doubtful 30 Declare $8 dividend Retained earnings a Record utilities expense $50 after receiving bill Dividends payable 8 Tn za TEED so ESTOS Dividends payable 8 Pay utility company $50 in cash for prior bills Cash 8 RESTS RRB za a = Accrue $300 in wage expense Wage expense 300 Wages payable 300 ‘Make $100 payment on nate payable with cash: $5 interest $95 principal Interest expense 5 Tera) Note payable 95 Cash 100 Record $40 of depreciation expense Rea Waccotncneeist con Depreciation o ane ON recllss9aollls| ‘Accumulated depreciation 40ACCOUNTINGPLAY APPS Learn Accounting Faster and Easier unting, debits & credits, anc tax easier with anytime and anywhe ntingPlay will hel ina PTR and fun way, Avail (0S and Anatroid PREMIUM COURSES oT RNa aa le eco eee ee eee es en eet ee eee ees Ce Loe ae eae eee Se