accounting cycle lecture Flashcards
make the income statement
sales revenue
- cost of goods sold
—————————–
gross profit (gross margin)
- expenses
+ revenues
——————————
income before taxes
- income tax expense
——————————
Net income
purpose of the income statement
assess profitability
on the income statement what are operating cost
sales revenue
- cost of goods sold
—————————
gross profit
- expenses
and then income tax expense
on the income statement what is non operating cost
revenues,
income before taxes
whats the statement of stockholders equity look like
beginning balance
+ net income
- issue dividends
+ issuance of common stock
—————————————–
ending balance
whats retained earnings look like
beginning retained earnings
+ net income
- dividends
—————————————–
ending retained earnings
whats current asssets
- cash
- accounts receivable
- inventory
- prepaid expense, etc.
whats non current assets
- PPE
- goodwill
- patent, etc.
whats current liabilities
- accounts payable
- unearned service revenue
- salaries payable, etc.
whats non current liabilities
- long term debt
- note payable
2 parts of stockholders equity
- common stock
- retained earnings
what classifies current
within 1 year or an opertating cycle
amount of time it takes to manufacture a product, sell it to a customer, and collect cash
operating cycle
ability to pay our debts when they come due
accessing liquidity and solvency
short term in nature
liquidity
long term in nature
solvency
3 types of activites
- operating
- investing
- financing
normal things we do in our business
which activity is this?
operting
related to investing, generating long term in nature
which activity is this?
investing
raising capital for our business, issuing or paying our own debt or our own equity
whcih activity is this?
financing
- salaries and wages expense
- sale of patent
- income taxes
- dividends
- issuance of bonds
- purchase of property, plant, and equipment
- purchase of inventory
- interest expense
name which activity and if cash inflow or outflow
- operating, out-flows
- investing, in-flow
- operating, out-flow
- financing, outflow
- financing, inflow
- investing, outflow
- operating, outflow
- its a trap, payment on our debt = financing but its not operating
- net icnome
- accrual measure of earnings
- revenue recognition
- expense recognition
- not necessarily related to timing of cash adjustments needed to get back to a cash basis bumber
operating section (indirect)
- purchase of PPE
- purchase of stock in company
investing (direct)
-issuance of common stock
- payment of dividends
- repayment of debt
financing (direct)
3 step process to perform closing entries
- close revenues
- close expenses
- close dividends
a normal revenue entry
Dr. accounts receivables
Cr. sales revenue
How would you set sales revenue back to zero?
Dr. sales revenue
Dr. service revenue, etc.
Cr. retained earnings
a normal expense entry
Dr. salaries expense
Cr. cash
How do we reset expenses to zero
Dr. retained earnings
Cr. COGS
Cr. interest expense
Cr. salaries expense, etc.
how to close dividends
Dr. retained earnings
Cr. dividends
what should be set to zero after closing all temporary accounts
revenues, expenses, losses, gains, and dividends
what should still have balances after closing all temporary accounts
assets, liabilities, and stockholders equity
