Accrual Accounting and Statements Flashcards
Cash to Accrual
Cash = L - OA (from A = L+OE) for TO CASH
Plug in change in accounts and change signs for to Accrual FROM Cash
to Accr = -L + OA for TO Accrual
?? Above is for Net INCOME Conversion only ??
CHECK THIS: is so, then reverse sign AGAIN
Use T-Accounts for simple Cash to Accrual on one account like AP or AR
AP = Beg + Accr Purchases - CASH Payments = Ending AR = Beg + Accr Sales - CASH Collections - w/off = Ending
Also:
if AR DECREASES then Cash Sales is > than Accrual
if AP DECREASES then Cash Exp > Accrual
Accr Liability
Prepaid Asset
Cash to Accrual
Cash = L - OA (from A = L+OE) for TO CASH
Plug in change in accounts and change signs for to Accrual FROM Cash
to Accr = -L + OA for TO Accrual
Cash to Accrual TIPS
1, NEED REVIEW on treatment for ADA / Bad Debt; when to ignore non-cash accounts.
- A/R: Beg + Sales - Collections - Write Offs = Ending so must subtract write offs as well if calculating Collections.
- SRA and Discounts: for Cash Accounting basis, still use Net Cash Sales and Net Credit Sales (both net of SRA and Discounts) to calculate proper Cash Revenue.
Cash to Accrual
Cash = L - OA (from A = L+OE) for TO CASH
Plug in change in accounts and change signs for to Accrual FROM Cash
Cash to Accrual TIPS
1, NEED REVIEW on treatment for ADA / Bad Debt; when to ignore non-cash accounts.
- A/R: Beg + Sales - Collections - Write Offs = Ending so must subtract write offs as well if calculating Collections.
3.
Statement of Comprehensive Income
Non-owner changes to Equity over time
DENT-R or PUFE-R
- Certain Pension Adjustments
- Unrealized Gain/Loss on AFS Investments
- FX Translation Adj
- Effective portion of certain hedge accounting adj
Balance Sheet
Economic Resources and Obligations at point in time
Assets in order of liquidity
Liabilities in order of Maturity
Current / Long Term designation
Various Measurement attributes
Statement of Stockholders Equity
CHANGES related to O/E over period of time in order of permanence
Contributed Capital first with R/E last
Statement of Cash Flows
Operating
Investing
Financing
A full set of financial statements should include the following
- Financial Position at year-end (balance sheet);
- Earnings for the year (income statement);
- Comprehensive Income for the year - total nonowner changes (statement of comprehensive income);
- Cash Flows during the year (statement of cash flows);
- Investments by and Distributions to Owners during the year (statement of owner’s equity).
Elements of Financial Statements
- Assets – Resources that have probable future benefits to the firm, controlled by management, resulting from past transactions. Note the three aspects of this definition.
- Liabilities – Probable future sacrifices of economic benefits arising from present obligations of an entity to transfer assets or provide services to other entities as a result of past transactions or events.
- Equity – Residual interest in the firm’s assets, also known as net assets. Equity is primarily comprised of past investor contributions and retained earnings.
- Investments by Owners – Increases in net assets of an entity from transfers to it by existing owners or parties seeking ownership interest.
- Distributions to Owners – Decreases in net assets of an entity from the transfer of assets, provision of services, or incurrence of liabilities by the enterprise to owners.
- Comprehensive Income – Accounting income (transaction based) plus certain holding gains and losses and other items. It includes all changes in equity other than investments by owners and distributions to owners.
- Revenues – Increases in assets or settlements of liabilities of an entity by providing goods or services.
- Expenses – Decreases in assets or incurrences of liabilities of an entity by providing goods or services. Expenses provide a benefit to the firm.
- Gains – Increases in equity or net assets from peripheral or incidental transactions.
- Losses – Decreases in equity or net assets from peripheral or incidental transactions. Losses provide no benefit to the firm.
Prepaid Taxes
NEEDS REVIEW
- If prepaid Taxes listed as Current Asset as they were prepaid, that account may need to be transferred over to Current Tax Expense if Tax Expense not booked yet when calculating correct final Current Assets
2.
Accruals and Prepaids
Incr in PPD Exp = more cash than expense
Incr in Accr Liab means more expense than cash
Prepaids: Beg + Prepaids Paid - Exp Charged = Ending
Supplies Expense and NI vs O/E
Supplies expense for 2001 under the accrual method is: supplies expense = beginning supplies + purchases - ending supplies. If beginning supplies cannot be determined, then it is assumed to be zero and supplies expense is understated, causing 2001 income to be overstated. However, total supplies expense for the entire life of the business is unaffected by the inability to determine beginning supplies for 2001. Total supplies expense for the life of the business is total purchases less ending inventory in 2001. These two amounts are determinable, and thus, owners’ equity at the end of 2001 can be determined.
Current Asset and Prepaids
Current is the piece to be consumed in the next YEAR or Operating Cycle (whichever is longer); 6 month cycle is not relevant.
Prepaid Asset left in TOTAL might be for 24 months, but Current would only be 12 months worth.
