Financial Accounting final Flashcards
Statement of owners equity
Beginning capital + owners investment + net income - withdrawals
Income statement
Revenue - expense = net income
Balance sheet
Assets = liability + equity; describes company’s financial state
Cost/Measurement Principle
Accounting information is based on actual cost which is objective
Revenue Recognition Principle
Recognise revenue when goods or services are provided to an expected amount
Expense recognition principle
A company records its expenses incurred to generate revenue reported
Accounting equation
Assets = liabilities + equity
Calculate return on asset
Net Income / Average Total Assets
Normal Balances
A normal balance refers to the debit or credit balance that’s normally expected from a certain account
Calculate the change in owners equity
Beginning capital + owners investment + net income - withdrawals
Calculate debt ratio
Total Liabilities / Total
Calculate net income
Revenue - Expenses
What order are financial statements prepared
Income statement, owners equity, balance sheet, statement of cash flow
Calculate profit margin
Net income / Net Sales
Permanent / Temporary Accounts
Temporary accounts accumulate data related to one accounting period - income statement, owner withdrawals, expenses
Permanent accounts - Report om activities related to one or more future accounting periods - Liabilities, assets, owners capital
Four step closing entries
Close revenue account and credit income summary
Close expense account and debit income summary
Close income summary and credit capital account
Close withdrawals account and debit capital account
Classified balance sheet
organises assets and liabilities into subgroups that provide more info to decision makers
Current assets
Assets expected to be sold, collected or used within one year or company’s operating cycle
Current Ratio
Current Assets / Current Liabilities
Calculate gross margin and gross margin ratio
Net sales - COGS / Net Sales
Calculate net sales
(Total units sold x sales per unit price) - sales returns - allowances - discounts
Single step income statement
Lists cost of goods sold as another expense and shows only one subtotal for total expenses. Expenses are grouped into a few, if any, categories
Multi-step income statement
Details computation of net sales and expenses and reports subtotals for various items
FOB shipping point, destination point and consignment
FOB Shipping point - goods included in buyers inventory when shipped
FOB Destination - goods included in buyers inventory after arrival at destination
Goods on consignment are goods shipped by the owner, called the consignors to another party, the consignee
LIFO conformity rule
If LIFO used for tax purposes it also must be used to compute income for financial statements
Inventory turnover
COGS / average inventory
Days sales outstanding
Accounts receivable / net sales x 365
Calculate FIFO inventory value
Sell first inventory price first - less expensive
Calculate LIFO - sell last inventory first
