Accounting Midterm Cheat Sheet

Accounting Midterm Cheat Sheet

Part I – General and Revenue Recognition

• The fiscal year end is either noted in the footnotes or the financial statements
• Profitability is determined by the Net Income or Net Earnings which we can pull from the income statement

• Profitability is independent of the time period of when the company was founded because the income sheet shows one point in time
• DOES MATTER WHEN THE COMPANY WAS FOUNDED
• If the company has positive NI or NE then they are profitable, if they are negative then they are running at a loss

• Book value for Total Assets, Total Liabilities or Total Shareholder Equity can be pulled right from the balance sheet or you CAN calculate with Assets = Liabilities + Shareholder Equity
• Revenue recognition policies are pulled from the footnotes

• Make sure we know if we are talking about revenue recognition or if we are referring to expense recognition
• The accounts that are effected are on the other handout

• Carrying value is also the book value
• Only transactions that have occurred can be recorded on the financial statements

• For Example – agreements, contracts, increases in fair values of non-financial assets (inventories, PPE, and intangibles) above carrying value cannot be accounted for

• The amount of monies received from customers but hasn’t fulfilled = deferred revenue

• The total amount is the current and non-current amounts – Make sure you add!!

• The amount of deferred revenue that will be recognized in the next fiscal year is the current amount of deferred revenue
• There is a difference between a prepaid expense and an accrued liability

• Prepaid expense is any asset; accrued liability is a liability account
• Prepaid → pay in advance for something
• Accrued Liability → get a service or good and haven’t paid for it yet

• Balance sheet represents a moment in time (the end of the fiscal year) – The Statement of Cash Flows is the change of cash accounts throughout the year

Part II – Accounts Receivable

• Gross amount receivables = net amount + allowance → This is also the total amount that customers owe
• The amount that they expect to collect is the net account receivable amount
• Bad debt expense = provision for bad debt
• Recoveries are considered a debit on the gross accounts receivable T-account
• Net sales are the amount of sales + the deferred revenue
• We know that A=L+SE so any change is reflected

• If the revenues aren’t deferred then we know that they would increase their cash and decrease AP and recognize more RE and NI

Part III – Inventories

• Book values of inventories are the amounts that are shown on the financial statements
• We find that inventory cost flows assumptions in the footnotes
• The effects of LIFO, FIFO and Weighted Average are the result of decreasing or increasing prices

• If prices increase, then the Net Income under LIFO will decrease, FIFO and WA increase because there is less expense

Part IV – Long Term Tangible Assets and PPE

• Depreciation expense DOES NOT EQUAL the depreciation and amortization amount
• The depreciation method is found in the footnotes
• The change in the useful life will change the amount of Net Earnings because it will affect the expense
• HOWEVER, the change in USEFUL LIFE ALONE will not affect the cash balance because depreciation is a non-cash expense
• Gross book value of PPE is the net value + accumulated depreciation for that year
• Proceeds from Sales of PPE is that amount that the company receives on sales of PPE
• REMEMBER that under GAAP, you cannot write up any of your inventory SOOO… if it valued at a lower price then you have to write it down

• This pricing mechanism is THE LOWER OF COST OR MARKET PRINCIPLE → Provisions are the mechanism for abiding by this principle

• The Net Book Value of PPE is the net amount on the Financial Statements
• The additions to PPE can be found in the FS or the Footnotes
• The Net book Value of PPE DISPOSED OF = Proceeds – Gains(Loss)

• This amount can also be determined by finding the difference on the two t-accounts

• Provisions change based on how much the customers pay according the company’s estimate of delinquency
• If a company disposes of a building, the change in assumption about the useful life that increases the life, will cause a “decrease gain/increase loss” on sale of PPE
• OPERATING LEASES DO NOT EQUAL CAPITALIZED LEASES
• Cash consideration for sales of PPE is ALSO KNOWN AS Proceeds

Part V – Statement of Cash Flows

• Proceeds from sales of PPE are not included in CFO on the SCF
• We can determine debt by the amount of CFO to CFI as well as finding the amount of debt issuance and then taking away the repayments of debt
• Debt is the amount that you owe the bank because you borrow money for activities