War22e_endsheets_front.

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FINAL

The Basics
1. Accounting Equation: STATEMENT OF OWNERS EQUITY
Assets = Liabilities + Owners Equity A summary of the changes in the owners equity of a business en-
tity that have occurred during a specific period of time, such as a
month or a year.
2. T Account:
Account Title BALANCE SHEET
A list of the assets, liabilities, and owners equity of a business en-
Left Side Right Side tity as of a specific date, usually at the close of the last day of a
debit credit month or a year.

STATEMENT OF CASH FLOWS

A summary of the cash receipts and cash payments of a business
3. Rules of Debit and Credit: entity for a specific period of time, such as a month or a year.

Total Debits = Total Credits 6. Accounting Cycle:

Balance Sheet Accounts 1. Transactions are analyzed and recorded in the
journal.
ASSETS LIABILITIES OWNERS EQUITY
= + 2. Transactions are posted to the ledger.
Asset Accounts Liability Accounts Owners Equity Accounts
3. An unadjusted trial balance is prepared.
Debit for Credit for Debit for Credit for Debit for Credit for 4. Adjustment data are assembled and analyzed.
increases(+) decreases() decreases() increases(+) decreases() increases(+)
5. An optional end-of-period spreadsheet (work
sheet) is prepared.
Income Statement 6. Adjusting entries are journalized and posted to
The side of the account for recording increases and the
Accounts the ledger.
normal balance is shown shaded.
Revenue Accounts
7. An adjusted trial balance is prepared.
8. Financial statements are prepared.
Debit for Credit for 9. Closing entries are journalized and posted to
decreases() increases(+)
the ledger.
10. A post-closing trial balance is prepared.
Less

e sum of the debits is Expense Accounts 7. Types of Adjusting Entries:

ways equal to the sum Debit for Credit for
the credits for each 1. Prepaid expense (deferred expense)
increases(+) decreases()
urnal entry. 2. Unearned revenue (deferred revenue)
3. Accrued revenue (accrued asset)
Equals 4. Accrued expense (accrued liability)
Net Income 5. Depreciation expense
Revenues exceed expenses Each entry will always affect both a balance sheet and
Increases owners equity (capital)
an income statement account.
or
Net Loss
Expenses exceed revenues 8. Closing Entries:
Decreases owners equity (capital)
1. Transfer revenue account balances to Income
Drawing Account Summary.
Debit for Credit for
2. Transfer expense account balances to Income
increases(+) decreases() Summary.
3. Transfer Income Summary balance to Capital.
4. Transfer drawing account balance to Capital.

4. Analyzing and Recording Transactions 9. Special Journals:

1. Carefully read the description of the transaction to determine
whether an asset, liability, owners equity, revenue, expense, or Providing services
drawing account is affected by the transaction. on account recorded in
Revenue (sales) journal
2. For each account affected by the transaction, determine whether Receipt of cash from
the account increases or decreases. any source recorded in
Cash receipts journal
3. Determine whether each increase or decrease should be recorded Purchase of items
as a debit or a credit. on account recorded in
Purchases journal
4. Record the transaction using a journal entry. Payments of cash for
5. Periodically post journal entries to the accounts in the ledger. any purpose recorded in
Cash payments journal
6. Prepare an unadjusted trial balance at the end of the period.

5. Financial Statements:

INCOME STATEMENT
A summary of the revenue and expenses of a business entity for a
specific period of time, such as a month or a year.
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FINAL

10. Shipping Terms: 16. Contribution Margin Ratio Sales Variable Costs
FOB Shipping Point FOB Destination Sales
Ownership (title)
passes to buyer when 17. Break-Even Sales (Units) Fixed Costs
merchandise is.................... delivered to delivered to Unit Contribution Margin
freight carrier buyer
Transportation costs
are paid by .......................... buyer seller 18. Sales (Units) Fixed Costs Target Profit
Unit Contribution Margin
11. Format for Bank Reconciliation:
19. Margin of Safety Sales Sales at Break-Even Point
Cash balance according to bank statement ...................... $xxx Sales
Add: Additions by company not on bank
statement .......................................................... $xx
Bank errors ............................................................. xx xx 20. Operating Leverage Contribution Margin
$xxx Income from Operations
Deduct: Deductions by company not on bank
statement .......................................................... $xx 21. Variances
Bank errors ............................................................. xx xx
Adjusted balance .................................................................. $xxx Direct Materials = Actual Price per Unit Actual Quantity
Price Variance Standard Price Used
Cash balance according to companys records ................ $xxx
Add: Additions by bank not recorded by company .. $xx Direct Materials = Actual Quantity Used Standard Price
per Unit
Company errors..................................................... xx xx Quantity Variance Standard Quantity
$xxx
Deduct: Deductions by bank not recorded
by company...................................................... $xx
Direct Labor = Actual Rate per Hour Actual Hours
Worked
Rate Variance Standard Rate
Company errors..................................................... xx xx
Adjusted balance .................................................................. $xxx Direct Labor = Actual Hours Worked Standard Rate
per Hour
Time Variance Standard Hours
12. Inventory Costing Methods:
Variable Factory Actual Budgeted Factory
1. First-in, First-out (FIFO)
Overhead Controllable = Factory Overhead for
2. Last-in, First-out (LIFO)
Variance Overhead Amount Produced
3. Average Cost
Fixed Factory Budgeted Factory Applied
13. Interest Computations: Overhead Volume = Overhead for Factory
Interest Face Amount (or Principal) Rate Time Variance Amount Produced Overhead

22. Rate of Return on Income from Operations

14. Methods of Determining Annual Depreciation: =
Investment (ROI) Invested Assets
STRAIGHT-LINE: Cost Estimated Residual Value Alternative ROI Computation:

ROI = Income from Operations Sales

Estimated Life
DOUBLE-DECLINING-BALANCE: Rate* Book Value at Beginning Sales Invested Assets
of Period
*Rate is commonly twice the straight-line
23. Capital Investment Analysis Methods:
rate (1/Estimated Life). 1. Methods That Ignore Present Values:
A. Average Rate of Return Method
B. Cash Payback Method
15. Adjustments to Net Income (Loss) 2. Methods That Use Present Values:
Using the Indirect Method A. Net Present Value Method
Increase B. Internal Rate of Return Method
(Decrease)
Net income (loss) $ XXX 24. Average Rate Estimated Average Annual Income
=
Adjustments to reconcile net income to of Return Average Investment
net cash flow from operating activities:
Depreciation of fixed assets XXX 25. Present Value Index = Total Present Value of Net Cash Flow
Amortization of intangible assets XXX Amount to Be Invested
Losses on disposal of assets XXX
Gains on disposal of assets (XXX)
Changes in current operating assets and liabilities:
26. Present Value Factor Amount to Be Invested
=
Increases in noncash current operating assets (XXX) for an Annuity of $1 Equal Annual Net Cash Flows
Decreases in noncash current operating assets XXX
Increases in current operating liabilities XXX
Decreases in current operating liabilities (XXX)
Net cash flow from operating activities $ XXX
or
$(XXX)
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