Intermediate Accounting 1A 2019 by Millan

Chapter 1- Summary (Accounting Process)

 The accounting cycle represents the steps or procedures used in recording transactions and preparing financial
statements.
 Journal (book of original entry) is a formal record where transactions are initially recorded. Journal entries are
then posted to the ledger (book of final entry).
 The ledger is a systematic compilation of a group of accounts.
 Journals are used only under the double-entry system however, subsidiary ledgers are used under both double and
single-entry systems. Cash basis and accrual basis of accounting can be used under both the double and single
entry systems.
 Account is the basic storage of information in accounting.
 Debit is simply the left side of an account; credit is the right side
 Chart of accounts is a list of all the accounts used by the entity.
 Trial balance is a list of accounts and their balances. It is used to check the equality of total debits and total
credits in the accounts.
 Errors revealed by a trial balance are those which have caused the total debits and total credits unequal.
 All adjusting entries involve at least one statement of financial position account and one statement of
comprehensive income account. Adjusting entries are used to update the balances of accounts prior to the
preparation of the financial statements.
 Financial statements are the means by which the information accumulated and processed in financial accounting
is periodically communicated to the users.
 Income is initially recorded using either the (a) liability method or (b) income method. Expenses are initially
recorded using either (a) asset method or (b) expense method. Regardless of which method is used, assets,
liabilities, equity, income and expenses presented in the financial statements are the same.
 Reversing entries may be made on the following: (a) all accruals, (b) prepayments initially recorded using the
expense method, and (c) unearned income initially recorded using the income method.

Chapter 2- Summary (Cash and Cash equivalents)

 Postdated checks received from customers are excluded from cash and reverted back to accounts receivable.
 Undelivered checks drawn and postdated checks drawn are included in cash and reverted back to accounts
payable.
 Only highly liquid investments that are acquired 3 months or less before maturity can qualify as cash
equivalents.
 Shares of stocks generally cannot qualify as cash equivalents, except for redeemable preference shares acquired
3 months or less before redemption date.
 Bank overdrafts are reported as current liabilities except in cases where offsetting is permitted.
 Compensating balances that are legally restricted are excluded from cash. Whether restricted or not,
compensating balances are disclosed in the notes.
 The voucher system is an internal control over cash disbursements which require that every disbursement should
be supported by a written authorization embodied in a document called voucher.
 Cash shortages are initially debited, while cash overages are initially credited, to the “Cash shortage or overage”
account pending due investigation.
Chapter 3 – Summary (Back reconciliation)

 A bank reconciliation statement is a report that is prepared for the purpose of bringing the balances of cash (a) per
records and (b) per bank statement into agreement.
 Pro forma bank reconciliation:

 Credit memos (CM) – are additions (bank credits) made by the bank to the depositor’s bank account but not yet
recorded by the depositor, e.g., collections made by the bank on behalf of the depositor.
 Debit memos (DM) – are deductions (bank debits) made by the bank to the depositor’s bank account but not yet
recorded by the depositor, e.g., NSF checks, bank service charges.
 Deposit in transit (DIT) – are deposits made but not yet credited by the bank to thee depositor’s bank account.
 Outstanding checks (OC) – are checks drawn and released to payees but are not yet encashed with the bank.

Chapter 4 – Summary (Accounts Receivable)

 Trade receivables are receivables arising from the sale of goods or services in the ordinary course of
business. Receivables arising from the other source are non-trade receivable.
 Trade receivables are classified as current assets when they are expected to be realized in cash within
the normal operating cycle or one year, whichever is longer. Non-trade receivables are classified as
current assets only when they are expected to be realized in cash within one year.
 The adjusting entry to eliminate a credit balance in a receivable or a debit balance in a payable
increases total receivables.
 Trade receivables that do not have a significant financing component or measured at their transaction
price in accordance with PFRS 15. As a practical expedient, a trade receivable may not be discounted if
it is due within one year.
 Under FOB shipping point, ownership is transferred to the buyer upon shipment. Therefore, sales and
accounts receivable are recognized only when the buyer receives delivery of goods.
 The allowance method of recognizing bad debts on accounts receivable is used for financial reporting
purposes.
 Doubtful accounts may be estimated using: (a) percentage of credit sales, (b) percentage of receivables,
or (c) aging of receivables.
 The amount computed under the percentage of credit sales method is the bad debt expense for the
period.
 The amount computed under the percentage of receivables and aging methods is the required balance of
the allowance account.
  ESTIMATING DOUBTFUL ACCOUNTS

Chapter 5 – Summary (Notes Receivables)

 Receivables are initially recognized at fair value plus transaction costs. However, trade receivables
that do not have a significant financing component are measured at the transaction price.
 Short-term receivables are initially measured at whichever of the of the following is most appropriate:
face amount, present value, or transaction price.
 Reasonable interest rate long term receivables with reasonable interest rate are initially recognized at
face amount and subsequently measured at recoverable historical cost.
 Long-term noninterest bearing receivables and long-term receivables with unreasonable interest rates
are initially measured at amortized cost.
 If the cash price equivalent of the non-cash asset forgone in exchange of for a receivable