• Assets = Liability + Shareholder's Equity
  • cash: coins, checks, money orders, and checking account balances
• Retained Earning <- Retained Earning + Net Income - Dividend
• Net income = Revenue - Expense
  • B beginning balance
  • A add revenue
  • S substract expense
  • E ending balance
• Cash <- Cash + Net increase in cash.

• Debit must always equal credit.
• Just remember: asset moves up is debit. Anything that moves in order to keep balance must be credit.

• Prepaid insurance
• Unearned service revenue.
• Dividend does not appear on income income. It is not an expense.

• Receive money, debit asset, credit revenue
• Closing revenue account, debit revenue, credit income summary
• Incur expense, credit expense, debit income summary
• Closing book: debit (decrease) income summary, credit retained earning.

• Credit cash, debit dividend
• closing: credit dividend, debit retained earning.

Corner case: if overpaying liability, the excess is treated as asset (prepaid expense/rent/insurance), not liability.

• Creditors are individuals and organizations that have rights to receive payments from a company
• Customers and others who owe a company are called its debtors.
• accrued expense: taxes payable, and interest payable
• A journal gives a complete record of each transaction in one place. It also shows debits and credits for each trans
  • date of transaction
  • b titles of affected accounts
  • c dollar amount of each debit and credit
  • and d explanation of the transaction
• The process of transferring journal entry information to the ledger is called posting
  • When entries are posted to the ledger, the debits in journal entries are transferred into ledger accounts as debits, and credits are transferred into ledger accounts as credits.
• A trial balance is a list of all ledger accounts and their balances (either debit or credit) at a point in time.

• Expense is triggers by expiration of future benefits.
• Revenue incurred when service is delivered.
  • no impact on income statement when cash is received
• Receiving cash doesn't mean revenue.

Adjusting entries

• Prepaid expense/rent/insurance: asset; paid cash before expense is incurred.
  • to adjust account, increase (debit) expense, decrease (credit) asset
  • book value: cost - accumulated depreciation
• Accrued revenue: asset (account receivable)
  • to adjust, debit cash, credit accrued revenue (account receivable)
• Unearned revenue: liability
  • to adjust account, decrease (debit) unearned revenue, increase revenue (credit)
• Accrued expense: liability
  • as future economic benefits expire

Borrow cash:

• debit cash, credit note payable
• accrue interest:
  • debit interest expense (same direction as asset)
  • credit interest payable (liability)

Pay salary

• accrue salary: debit salary expense, credit salary payable (liability)
• pay salary: debit salary payable, credit cash

Asset classes

• current asset (order matters)
  • cash
  • debt investment
  • account receivable
  • note receivable (< 12 months)
  • inventory
  • supplies
  • prepaid insurance
• long term invest
  • stock investment
  • real estate investment
• PPE: land, equipment, less accumulated depreciation
• intangible asset: patents

Liability classes

• current liability,
  • note, account payable (< 12 month)
  • unearned service revenue
  • salary, wages payable
  • interest payable
• long term liability
  • mortgage payable
  • notes payable (> 12 month)
• stockholder equity

current ratio = current assets / current liability

• measure of liquidity
• too high is not good (no economic activity)
• too low means insolvant

• sales revenue - returns & allowance - discount = net sales
• gross profit: net sales - COGS
• operating income: gross margin - operating expense
• net income: operating income + non-operating income
• gross profit/margin ratio: gross margin / net sales

• Straight line (easiest, most common)
• Units of activity (most accurate)
• declining balance method: twice the rate of straight line
  • last year takes the residual, do not depreciate below salvage
• DR depreciation expense, CR accumulated depreciation

• amortization: patent
• good will: when business is acquired; cannot create good will; excess payment of asset value
  • not depreciated

• Beginning + Cost of Goods Purchased = Ending + cost of good sold
• gross profit/margin = sales - COGS
• 2, 10 net 30: 2% discount if paid in 10 days, or pay full amount in 30 days
• paid within discount period: credit cash & inventory
• Sales: debit AR, credit sales, debit COGS, credit inventory
• returns: debit sales return, credit AR, debit inventory, credit COGS
• Net sales: sales - sales return - sales discount
• Net sales - COGS = gross profit
• Customer pay with discount: debit sales discount, cash, credit AR
• Net income = net sales - operating - non-operating (interest expense, interest revenue, gain/loss of equipment sales)
• FOB shipping point: buyer incurs shipping expense
  • buyer increase (debit inventory), credit cash
• FOB destination: seller incurs shipping expense
  • seller debit freight out (operating expense), credit cash
• Sale:
  • DR cash, CR sales
  • DR COGS, CR inventory

• Common stock holders get to vote, but get reward last in liquidation
• authorized stock: how many can issue? = issued stock + treasury stock
• outstanding = issued stock - treasury stock
• only outstanding stock pays dividend
• Par value + paid in val in excess of par = cash debit
  • no-par stock: cash = common stock + paid in val in excess of stated value
• treasury stock is a buffer of retained earning
  • sell above treasury stock price: add additional to paid in treasury
  • sell below purchase price:
• SE = paid in capital + retained earning
  • paid in capital = common stock + additional paid in capital
• treasury stock
  • subtract from SE
  • buy treasury: debit treasury stock, credit cash
  • sell treasury: debit cash, credit treasury stock and
    • debit paid in treasury stock if selling below (decrease SE),
      • if depleted, debit retained earning
    • credit paid in treasury stock if selling above (increase SE)

• Declaration: DR dividend(Retained Earning) CR payable
• Payment: DR payable, CR cash

CLAD for Operation Cash Flow

• AR increase: decrease cash flow
• AP increase: increase cash flow
• Loss & Gain:
  • loss: add to cash flow
  • gain: subtract from cash flow
• add depreciation
• don't care about expense

Dr dep exp
  Cr accu dep

Operating acticity (income statement):

• AR, Payable
• inventory
• depreciation
• collecting interest, dividend

Financing activity (long term SE):

• issuing stocks / repurchase treasury stock
• paying Dividend
• issuing/redeem bond, debt (borrow money)

investment (long term asset)

• lending money, collecting cash on loan (not borrowing/repaying)
• acquiring/sale investment/property

Final: 4, 8, 11, 12