Accounting 10: Principles of Accounting First Semester 2011-2012 Sections E, F, K, M, Q LT 3 Reviewer CASH AND EQUIVALENTS Currency and deposits

its Checks (except NSF, post-dated, and stale checks) and money orders Money market instruments due to mature within 90 days after purchase *In class, we said 90 days from the date of the financial statement. That is how they do it in the US. In RP, it is from the date of purchase.

BANK RECONCILIATION BANK Outstanding Checks D-I-T NSF Checks + Fee Interest + + + Collections - Fee Errors Charges BAD DEBT DIRECT WRITE-OFF Set-up allowance account as an adjusting entry at the end of the period Write-off BDE A/R A/R Recovery BDE Cash A/R A/R ADA Cash A/R ALLOWANCE METHOD BDE ADA ADA A/R +/+/BOOK

Check + Fee Cash Check + Fee Cash Interest Amount Interest Revenue Interest Amount
A/R Cash Collection Expense N/R Interest Revenue Miscellaneous Expenses Cash

A/R, end = A/R, beg + Credit Sales Collections Write-offs *Recoveries do not affect A/R ADA, end = ADA, beg + Recoveries Write-offs + BDE (Additional ADA) NRV = A/R ADA 1

Percent-of-sales BDE = current periods sales x % uncollectible

Percent-of-Receivables Aging of Receivables Target/Ending/Required/Desired ADA = % uncollectible x ending A/R (or grouped by age bracket, for aging of receivables) BDE = target ADA leftover ADA

Step 1: Step 2:

Ending ADA = leftover ADA + BDE

DISCOUNTING NOTES RECEIVABLES MAKER

PAYEE/ENDORSER With recourse Cash Net Proceeds Int. Exp. P - NP N/R-Disc. Principal N/R-Disc. Principal N/R Principal N/R-Disc. Principal N/R Principal A/R MV + Protest Fee Cash MV + Protest Fee Cash Net Proceeds N/R-Disc. Principal Int. Rev. NP - P Without recourse Cash Net Proceeds Int. Exp. P - NP N/R Principal -

BANK/ENDORSEE N/R Principal Int. Rev. P NP Cash Net Proceeds Cash Maturity Value N/R Principal Int. Rev. MV - P Cash MV + Protest Fee N/R Principal Int. Rev. Sve. Rev. Pro. Fee N/R Principal Int. Rev. NP P Cash Net Proceeds N/R Principal Int. Rev. P NP Cash Net Proceeds Cash Maturity Value N/R Principal Int. Rev. MV - P A/R MV + Protest Fee N/R Principal Int. Rev. Sve. Rev. Pro. Fee N/R Principal Int. Rev. NP P Cash Net Proceeds

Discounting the note at an expense Honored Note

N/P Principal Int. Exp. MV - P Cash Maturity Value -

Dishonored Note

Discounting the note with revenue

Discounting the note at an expense Honored Note

N/P Principal Int. Exp. MV - P Cash Maturity Value -

Dishonored Note

Cash Net Proceeds N/R Principal Int. Rev. NP - P

Discounting the note with revenue

FIXED ASSET COSTS Account Titles: Land, Building, Equipment, Machinery, Truck, Vehicles, Fixtures and Furniture, Leasehold Improvements, Land Improvements, Tools LAND Purchase price, options Legal fees, registration Commission and escrow fees Cost of clearing, less salvage value Unpaid mortgages and taxes Surveying costs Permanent land improvements Cost of inducing tenants to vacate land BUILDING, CONSTRUCTED Materials, labor, overhead Permits, licenses, relevant fees Cost of excavation Insurance, construction loan interest BUILDING, PURCHASED

Purchase price legal and government fees Unpaid dues Cost of inducing tenants to leave Cost of renovation

MACHINERY, EQUIPMENT, TOOLS Purchase price less purchase discounts (regardless of availing) Freight, freight insurance, handling, storage, installation Specific training and testing costs

LOSS ON RETIREMENT OF BUILDING = BOOK VALUE OF OLD BUILDING + DEMOLITION COSTS REPAIRS AND IMPROVEMENTS BETTERMENTS/ ADDITIONS IMPROVEMENTS Expand, extend, enlarge, increase capacity Building Cash Increase quality, efficiency, and safety Machine Cash

EXTRAORDINARY REPAIRS Increase useful life Truck Cash *Debit to Accum. Depn is also allowed, but to standardize, we will all use this entry

ORDINARY REPAIRS Simply restore broken assets to their original state Repairs Exp. Cash

TRADE-IN ALLOWANCE = FAIR VALUE OF NEW ASSET CASH GIVEN GAIN(LOSS) SALE ON ASSET = FAIR VALUE OF NEW ASSET BOOK VALUE OF OLD ASSET CASH PAID

BALANCE SHEET COMPANY NAME BALANCE SHEET As of Period Current Assets Advances Deposits Accrued Income Receivables A/R Less: ADA N/R Total Long-term Assets Fixed Assets Less: Accum. Depn Total INCOME STATEMENT COMPANY NAME INCOME STATEMENT For Period ended Revenues Less: COGS Gross Profit Less: Operating Expenses General and Administrative Expenses Bad Debt Expense (unless sales manager is in charge of collections) Office Depreciation Expense Selling Expenses Credit Card Expense Store Depreciation Expense Operating Income Plus/less: Cash over and short Less: Miscellaneous expenses, bank charges and fees Plus/less: Interest revenues or expenses Less: taxes Plus/less: Gain/loss on sale/exchange/disposal/destruction of asset Net Income Current Liabilities N/R-Discounted (can also be a contra-asset account)