Docstoc

Financial Accounting and Accounting Standards - Gaapifrs

Document Sample
Financial Accounting and Accounting Standards - Gaapifrs Powered By Docstoc
					Revision of TB to Accounts




                         1
             Study Objectives
 Prepare a worksheet.
 Explain the process of closing the books.
 Describe the content and purpose of a closing trial
  balance.
 State the required steps in the accounting cycle.
 Explain the approaches to preparing correcting
  entries.
 Identify Balance Sheet & Income Statement items.
 Identify the sections of a balance sheet.
                                                   2
           Completing the Accounting Cycle


                                      Summary of   Balance Sheet
  Using a            Closing the
                                      Accounting     & Income
 Worksheet             Books
                                        Cycle        Statement

Steps in            Preparing         Reversing    Current assets
preparation         closing entries   entries      Non Current
Preparing           Posting closing   Correcting   Assets
financial           entries           entries      Current liabilities
statements          Preparing a                    Non Current
Preparing           closing trial                  liabilities
adjusting entries   balance
                                                   Owner’s equity
                                                   Revenues &
                                                   Expenses

                                                                  3
       Using A Worksheet
Worksheet
  A multiple-column form used in
  preparing financial statements. (Often
  an Excel Spreadsheet)
  Not a permanent accounting record.
  Five step process.
  Use of worksheet is optional.
                                           4
Steps in Preparing a Worksheet
                      Illustration 4-2




                                         5
                         Share Capital                           1,000,000
                         Retained Reserves                         736,580
                         Plant & Eq (Cost)           1,250,000
Example                  Dep of P & Eq to 31/12/08                250,000
                         Goodwill                     215,000
The trial balance for    Investments                  800,000
The Trendy Corp for      Accounts Receivable          710,040
the Year Ended           Inventories (at 31/12/08)    375,600
December 31, 2009, is    Bank Balance                 175,590
as follows.              Accounts Payable                          328,050
                         Tax Payable                                81,000
This is before some      Dividends Payable                          70,000
final adjustments have   Deferred Tax                              125,600
to be done!              Long Term Loan                            675,000
                         Sales                                   6,050,000
                         Cost Of Sales               3,120,000
                         Overheads                   2,519,000
                         Tax on Profits                 81,000
                         Dividends                      70,000
                             Totals                  9,316,230   9,316,230   6
              Adjustments
• Depreciation for the year has to be made.
  – This has been calculated at $50,000
• Closing Inventories at 31st Dec 2009
  – These have been assessed at $395,000
• Tax Liability has been increased
  – From $81,000 to $89,000
• Additional Dividend is to be paid
  – The additional dividend is to be $12,000
• Long Term Loan
  – $25,000 is repayable within 12 months
                                               7
     Steps in Preparing a Worksheet
1. Prepare a Trial Balance on a Worksheet
                               Trial Balance          Adjustments   Closing Trial Balance   Income Statement   Balance Sheet
      Account Titles         Dr.            Cr.       Dr.     Cr.      Dr.          Cr.       Dr.       Cr.    Dr.       Cr.
Share Capital                             1,000,000
Retained Reserves                           736,580
Plant & Eq (Cost)           1,250,000
Dep of P & Eq to 31/12/08                   250,000
Goodwill                      215,000
Investments                   800,000
Accounts Receivable           710,040
Inventories at 31/12/08       375,600
Bank Balance                  175,590
Accounts Payable                            328,050
Tax Payable                                  81,000
Dividends Payable                            70,000
Deferred Tax                                125,600
Long Term Loan                              675,000
Sales                                     6,050,000
Cost Of Sales               3,120,000
Overheads                   2,519,000
Tax on Profits                 81,000
Dividends                      70,000
    Totals                  9,316,230     9,316,230




  Include all accounts                                        Trial balance amounts come
     with balances.                                           directly from ledger accounts.
                                                                                                                        8
              Adjustments
• Depreciation for the year has to be made.
  – This has been calculated at $50,000
• Closing Inventories at 31st Dec 2009
  – These have been assessed at $395,000
• Tax Liability has been increased
  – From $81,000 to $89,000
• Additional Dividend is to be paid
  – The additional dividend is to be $12,000
• Long Term Loan
  – $25,000 is repayable within 12 months
                                               9
         Steps in Preparing a Worksheet
    1. Prepare a Trial Balance on a Worksheet
                               Trial Balance           Adjustments       Closing Trial Balance    Income Statement   Balance Sheet
    Account Titles           Dr.            Cr.       Dr.       Cr.         Dr.          Cr.        Dr.       Cr.    Dr.       Cr.
Share Capital                             1,000,000
Retained Reserves                           736,580
Plant & Eq (Cost)           1,250,000
Dep of P & Eq to 31/12/08                   250,000             50,000
Goodwill                      215,000                                                              Depreciation of
Investments
Accounts Receivable
                              800,000
                              710,040
                                                                                                  $50,000.added to
Inventories at 31/12/08       375,600                                                            accumulated amount
Bank Balance                  175,590
Accounts Payable                            328,050
Tax Payable                                  81,000
Dividends Payable                            70,000
Deferred Tax                                125,600
Long Term Loan                              675,000
Sales                                     6,050,000                                     Depreciation of $50,000 as a
Cost Of Sales
Overheads
                            3,120,000
                            2,519,000                 50,000
                                                                                           charge in the income
Tax on Profits                 81,000                                                            statement
Dividends                      70,000
    Totals                  9,316,230     9,316,230   50,000    50,000



                                                                                                                           10
              Adjustments
• Depreciation for the year has to be made.
  – This has been calculated at $50,000
• Closing Inventories at 31st Dec 2009
  – These have been assessed at $395,000
• Tax Liability has been increased
  – From $81,000 to $89,000
• Additional Dividend is to be paid
  – The additional dividend is to be $12,000
• Long Term Loan
  – $25,000 is repayable within 12 months
                                               11
         Steps in Preparing a Worksheet
    1. Prepare a Trial Balance on a Worksheet
                               Trial Balance             Adjustments        Closing Trial Balance   Income Statement   Balance Sheet
     Account Titles          Dr.            Cr.        Dr.        Cr.          Dr.          Cr.       Dr.       Cr.    Dr.       Cr.
Share Capital                             1,000,000
Retained Reserves                           736,580
Plant & Eq (Cost)           1,250,000
Dep of P & Eq to 31/12/08
Goodwill                      215,000
                                            250,000                50,000
                                                                                       Opening Inventories taken to
Investments                   800,000                                                            COGS
Accounts Receivable           710,040
Inventories at 31/12/08       375,600                 395,000     375,600
Bank Balance                  175,590
Accounts Payable                            328,050
Tax Payable                                  81,000
Dividends Payable                            70,000
Deferred Tax                                125,600
Long Term Loan
Sales
                                            675,000
                                          6,050,000
                                                                                      Closing Inventories shown as
Cost Of Sales               3,120,000                 375,600     395,000             a Current Asset and reducing
Overheads
Tax on Profits
                            2,519,000
                               81,000
                                                       50,000
                                                                                                 COGS
Dividends                      70,000
    Totals                  9,316,230     9,316,230   820,600     820,600



                                                                                                                         12
              Adjustments
• Depreciation for the year has to be made.
  – This has been calculated at $50,000
• Closing Inventories at 31st Dec 2009
  – These have been assessed at $395,000
• Tax Liability has been increased
  – From $81,000 to $89,000
• Additional Dividend is to be paid
  – The additional dividend is to be $12,000
• Long Term Loan
  – $25,000 is repayable within 12 months
                                               13
         Steps in Preparing a Worksheet
    1. Prepare a Trial Balance on a Worksheet
                               Trial Balance            Adjustments       Closing Trial Balance   Income Statement   Balance Sheet
     Account Titles          Dr.            Cr.        Dr.       Cr.         Dr.          Cr.       Dr.       Cr.    Dr.       Cr.
Share Capital                             1,000,000
Retained Reserves                           736,580
Plant & Eq (Cost)           1,250,000
Dep of P & Eq to 31/12/08
Goodwill                      215,000
                                            250,000              50,000
                                                                                         Additional Liability for Tax
Investments                   800,000                                                            Payable
Accounts Receivable           710,040
Inventories at 31/12/08       375,600                 395,000   375,600
Bank Balance                  175,590
Accounts Payable                            328,050
Tax Payable                                  81,000               8,000
Dividends Payable                            70,000
Deferred Tax                                125,600
Long Term Loan                              675,000
Sales                                     6,050,000
Cost Of Sales
Overheads
                            3,120,000
                            2,519,000
                                                      375,600
                                                       50,000
                                                                395,000                 Additional tax on profits for
Tax on Profits                 81,000                   8,000                            year – Added to existing
Dividends
    Totals
                               70,000
                            9,316,230     9,316,230   828,600   828,600
                                                                                           charge for the year

                                                                                                                         14
              Adjustments
• Depreciation for the year has to be made.
  – This has been calculated at $50,000
• Closing Inventories at 31st Dec 2009
  – These have been assessed at $395,000
• Tax Liability has been increased
  – From $81,000 to $89,000
• Additional Dividend is to be paid
  – The additional dividend is to be $12,000
• Long Term Loan
  – $25,000 is repayable within 12 months
                                               15
         Steps in Preparing a Worksheet
    1. Prepare a Trial Balance on a Worksheet
                               Trial Balance            Adjustments       Closing Trial Balance   Income Statement   Balance Sheet
     Account Titles          Dr.            Cr.        Dr.       Cr.         Dr.          Cr.       Dr.       Cr.    Dr.       Cr.
Share Capital                             1,000,000
Retained Reserves                           736,580
Plant & Eq (Cost)           1,250,000
Dep of P & Eq to 31/12/08                   250,000              50,000
Goodwill                      215,000
Investments                   800,000
Accounts Receivable           710,040                                                 Additional dividend Payable
Inventories at 31/12/08       375,600                 395,000   375,600
Bank Balance                  175,590
Accounts Payable                            328,050
Tax Payable                                  81,000               8,000
Dividends Payable                            70,000              12,000
Deferred Tax                                125,600
Long Term Loan                              675,000
Sales                                     6,050,000
Cost Of Sales
Overheads
                            3,120,000
                            2,519,000
                                                      375,600
                                                       50,000
                                                                395,000              Additional dividend – Added
Tax on Profits                 81,000                   8,000                       to existing charge for the year
Dividends                      70,000                  12,000
    Totals                  9,316,230     9,316,230   840,600   840,600



                                                                                                                         16
              Adjustments
• Depreciation for the year has to be made.
  – This has been calculated at $50,000
• Closing Inventories at 31st Dec 2009
  – These have been assessed at $395,000
• Tax Liability has been increased
  – From $81,000 to $89,000
• Additional Dividend is to be paid
  – The additional dividend is to be $12,000
• Long Term Loan
  – $25,000 is repayable within 12 months
                                               17
  Now Extend the TB to the
         Closing TB
Simply add or subtract across
          the page




                                18
         Steps in Preparing a Worksheet
    1. Prepare a Trial Balance on a Worksheet
                               Trial Balance            Adjustments       Closing Trial Balance      Income Statement   Balance Sheet
     Account Titles          Dr.            Cr.        Dr.       Cr.        Dr.            Cr.         Dr.       Cr.    Dr.       Cr.
Share Capital                             1,000,000                                      1,000,000
Retained Reserves                           736,580                                        736,580
Plant & Eq (Cost)           1,250,000                                     1,250,000
Dep of P & Eq to 31/12/08                   250,000              50,000                    300,000
Goodwill                      215,000                                       215,000
Investments                   800,000                                       800,000
Accounts Receivable           710,040                                       710,040
Inventories at 31/12/08       375,600                 395,000   375,600     395,000
Bank Balance                  175,590                                       175,590
Accounts Payable                            328,050                                        328,050
Tax Payable                                  81,000               8,000                     89,000
Dividends Payable                            70,000              12,000                     82,000
Deferred Tax                                125,600                                        125,600
Long Term Loan                              675,000                                        675,000
Sales                                     6,050,000                                      6,050,000
Cost Of Sales               3,120,000                 375,600   395,000   3,100,600
Overheads                   2,519,000                  50,000             2,569,000
Tax on Profits                 81,000                   8,000                89,000
Dividends                      70,000                  12,000                82,000
    Totals                  9,316,230     9,316,230   840,600   840,600   9,386,230      9,386,230



                                                                                                                            19
Split Between BS & IS




                        20
        Steps in Preparing a Worksheet
   Extend to either Balance Sheet or Income Statement
                               Trial Balance          Closing Trial Balance       Income Statement          Balance Sheet
     Account Titles          Dr.            Cr.         Dr.            Cr.         Dr.         Cr.         Dr.          Cr.
Share Capital                             1,000,000                  1,000,000                                       1,000,000
Retained Reserves                           736,580                    736,580                                         736,580
Plant & Eq (Cost)           1,250,000                 1,250,000                                          1,250,000
Dep of P & Eq to 31/12/08                   250,000                    300,000                                         300,000
Goodwill                      215,000                   215,000                                            215,000
Investments                   800,000                   800,000                                            800,000
Accounts Receivable           710,040                   710,040                                            710,040
Inventories at 31/12/08       375,600                   395,000                                            395,000
Bank Balance                  175,590                   175,590                                            175,590
Accounts Payable                            328,050                    328,050                                         328,050
Tax Payable
               Balance on Income             81,000                     89,000          The same figure is taken to     89,000
Dividends Payable                            70,000                     82,000                                          82,000
           Statement Represents Profit
Deferred Tax                                125,600                    125,600         tha Balance Sheet. It is then   125,600
Long Term Loan
Sales            or Loss for Year
                                            675,000
                                          6,050,000
                                                                       675,000
                                                                     6,050,000
                                                                                              to Retained Reserves.
                                                                                       added6,050,000                  675,000

Cost Of Sales               3,120,000                 3,100,600                  3,100,600
Overheads                   2,519,000                 2,569,000                  2,569,000
Tax on Profits                 81,000                    89,000                     89,000
Dividends                      70,000                    82,000                     82,000
Profit or Loss for year                                                            209,400                             209,400
    Totals                  9,316,230    9,316,230    9,386,230     9,386,230    6,050,000   6,050,000   3,545,630   3,545,630

                                                                                                                     21
           Closing the Books
Closing entries formally recognize, in the general
ledger, the transfer of
       net income (or net loss) and




                                                     22
              Adjustments
• Depreciation for the year has to be made.
  – This has been calculated at $50,000
• Closing Inventories at 31st Dec 2009
  – These have been assessed at $395,000
• Tax Liability has been increased
  – From $81,000 to $89,000
• Additional Dividend is to be paid
  – The additional dividend is to be $12,000
• Long Term Loan
  – $25,000 is repayable within 12 months
                                               23
Steps in Preparing a Worksheet
Review Question
 Net income is shown on a work sheet in the:
  a. income statement debit column only.
  b. balance sheet debit column only.
  c. income statement credit column and balance
     sheet debit column.
  d. income statement debit column and balance
     sheet credit column.


                                                  24
Preparing Financial Statements
      from a Worksheet
Worksheet
  Income statement is prepared from the income
  statement columns.
  Statement of Shareholders Equity
  Balance sheet prepared from the balance sheet
  columns.



                                                  25
Trendy Corp
Income Statement
For the year Ended 31st December 2009

Revenues                        6,050,000
Less Cost Of Goods Sold         3,100,600
Gross Profit                    2,949,400
Less Overheads        2,569,000
Tax                      89,000
Dividends                82,000
Total expenses                  2,740,000
Net income                     $ 209,400


                                            26
Preparing Financial Statements
      from a Worksheet
c. Prepare a balance sheet as of 31st December 2009.




                                                       27
    Preparing Financial Statements
          from a Worksheet
Discussion Question
•    Explain the purpose of the worksheet.
•    How does it help produce the financial
     statements




                                              28
Summary of the Accounting Cycle

                     1. Analyze business transactions


                                             2. Journalize the
 9. Prepare Balance Sheet
                                                transactions

 8. Prepare Statement of
                                             3. Post to ledger accounts
    Equity

 7. Prepare Income
                                             4. Prepare a trial balance
    statement

 6. Prepare an adjusted trial                5. Journalize and post
    balance                                     adjusting entries




                                                                          29
              The Balance Sheet
       Presents a snapshot at a point in time.
    To improve understanding, companies group similar
    assets and similar liabilities together.

Standard Classifications
           Assets                 Liabilities and Equity
Current assets                    Current liabilities
Non Current Assets
•Long-term investments            Non Current liabilities
•Property, plant, and equipment   Shareholders Equity
•Intangible assets
                                                            30
        The Balance Sheet
Current Assets
   Assets that a company expects to convert to
   cash or use up within one year or the operating
   cycle, whichever is longer.
   Operating cycle is the average time it takes from
   the purchase of inventory to the collection of
   cash from customers.




                                                     31
           The Balance Sheet
Current Assets




  Companies usually list current asset accounts in the order they
  expect to convert them into cash.

                                                                    32
         The Balance Sheet
Review Question
 Cash, and other resources that are reasonably
 expected to be realized in cash or sold or
 consumed in the business within one year or the
 operating cycle, are called:
  a. Current assets.
  b. Intangible assets.
  c. Long-term investments.
  d. Property, plant, and equipment.

                                                   33
          The Balance Sheet
Long-Term Investments
   Investments in stocks and bonds of other companies.
   Investments in long-term assets such as land or
   buildings that a company is not currently using in its
   operating activities.




                                                            34
         The Balance Sheet
Property, Plant, and Equipment
   Long useful lives.
   Currently used in operations.
   Depreciation - allocating the cost of assets to a
   number of years.
   Accumulated depreciation - total amount of
   depreciation expensed thus far in the asset’s life.



                                                       35
        The Balance Sheet
Property, Plant, and Equipment




                                 36
         The Balance Sheet
Intangible Assets
   Assets that do not have physical substance.
                                                 Illustration 4-22




                                                                37
     Intangibles & Impairment
• Every year intangibles must be tested to
  ensure that they still have a value.
• This test is called impairment.
• Any reduction in value must be adjusted
  for.




                                             38
         The Balance Sheet
Review Question
 Patents and copyrights are
  a. Current assets.
  b. Intangible assets.
  c. Long-term investments.
  d. Property, plant, and equipment.




                                       39
         The Balance Sheet
Current Liabilities
   Obligations the company is to pay within the
   coming year.
   Usually list notes payable first, followed by
   accounts payable. Other items follow in order of
   Liquidity




                                                      40
         The Balance Sheet
Current Liabilities




                             41
         The Balance Sheet
Non Current Liabilities
   Obligations a company expects to pay after one year.




                                                      42
         The Balance Sheet
Review Question
 Which of the following is not a Non Current liability?
  a. Bonds payable
  b. Current maturities of long-term obligations
  c. Long-term notes payable
  d. Mortgages payable




                                                      43
           The Balance Sheet
Shareholders Equity


 •   Capital Stock and Retained Earnings.




                                            44
            Recording Process
Discussion Question
(a)   What is the term used to describe the owner’s
      equity section of a corporation?
(b)   Identify the two owner’s equity accounts in a
      corporation and indicate the purpose of each.




                                                      45

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:4
posted:7/17/2012
language:
pages:45