Accy 201 Final Study Guide PDF

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Study guide for the final exam...

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Accy 201 Final Study Guide Format—Worth 315 points, Comprehensive, 20-25 Multiple Choice, 4-6 written problems, may ask to do some journal entries but problems will be mostly managerial stuff, 10-14 questions from the financial portion and will mostly be the multiple choice Financial Accounting: ● Assets= Liabilities + Stockholders Equity ● Income Statement (Revenues & Expenses) ● Retained Earnings= Net Income - Dividends ● Income Summary (just look at Revenues - Expenses) ○ When closing to R. Earnings, Debit Income Summary & Credit R. Earnings ● Net Book Value = Original Cost - Accumulated Depreciation ● Accrual Based Accounting vs. Cash Based Accounting: ○ Accrual Based—we record revenues when we provide goods and services to customers & not necessarily when we receive cash. ■ Revenue Recognition Principle: We record revenue in the period in which we provide goods and service to customers. ○ Cash Based—we record revenues when we receive cash & we record expenses at the time we pay cash; the timing of the cash flows of the company exactly matches the timing that revenues and expenses are recorded. Recording Adjusting Journal Entries— #1.) Wages Expense/ Payable Wages Expense…. Wages Payable… Example: 1. Suppose that Larry Gott’s GuitarWorks pays wages of $8,400 to its workers every two weeks (i.e. every 14 days). Workers are paid $8,400 for two week’s work on November 26thand they will next be paid $8,400 on December 10 th. Assume the end of the accounting period for Larry Gott’s GuitarWorks is November 30 th. a. Record the adjusting entry Larry Gott’s GuitarWorks should record on November 30. 11/30 Wages Expense… 2,400 Wages Payable…. 2,400 $8,400/14= $600 * 4= 2,400

*General Note: Increasing expenses, decreases SHE #2.) Interest Expense/ Interest Payable Interest Expense… Interest Payable…. Example: a. Borrowed the $27,000 from the bank on October 1 st, 2017, signing a 6%, 5 year note. Interest is paid annually on September 30 th. Record this for Dec. 31st ($27,000*.06)/12= $135*3 months= 405

Interest Expense...405 Interest Payable... 405 *General Note: Ignore that the problem tells you that it is a 5-year note #3.) Depreciation Expense/ Accumulated Depreciation Depreciation Expense… Accumulated Depreciation... Example: a. The $15,000 building was purchased on February 1 st, 2017 for cash. It has an expected useful life of 20 years and will have no resale or value at the end of its life. Assume Space Inc. uses straight-line depreciation (i.e. the asset depreciates evenly) over the expected life of the building. Record this for Dec. 31st. $15,000/20 years = 750 / 12 months= $62.50*11 months= $687.5 Depreciation Expense… $687.5 Accumulated Depreciation… $687.5 #4.) Insurance Expense/ Prepaid Insurance Expense Insurance Expense… Prepaid Insurance Expense... Example: a. Space, Inc. prepaid $3,000 for a 12 month insurance policy on August 1 st. Record this for Dec. 31st.

Insurance Expense… $1,250 Prepaid Insurance Expense…

$1,250

$3,000/12 = $250*5 months= $1,250 #5.) Accounts Receivable/ Service Revenue A/R…. Service Revenue… Example: On December 27th, 2017, Space, Inc. provided services worth $2,840 for customers. The customers will be billed for these services in January 2018. Record this for Dec. 31st. AJEe: 12/31/17: Debit: A/R…..………………….…$2,840 Credit: Service Revenue…………………..$2,840 To record service revenue for services provided in December that have not been billed

*Accounts Receivable is an asset, Accounts Payable is a liability

#6.) Deferred Revenue/ Service Revenue Example: On November 15th, Space Inc. received $2,000 for consulting services to be performed in December and January. Record this for Dec. 31st. 12/31/17: Debit: Deferred Revenue…………….$1,000 Credit: Service Revenue…………………….$1,000 To record service revenue performed in December (assume half of the services were performed in December and the other half will be performed in January =$2,000/2= $1,000

#7.) Sold inventory, originally costing $2,050, for $2,330 on account. Accounts Receivable…. 2,330

Sales Revenue… COGS…. 2,050 Inventory

2,330 2,050

● *General Note: When posting values to T-Accounts, make sure you also include the Beginning Balances.

1.) 2.) 3.) 4.) 5.) 6.) 7.) 8.) 9.)

Record transactions using journal entries Post transactions to T-Accounts Prepare the Unadjusted Trial Balance Record adjusting entries Post adjusting transaction to T-Accounts Prepare an Adjusted Trial Balance Prepare the Income Statement (Revenues, Expenses, and Net Income) Prepare the Balance Sheet (Assets, Liabilities, SHE) Record Closing Entries (Close Revenues to I/S , Close Expenses to I/S, Close I/S to Retained Earnings, Close Dividends to R. Earnings) 10.) Close R. Earnings and that become Net Income (Net Income if on the right and net loss if on the left), Close I/S to 0 and dividends to 0!

Managerial Accounting: Week 1— ● Direct Cost: a cost that can easily and conveniently be traced to a specified cost object ○ Ex. Wages of Carpenters (cost description)—A particular home (cost object) ●

Indirect Cost: a cost that cannot be easily and conveniently traced to a specified cost object (ie. Campbell Soup Salary of Factory Manager; his salary is called a common cost of producing the various products within the factory) ○ Ex. Cost of Screws used to secure wood trim in a yacht at a yacht manufacturer (cost description) — A particular yacht (cost object)

➔ Ask yourself…. ◆ Is this cost object directly related to this cost description? ◆ Is it easily and conveniently trackable?

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Product Costs: costs involved in acquiring or making a product

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Also known as inventoriable costs Includes direct materials, direct labor, and manufacturing overhead* *Manufacturing overhead: all manufacturing costs except direct materials and direct labor: includes indirect labor & indirect materials as well as costs such as depreciation* that cannot be readily traced to finished products ■ Note: Depreciation is a non-cash expense and is not included in cash disbursements in MOH Product costs are first on balance sheet as Inventory before moving to COGS on the Income Statement: ■ Debit COGS ■ Credit Inventory

Period Costs: ○ All costs that are not product costs. ○ All selling & administrative costs. (ie. sales commission, advertising, executive salaries, public relations, rental costs of administrative offices) ○ Non-Manufacturing Costs: ■ Selling Costs: incurred to secure customer orders and get the finished products to the customer ■ Administrative Costs: all costs associated with the general management in an organization

➔ Product Costs go through Balance Sheet before Income Statement (see p. 192); they eventually end up under Cost of Goods Sold ➔ Period Costs go straight to Income Statement under Selling and Administrative Expenses. ●

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Variable Cost: the direct proportion of changes in the level of activity. For a cost to be variable, it must be variable with respect to something. That something is an activity base.* *Activity base is a measure of whatever causes the incurrence of a variable cost; referred to as a cost driver. (always in this class, the activity base under consideration is the total volume of goods and services provided by the organization.) ○ A variable cost increases in total in production to activity ○ Fixed costs remain constant in total dollar amount through wide ranges of activity ○ See graph on p. 193 Total Variable Cost= Total Variable Cost/ Activity Level = per unit of the activity level; Multiply the per unit of the activity level with the new activity level to find the Total Variable Cost! Fixed Cost: Cost that remains constant in total regardless of changes in the level of activity. ○ Ex. Depreciation, insurance, property taxes, rent, administrative salaries ○ Not affected by changes in activity

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Only way that these change are by an external force ■ Ex. Landlord comes to increase your monthly rent ○ Committed Fixed Costs: represent organizational investments with a multiyear planning horizon ■ Ex. real estate taxes, insurance premiums, and salaries of top management ○ Discretionary Fixed Costs: annual decisions by management to spend on certain fixed cost items. Arise from annual decisions by management to spend on certain fixed cost items ■ Ex. Advertising, Research, Internships for Students Mixed Costs: Contains both variable and fixed cost elements. ○ Also known as semi variable costs Differential Costs & Revenues: ○ A future cost that differs between any two alternatives ○ Are always relevant costs ○ Ex. When looking at proposed costs, etc. the Differential Costs & Revenues take into consideration relevant and alternative options. Sunk Costs: ○ Cost that has already been incurred and that cannot be changed by any decision made now or in the future ○ Ex. Purchase made 10 years ago to produce material that is no longer demanded Opportunity Cost: ○ Potential benefit that is given up when one alternative is selected over another ○ Take week break vacation at the beach or work and make $200 Contribution Margin: ○ the amount remaining from sales revenues after all variable expenses have been deducted. ○ Calculated by taking Sales and subtracting Variable Expenses Other: ○ Calculating Direct Manufacturing Cost: ■ Add up individual units of direct materials/ direct labor ■ Multiply by number of units produced ■ =Total Direct Manufacturing Cost ○ Make sure you read what they are asking… ■ Manufacturing Overhead, only look at manufacturing overheads ■ Direct Manufacturing, only like at direct materials and labor

Week 2— ●

Absorption Costing: all manufacturing costs, both fixed and variable, are assigned to units of product—units are said to fully absorb manufacturing costs

Equations to Know for Overhead Rates— ●

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*Predetermined Overhead Rate= Total Estimated Overhead Rate/ Total Estimated Activity Base ○ This rate is found BEFORE the period begins ○ Is used to apply overhead cost to jobs throughout the period ○ When finding this rate, ignore the actual-labor hours value (see Discussion HW 9, #1) Overhead Applied to a Particular Job= *Predetermined Overhead Rate x Amount of the allocation base incurred by the job Computing the Unit Product Cost—Direct Materials, Direct Labor, Manufacturing Overhead. ○ Divide total by activity base

Equations to Know to Break Even— ● ●

Unit Sales to Break Even= Fixed Expenses / Unit Contribution Margin* ○ *per unit CM: Selling Price per unit - Variable Expenses per unit Dollar Sales to Break Even= Fixed Expenses/ Contribution Margin Ratio

*Contribution Margin= Selling price-Variable *Contribution Margin Ratio= Ratio of Selling Price- Ratio of Variable

Equation to Know to Attain Target Profit— ● ●

Unit Sales Volume to Attain Target Profit= (Target Profit + Fixed Expenses) / Unit Contribution Margin Total Dollar Sales= (Target Profit + Fixed Expenses)/ CM Ratio

Equation to Know for Effect on a Company’s Net Operating Income: Must Memorize! Before

After

Sales Volume Unit CM _________________________________________________________ Total CM (multiplied from above) Total Fixed Costs Effect on Overall Net Operating Income

Change

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Margin of Safety= Actual Sales Revenue - Break Even Sales Dollars

*Look over this week’s in-class discussion activities Week 3— ● 1. 2. 3. 4.

Four steps for finding Unit per Product Cost: Find predetermined MOH rate= Estimated MOH/ Total Estimated Activity Base Apply MOH to Job #F17= Predetermined MOH x Activity Base used on job #F17 Calculate total product cost for Job #F17= DM + DL + MOH Calculate per unit product cost: Total Product Cost/ # of Units

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Tuesday 11/6 Lecture: First two problems are great ones to go over (guarantee on final)

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Absorption Costing—Treats all manufacturing costs as product costs (regardless of whether they are variable or fixed!) The cost of a unit of product under absorption costing consists of direct materials, direct labor, and both variable and fixed manufacturing overhead. Variable Costing—Only those manufacturing costs that vary with output are treated as product costs. This would include direct materials, labor, and the variable portion of manufacturing overhead. So… fixed manufacturing overhead is treated like a period cost and are expensed immediately!

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➔ Bottom Line Difference: How each treats Fixed MOH!!!!!!!!!!!! ➔ Unlike in absorption costing, Fixed MOH in variable costing goes directly to the Income Statement/ is treated as a period cost along with the regular selling & administrative costs… ➔ Other notes: When preparing the I/S and finding the net income for Variable Costing—the variable selling & administrative costs are under COGS and the Fixed MOH and Fixed Selling Expenses are at the bottom under Selling & Administrative, all variable things are under COGS! ➔ Whenever Fixed MOH is being used in Absorption Costing, make sure to find the per unit value by taking the total and dividing it by the number of units produced Thursday Lecture: BUDGETS ●

Budget—Detailed plan for the future, typically quantitative, developed BEFORE the period begins ○ 2 main roles of budgets: 1. Planning—develop/achieve budgets 2. Control: monitor execution of plan, modify as needed

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Advantages: communicates plan to whole organization, facilitates proper allocation of resources, identify potential issues before they occur, provides benchmarks for performance evaluation “Master Budget”— a integrated business plan, consists of several separate but interdependent budgets, formally lays out company’s sales, production, and financial goals

Sales Budget—Detailed schedule showing expected sales for the budgeted period (monthly, quarterly, annually) ○ Always the first step in the budgeting process ○ All other parts of the master budget depend on the sales budget ○ Main estimates needed to prepare sales budget: ■ Unit Sales ■ Selling price per unit ■ % of Accounts Receivable collected in current/future periods!

Framework for Budgeted Production: To Memorize April

May

June

Budgeted Unit Sales Add: Desired Unit of Ending Fin. Goods =Total Units Needed Less: Beginning Finished Goods Inventory =Budgeted Required Production

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Expected Cash Collections (uses only past month) and Budgeted Required Production (uses both future and past) are two different questions… be careful! Look for wording like “how many units must be produced during the month”

Framework for Expected Cash Collections Oct Budgeted Unit Sales

Nov

Dec

Jan

Selling Price ______________________________________________________________________

Oct

.40(Total)

Nov.

.60(Total from Oct) .40 (Total from Nov.)

Dec. Jan.

Week 4— ● Direct Materials Budget: details the raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories. ○ Required purchases of raw materials in units= raw materials needed to meet the production schedule + desired ending inventory of raw materials beginning inventory of raw materials. ○ A DM Budget= A detailed schedule showing the amount of raw materials that must be purchased for the budgeted period ■ It is prepared after the production budget ○ Main estimates needed per unit of output: ■ Quantity of raw materials needed per unit of output ■ Cost per unit of raw material ■ Desired Units of ending raw materials inventory (usually based on a % of next period’s production needs) ■ % of raw materials purchases paid in current/future period To Calculate the purchases of raw materials and the total cost of these required purchases...

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Start with: ` Required production in units (from production budget) Times: units of raw materials needed per unit Equals: Total units of raw materials needed to meet production Add: Desired units of ending raw materials inventory Equals: Total units of raw materials needed/required Less: Units of beginning raw materials inventory Equals: Required purchases of raw materials in units Times: Cost of raw materials per unit Equals: Total cost of raw materials purchased in dollars ($)

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Look Over IClicker Question #2 from Lecture 23,

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Selling & Administrative Budget: ○ A detailed schedule showing the budgeted expenses for all areas other than manufacturing (i.e all non manufacturing costs) ○ Typically divided by cost behavior (Variable Costs & Fixed Costs) ○ Main Estimates Needed to prepare a S&A Budget: ■ Fixed S&A Costs ■ % of S&A costs paid in current/future period

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Cash Budget: A detailed schedule showing cash inflows and outflows. It has four main sections ○ Cash receipts ○ Cash disbursements ○ Cash excess/ (deficiency) ○ Financing (i.e borrowings and loan/ interest payments) Main estimates needed to prepare Cash Budget: ○ Beginning cash balance ○ Minimum required cash balance ○ Any equipment purchases/sales for the period ○ Any cash dividends paid during the period ○ Interest rate (if any borrowing)

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3. To calculate cash excess/deficiency: Start with: Beginning cash balance Add: Cash receipts (e.g. sales) Equals: Total cash available Less: Cash disbursements (e.g. DM, DL, MOH, S&A, etc.) Equals: Excess (or deficiency) of cash available over disbursements ●

Lecture 24 IClicker #4 & 5 Review! Great question.

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“If a budgeted cost of raw materials purchased goes to the following month, the budgeted accounts payable’s balance goes up!”

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Finished Goods Inventory= Unit product cost * # of units left in finished goods

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Look over Discussion HW #11—#1 & #2a

Week 5—

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Flexible Budget—an estimate of what revenues and costs should have been, given the level of activity for the period. Planning Budget—prepared before the period begins and is valid only for the planned level of activity

Budgeted Income Statement—a detailed schedule showing the company’s profitability for the budgeted period; serves as a benchmark against which future performance can be measured What is the ‘Budgeted Income Statement’? 3. The general format of the budgeted income statement: Start with: Sales Revenue Less: Cost of Goods Sold (COGS) Equals: Gross Margin Less: Selling & Admin. Expenses (from S&A budget) Equals: Net Operating Income Less: Interest Expense (from Cash budget) Equals: Net Income Before Taxes Less: Income Tax Expense (from Cash budget) Equals: Net Income

➔ Interest Expense: Added to the Net Operating Income

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The Revenue Variance is labeled favorable when the actual revenue is greater than the planning budget The Expense Variance is labeled favorable when the actual expense is less than the planning budget

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Budgeted Balance Sheet ○ Detailed schedule showing the company’s financial position at the end of the period ○ Prepared using data from the beginning of the budget period plus data contained in various budgets

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Actual—Flex: Spending Variance Flex—Planning: Activity Vairance

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Look over IClicker Question #6 on 11/ 27. Great Question

IClicker Question #3 from Lecture 26… ●

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What would be the best explanation for the large unfavorable activity variance for total expenses for IMHA in 2018? a...