Test of Profitability Return on equity (ROE) Return on assets (ROA) Financial leverage Earnings per share (EPS) Quality

of income Profit margin Gross Profit Gross profit margin Asset turnover ratio Fixed asset turnover ratio Tests of Liquidity Current ratio Quick ratio (Acid Test) Receivable turnover ratio

Chapter 6: Sales Revenue & Accounts Receivables

Recovered Bad Debt Accounts Receivable (+A) Allowance for Doubtful Acct (+XA, -A) Cash (+A) Accounts Receivable (-A)
Step Record estimated bad debt adjustments Timing End of period in which sales are made Accounts Affected Dr: Bad Debt Expense Cr: Allowance for Doubtful Accounts Dr: Allowance for Doubtful Accounts Cr: Accounts Receivable Financial Statement Net Income Assets (AR, Net) Net Income Assets (AR, Net) NE

Chapter 9: Reporting and Interpreting Liabilities

Contingent Subject to estimate Not subject to estimate Probable Record as liability Disclose in note Reasonably Probable Disclose in note Disclose in note Remote Disclosure not required Disclosure not required

Identify and write off Throughout period actual bad debts as bad debts become known

31 Dec

Ending Balance per Bank

Ending Balance per Book (credit memo)

Interest Expense (+E, -SE) Interest Payable (+L) Notes Payable (+L) Cash (-A) Large Stock Dividend Stock Dividend > 20-25% Record at par value of stock Retained Earnings (-SE) Common Stock (+SE)

Chapter 11: Reporting and Interpreting Owners Equity

Serves as paying expense and future savings

Measures operating efficiency

Chapter 7: Inventory & Cost of Goods Sold

Account Beginning Inventory Ending Inventory Cost of Goods Sold Net Income Income Tax Expense Retained Earnings Taxes Payable Current Year (Overstate) Correct Subsequent Year Correct Self-Correct Self-Correct Self-Correct

Small Stock Dividend Stock Dividend < 20-25% Record at current market value Retained Earnings (-SE) Common Stock (+SE) Additional Paid-in Capital (+SE)

The safety margin to meet L

SR liquidity & operating efficiency

Inventory turnover (T/O) ratio Accounts Payable Turnover Ratio

High indicates out of stock, loss of sales Avg Days Supply in Inventory =

Chapter 8: Reporting and Interpreting PPE

Interest Expense part of acquisition cost for constructed assets, not purchased Goodwill: Amount purchase price exceeds fair market value of net assets StraightLine Units-ofProduction DecliningBalance Measuring Asset Impairment 1) Asset impaired if: Book Value > Future Cash Flows (Future Benefits) 2) Then, Disposal of PPE Gain Cash (+A) (Loss) Accumulated Depreciation (-XA, +A) (Loss on Sale (+Loss, -SE) ) Gain on Sale (+Gain, +SE) Equipment (-A) Treatment Financial Statement Effect Statement Expense Income Taxes Capital Balance sheet Deferred Higher
Expenditure Revenue Expenditure account Debited Income Statement Account Debited Currently Recognized

Total SE Common Stock Paid-in Capital Retained Earnings No. of Shares Outstanding Par Value per Share

Small Stock Dividend NE NE

Large Stock Dividend NE NE NE

Stock Splits NE NE NE NE

Purchase of Treasury Stock Treasury Stock (+XSE, -SE) Cash (+A) Issuance of Common Stock Cash (+A)

Reissuance of Treasury Stock Cash (+A) (Capital in excess of par value (-SE) ) Treasury Stock (-XSE, +SE) Capital in excess of par value (+SE) Common Stock (+SE) Capital in Excess of Par Value (+SE)

Tests of Solvency Debt-toequity ratio Market Tests Price/ earnings (P/E) ratio Dividend yield ratio

Operating

Inflows -Customers -Dividends and interest on investments -Sale or disposal of PPE -Sale or maturity of investments in securities -Borrowings on notes, mortgages, bonds, etc. from creditors -Issuance of stock

Chapter 4: Accrual Accounting

Accrued Expense Deferred Expense Accrued Revenue Deferred Revenue Expense incurred, not paid Paid but expense not incurred Revenue earned, cash not received Cash received, revenue not earned Expense(+E, -SE) Payable(+L) Expense(+E, -SE) Prepaid Expense (-A) Receivables(+A) Revenue(+R, +SE) Unearned Rev(-L) Revenue(+R, +SE) Wages / Taxes Prepaid Rent Payment on account Rent collection

Investing

Financing

Lower

Outflows -Inventory -Salaries and Wages -Income taxes -Interest on liabilities -Purchase of PPE -Purchase of investments in securities -Repayment of principle to creditors (excl. interest, which is Operating) -Purchase of Treasury Stock -Dividends payment

Chapter 13: Statement of Cash Flows