Note Receivable Interest Revenue

On October 1, 2007, An investment bank loaned $300,000 to a small business in with a nine month, 12 percent note receivable. The banks’s accounting period ends on December 31. What amount would be reported in the bank's 2008 income statement as Interest Revenue?


Answer: $18,000

What is Accounting Materiality Concept

What is Accounting Materiality Concept?

• It is the importance of an accounting transaction or item that determines if it is necessary to include it in the general ledger and accounting statements.
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• Insignificant events do not need to be recorded in the books.

For example, buying a pencil in a small business. Size of a company and revenue has an impact on the accounting materiality concept.

CVP Relationships Income Statement

CVP Relationships and the Income Statement

The traditional income statement for a manufacturer includes a cost-of-goods-sold amount that combines variable costs and fixed manufacturing overhead in the statement. Cost are not grouped by behavior but by function. CVP Analysis is harder to perform when costs are not grouped by behavior

The contribution income statement is presented in a format that highlights cost behavior on the income statement. Variable Costs are subtracted from sales to highlight total contribution margin. Fixed expenses are subtracted to calculate the period’s net income. This format is used for variable costing.

Underapplied and Overapplied Overhead

In a manufacturing company, the difference between the overhead cost applied to Work in Process (WIP) and the actual overhead costs incurred by the firm for a period is termed either underapplied or overapplied overhead.


Underapplied Overhead= Amount of applied overhead is less than actual overhead

Overapplied Overhead = Amount of applied overhead is greater than actual overhead

MOH has a DEBIT balance.

MOH has a CREDIT balance.

FOB Shipping Point Problem

If a company purchases goods FOB shipping point, the point at which the purchase of inventory is recorded in the accounting general ledger when the

A. purchase order is sent. C. goods arrive.
B. sales invoice is sent. D. goods are shipped.

Correct Answer: D

Direct Write Off Method for Bad Debt

Which of the following is true under the direct write-off method of accounting for bad debts?


A. The current year bad debts expense could be more or less than the expense under the allowance method
B. The relationship between net sales and bad debts expense illustrates the matching principle
C. When specific accounts are written off, the Allowance for Bad Debts account is debited
D. The accounts receivables are stated in the balance sheet at their net realizable value


Correct Answer: A

Accounting Examples about Bad Debt Expense:
Percent of Accounts Receivable Method for Estimating Bad Debts Expense
Percent of Sales Method to Calculate Debt Expense

How To Record Accounting Transaction

Follow these Five Steps to Record an Accounting Transaction:

1. Determine if the event is of financial importance to the business
   
2. State the Monetary Value of the Event
   
3. Locate which accounts the transaction affects.
4. Determine whether the transaction increases or decreases the balances in those accounts
5. Record the transaction in the the financial accounting ledger.
   

Cash Flow Operating Activties

What items are considered to be operating activities on a statement of cash flows?

The Following Cash Inflows are Considered Operating Activities:

1. Sale of goods or services
2. Sale of investments or trading securities
3. Dividend revenue
4. Interest revenue

The Following Cash Outflows are Considered Operating Activities:

1. Interest payments
2. Payments for Inventory
3. Wages, rent, taxes, utilities, insurance
4. Purchase of trading securities

Calculate Ending Inventory

How to Calculate Accounting Ending Inventory?

Accounting Equation:

Ending Inventory= Beginning Inventory + Net Purchases - Cost of Goods Sold (COGS)

Calculate Cost of Goods Sold

How to Calculate Cost of Goods Sold?

Accounting Equation:

Cost of Goods Sold (COGS) = Beginning Inventory + Net Purchases - Ending Inventory

What is Inventory?

In Accounting, Inventory is a class of asset that is intended for sale, in production for sale, or used in the production of an item for sale.

What is External Reporting?

External Reporting is reporting to parties external of the company such as stockholders and the public. The opposite of external reporting is internal reporting which is for the management's benefit.

What is Bad Debt?

A Bad debt is all or a portion of an account receivable, note receivable, or loan that will not be collected. Management has deemed the debtor unable to pay, therefore it is a bad debt. For example, a customer who has recently declared bankruptcy would have his accounts receivable considered bad debts.

Accounting Examples about Bad Debts:
'
Percent of Accounts Receivable Method for Estimating Bad Debts Expense
Percent of Sales Method to Calculate Debt Expense

What is FOB Destination?

The abbreviation refers to Free On Board. It is a type of shipping arrangement between and buyer and seller. Free on Board (FOB) indicates the party responsible for paying the transportation costs and the point at which the ownership of goods occurs from shipper to the buyer. FOB Shipping is commonly used between many commercial companies.

What are Short Term Notes Payable?

A Short Term Note Payable is a written promise by a company to pay a specified amount on a definite future date within one year or the company’s operating cycle, whichever is longer.

What is a Municipal Bond?

A Municipal Bond is a bond issued by any level of government, the interest paid on a municipal bond is generally exempt from taxation. This is the main reason to purchase one.

Expanded ROA Equation

Expanded Return on Assets (ROA) Equation

There ROA equation is very useful when conducting financial ratio analysis. It determines how effective a company is at using their assets to generate sales. The percentage can be compared to competing firms.

Return on Assets (ROA) = Net Profits / (Average Assets)
Or
Return on Assets (ROA) = (Asset Turnover) x (Net Profit Margin)


Expanded Return on Assets (ROA) Equation

Return on Assets (ROA) = [(Sales) / (Average Assets)] x [(Net Profits) / (Sales)]

What are Cash Equivalents

Accounting Definition Cash Equivalents are Short-term (redeemable in less than three months), highly liquid investments and assets that are convertible to known amounts of cash quickly. For example, certain accounts receivables are considered cash equivalents. A 3-month CD would also be considered a cash equivalent.

What is Accounting General Ledger?

The accounting general ledger is a record containing all accounts used by the company. It is the main source of a companies financial records, the general ledger may also be known as the chart of accounts.

It includes all accounts that make up the accounting equation, A=L+E The accounting general ledger is a collection of all accounts in a company's information system. A company’s size, nature of business, and diversity of operations dramatically affect the number of accounts needed in the ledger.

What is Lump Sum Asset Purchase?

A Lump Sum Asset Purchase is that total cost of a combined purchase of land, building, or machinery and is allocated to the specific assets according to their relative market values.