410 ACCT - ACCOUNT LIST
The list of accounts below has been modified to include "classified balance sheet" categories [in red]. Please also look at the uses and ratios associated with the classified balance sheet.
ASSETS
Current Assets: assets that are cash, will be turned in cash, or will be used up within one year. Cash: coins, currency, unrestricted amounts on deposit. Short-Term Investments/Marketable Securities: a business will investment excess cash by buying stocks, bonds, etc. of other companies such as IBM, Microsoft, etc. Receivables: are cash amounts due from other parties. The word in front of receivable tells you why it is owed. Some common examples: - Accounts Receivable: cash due from customers or clients in very short time period, generally 30 to 60 days of receiving the bill. - Loan/Note Receivable: cash due which is evidenced by a formal written promissory note. The note will specify when the payment is due and the interest rate. - Interest Receivable: interest due on a loan. [Note: the principal portion is separate from the interest portion. - Dividends Receivable: dividends due from stock investments. These amounts are "receivable" when the board of directors of the other company votes in favor of a dividend. Less: Allowance for Doubtful Accounts: portion of accounts receivable that is estimated to be uncollectible. Inventory: items held for sale in the ordinary course of business. Prepaid Expenses: items where the service is paid for in advance. These items will be expensed later during the "adjustment process. Some common examples: - Prepaid Rent, Prepaid Insurance, Prepaid Salaries, Prepaid Advertising. Property Plant, & Equipment: the following assets last longer than one year, are tangible, and are used in operations to generate revenue all are depreciated [expensed] over the period that they help generate revenues. The exception is land. No explanations are included for those items that are obvious based on their title. Land Buildings Furniture & Fixtures Machinery/Equipment: Capital Leases: Typically a leased items is not included on the balance sheet as it is not owned. If it meets certain criterion, it is viewed as "an in-substance purchase" and included as an asset. If does not meet the criterion, it is considered an operating lease and excluded from the balance sheet. Accumulated Depreciation: contra-asset [contra means negative balance] is opened for each corresponding asset account. It reflects the amount of depreciation that has been recognized for each asset [except land]. The cost allocated to a period is recorded as depreciation expense and the asset value is reduced using this contra-asset account. This is recorded during the adjustment process. Intangibles: assets that are held longer than one year, convey some economic or legal right or relationship, have no physical substance, are used in operations to generate revenue most are amortized. There are new accounting rules that have just gone into effect regarding amortization of intangibles assets. They require that all intangibles be subject to impairment test and most are amortized except trademarks, tradenames, and goodwill. Goodwill: amount paid for a business above the FMV of the actual net assets acquired. This premium price paid above the FMV of component parts purchased is because the company has an outstanding reputation or some other outstanding attribute that is not a separately identifiable asset. Patents: exclusive legal right to a manufacture a certain item. The legal right is good for 20 years but the process may generate revenue for less than that period. But remember R&D is expensed, so most companies only show patents that are purchased. Trademarks: registered and exclusive rights to logos, symbols, etc.
Copyrights:
exclusive rights to literature, works or art, etc.
Long-Term Investments: assets to be held longer than one year and that are not used in the ordinary course of business. Land Held for Future Use: companies will often buy property with the intent to use it later for such purposes as building a factory or store. Investments in Securities: these are investments that a company intends to hold beyond the current year. Companies will often do this when they want to take a significant ownership interest in another company.
LIABILITIES
Current Liabilities: amount, good, or service is due within a year or less. Accounts Payable: cash due to vendors, suppliers, service providers generally in very short time frame such as 30 to 60 days. . Almost always involves the processing of a bill. Accrued Liabilities: relate to situations where the company has received a service [possible a "good" also] but have yet to pay for it. These are always recorded during the "adjustment" process. The offsetting side of the entry is almost always an expense. Common examples include: - Salaries Payable: someone has worked for you but you have not paid them yet. - Interest Payable: you have borrowed money and have not paid the cost associated with using it. - Income Taxes Payable you have made money and as such will have to pay income taxes in the future. Unearned/Deferred Revenues: business has received advance payment for a good which has yet to be delivered or a service which has yet to be performed. The liability will be reduced and the revenue recognized at the time of performance. Loans/Notes Payable: See listing under long-term liabilities. Same except due in one year or less. This would include the principal portion of the loan that is due in a year or less. Long-Term Liabilities: amounts, goods, or services is due in a year or more. Loans/Notes Payable: a company borrows by entering into a formal written agreement [promissory note] which specifies the amount borrowed [principal], when it will be repaid, and the rate of interest charged. These principal amounts are due in one year or more. Bonds Payable: debt securities issued by a business where the promise to pay certain amounts in the future. Essentially like a loan where the promise to pay specific amounts and receive the cash they are work. These loans give the lenders specific rights and privileges that can vary significantly. Mortgage Payable: a loan that is secured by the underlying real property. Commonly used with real estate.
EQUITY
Contributed Capital: equity or owners interest in business as a result of direct investments by owners. Capital stock: evidence of ownership given to shareholders in exchange for assets their including cash and services. Those that hold the stock are owners. Different types of stocks will have different types of rights. - Preferred Stock: holders of these stock preferences or advantages over common stockholders or other preferred stockholders. These preferences generally relate to dividend payments [usually fixed] and liquidation rights. These stocks also generally have no or limited voting rights. There can be several versions of preferred stock outstanding at one time. - Common Stock: "basic" stock issued by a corporation in exchange for assets or services. These generally have voting rights and residual liquidation and dividend rights. There can be several versions of common stock outstanding at one time.
Retained Earnings: equity or owners interest in the business that is a generated by the business through profitable operations. This amount is calculated on the Statement of Retained Earnings by taking accumulated net income/losses and reducing them by dividends over the course of the life of the business. Dividends: reductions in equity as a result of the distribution of assets to owners. Dividends are recognized when they are declared [voted for] by the board of directors.
REVENUES
General Comment: Revenues [and also gain] accounts are generally listed based on the "type". Thus a business will open up a separate revenue [gain]account for each type of revenue [gain] generating activity it engages in. Hint: On exams, quizzes, and homework assignments, make sure you include the word revenue [gain] in the account title to avoid any confusion. e.g. Consulting Revenues, Sales Revenue, Management Revenues, Rental Revenues, Gain on Sale of Marketable Securities, Gain on Sale of Equipment. You will be held responsible for learning the multiple-step income statement format. This includes knowing the categories, subtotals and the type of accounts go in each categories. This format is covered in Chapter 3 of the text. See Exhibit 3.7. You have also been given a "PowerPoint" handout covering this statement, its categories, its subtotals, and examples of accounts that would be included in each section. Merchandising Revenues: the following are typical revenue accounts used by a merchandising company. Sales Revenue: revenue generated from the sale of goods. Sales Returns: contra-revenue. Used to offset revenues where the item sold has been returned. Sales Allowances: contra-revenue. Used to offset revenues where a customer has received a downward price adjustment on the good purchased. Note: A revenue allowance account would also be used when a service customer has received a price adjustment. The account name would generally follow the corresponding revenue account. Example: A "Consulting Revenue Allowance" account would be used when the revenue recorded was "Consulting Revenues." Sales Discounts: contra-revenue. Used to offset revenues when a price reduction is given for early payment of the invoice amount. Typically referred to as a cash discount based on terms such as 2/10, n/30. Non-Operating Revenues: these are items that are earned but generally do not relate to a company's "ordinary course of business". They would be separately categorized in a multi-step income statement. Dividend Income: dividends earned on marketable securities [common stock] held. Interest Income: interest earned on loans, bonds, etc..
EXPENSES
General Comment: Expenses [and losses] accounts are generally listed based on the "type". Thus a business will open up a separate expenses [loss] account for each type of expenses [loss] generating activity it engages in. Hint: make sure you include the word expenses [loss] in the account title. e.g. Salary Expense, Rent Expense, Depreciation Expense, Utilities Expense, Advertising Expense, Loss on Sale of Marketable Securities, Loss on Sale of Equipment. Cost of Goods Sold: the expense associated with the cost of the item sold. It is expensed at the time of sale. Note that while the text makes it appear that it is a singular account, in practice it is generally treated as a category. The following two accounts are examples of accounts that would be in this category. CGS Inventory Shrink: the expense associated with inventory theft, pilferage, loss. This is recorded during the "adjustment process". CGS Damaged Obsolete Inventory: the expense associated with carrying inventory that loses some or all of its value because it was either damaged or becomes obsolete.
Depreciation Expense: allocation of the cost of an asset over the time period in which it helps the company generate revenue. Bad Debt Expense: the cost associate with extending credit to customers that end up not paying. Interest Expense: the cost associated with borrowing money. It is calculated based on the amount borrowed [principal] x interest rate [always state in annual terms] x time [portion of year outstanding e.g. one month = 1/12]. Be careful to separate the interest from the principal portions of any amounts paid.
GAINS AND LOSSES
General Comment: Gain and loss accounts are generally listed based on their "type". Thus a business will open up a separate gain/loss account for each type of gain/loss that occurs during a given period. By their very nature, gains/losses are non-operating and are separately categorized in a multi-step income statement. Hint: make sure you include the word gain/loss along with a descriptor in the account title. e.g. Gain on Sale of Marketable Securities, Gain on Sale of Equipment, Loss on Obsolete Inventory, Loss on Embezzlement, Loss on Impairment.
MULT-STEP INCOME STATEMENT FORMATS General Comment: The following are typical multi-statement income statement formats. Each category [bolded item] would contain specific accounts appropriate to that category. Each subtotal is generally used as a significant performance measure. . MERCHANDISING COMPANY NON-MERCHANDISING COMPANY Net Sales [category] Cost of Good Sold [category] = Gross Profit/Margin [subtotal] Operating Expenses [category] - Selling Expense [subcategory] - Operating Expense [subcategory] = Operating Income/Profit [subtotal] Other/Non-Operating [category] = Income Before Taxes Income Taxes [category] = Net Income Operating Revenues [category] Operating Expenses [category] - Selling Expense [subcategory] - Operating Expense [subcategory] = Operating Income/Profit [subtotal] Other/Non-Operating [category] = Income Before Taxes Income Taxes [category] = Net Income