Long-Term Operational Assets

Long-Term Operational Assets - Chapter 8 Reporting and...

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Click to edit Master subtitle style Chapter 8 Reporting and Interpreting Long-Term Operational Assets
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In Chapter 7 You learned: o How to account for cash and accounts receivable o Why it’s important to control cash o How a company accounts for bad debts
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Let’s talk a walk down memory lane….
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ACCT. 210 REVIEW. . . l Stockholders invest $35,000 in a company l DR: ____________ $______________ l CR: ____________ $______________
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ACCT. 210 REVIEW. . . l Purchased $400 Office Supplies on Credit l DR: ____________ $______________ l CR: ____________ $______________
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ACCT. 210 REVIEW. . . l Purchased $6,000 Office Equipment on for $2,500 Cash & the rest on Credit. l DR: ____________ $______________ l CR: ____________ $______________
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ACCT. 210 REVIEW. . . l Billed clients for consulting fees for Services performed, $4,000. l DR: ____________ $______________ l CR: ____________ $______________
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ACCT. 210 REVIEW. . . l Paid $2,200 cash for office salaries. l DR: ____________ $______________ l CR: ____________ $______________
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ACCT. 210 REVIEW. . . l Received a check for $3,000 from a client in payment on account for commissions billed in previous transaction. l DR: ____________ $______________ l CR: ____________ $______________
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l Revenue Recognition & l Matching Principles
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Accrual Basis Accounting Revenue recorded only when earned not when cash is received Expense recorded only when incurred not when cash paid— in the period in which the company benefited from it
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Accrual Basis adheres to. .. G enerally A ccepted A ccounting P rinciples
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Click to edit Master subtitle style Year 1 Year 2 Purchased paint, painted building , paid employees Received payment for work done in year one Activity Accrual basis Cash basis Revenue $80,000 Expense 50,000 Net Income $30,000 Revenue $ 0 Expense 50,000 Net Loss ( $50,000) Revenue $80,000 Expense 0 Net Income $80,000 Revenue $ 0 Expense 0 Net Income $ 0 Illustration 4-2
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Still confused? l Do we need another way to learn this concept?
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Revenue Recognition – a rap l If you wanna be accrual l Here’s what you gotta do, l When the service is performed l You book the Revenue !
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In Chapter 8 You will learn: o To account for the purchase and use of: o Buildings o Manufacturing plants o Equipment o Furniture & Fixtures o Natural resources o Intangible assets o How transactions related to long-term assets are presented on the financial statements.
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Acquiring Plant Assets Assets are required at Historical Cost o Cost includes all necessary costs to get the assets ready for their intended purpose o Their intended purpose is to help generate future revenues. o The expected future revenues must exceed the cost of the asset.
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Land              Acquisition Cost - Land Price Paid for Land Real Estate Commissions Attorneys’ fees Costs of preparing the land for use, such as clearing or draining Net Cost of tearing down existing Structures Cost of Land The Historical Cost Remains on the Balance Sheet. Land is not depreciated + + + + =
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Buildings - Plant              Acquisition Cost Price Paid for Buildings Costs to Update or remodel the facilities Any other costs to get the plant operational Cost of Building Depreciation allocates the cost against future revenues.
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This note was uploaded on 04/12/2011 for the course ACCT 2310 taught by Professor Santoshattar during the Fall '08 term at Cuyahoga CC.

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Long-Term Operational Assets - Chapter 8 Reporting and...

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