Financial Accounting third s2008

Financial Accounting third s2008 - SM299 Management as a...

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SM299 – Management as a System Financial Accounting- Statements of Cash Flow and Retained Earnings Professor J. Robb Dixon building on lectures developed by Professors Eng Wu and Peter Arnold Boston University School of Management
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Debits and Credits Questions According to the last SM 299 lecture expense accounts are __________. a) Credit accounts. b) Perquisites reserved for sales people and top executives. c) Debit accounts. d) Subject to increasingly close review by the IRS. e) None of the above.
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Debits and Credits Questions In Wise A Jake paid $12,000 in rent on July 1 the first day of the lease for his shop. On Dec. 31 the ledger entry for rental expense would look like___________ a) Dr. Prepaid rent $6,000 Cr. Rental expense $6,000 a) Dr. Retained earnings $6,000 Cr. Rental expense $6,000 a) Dr. Rental expense $6,000 Cr. Prepaid rent $6,000 a) No ledger entry is necessary; there was no cash flow involved.
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Debits and Credits Questions Caitlin and Cherelle start a new business in January. Among other transactions they purchase $10,000 worth of supplies at the beginning of the month with cash. By the end of the month, when they do the first formal accounting for their business, they are pleased to find that they have made a profit and the business still has $8,000 of supplies remaining. During February the business consumes $2,500 of supplies and experiences growing revenues. Which journal entry is applicable to the $2,500 of supplies consumed in the accounting for February? a) Dr. Supplies $2,500 Cr. Supplies Expense$2,500 a) Dr. Supplies Expense $2,500 Cr. Cash $2,500 a) Dr. Cash $2,500 Cr. Supplies$2,500 a) Dr. Supplies Expense $2,500 Cr. Supplies $2,500 a) None of the above – the supplies were paid for in January.
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Net Sales 10000 Cost of Goods Sold 7000 Gross Profit 3000 Operating Expenses Selling General and Adminstrative 1600 Depreciation 200 Profit from Operations 1200 Interest Expense 200 Income before Taxes 1000 Income Tax Expense 400 Net Profit 600 Statement of Profit and Loss For the Year Ended December 31, 2006 Easy Company Bottom Line Operating Profit Gross Margin
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Preparation of the Statement of Cash Flows Interpretation of Financial Statements Preparation of the Statement of Retained Earnings
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Some Important Concepts What’s Cash? 1. Growth requires cash 1. Inventory requires cash – inventory purchase is not an expense 1. Debt Servicing requires cash . What’s not cash? 1. Profit is not the same as cash 1. Revenue is accounts receivable, not cash 1. Expense is not necessarily cash 1. Depreciation is an expense, but never cash 1. Dividends may require cash, but dividend is never an expense
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Statement of Cash Flows It shows how the profits or losses during the accounting period combine with all of the balance sheet changes to produce a change in the company’s cash balance.
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Statement of Cash Flows Cash received and expended in the company’s main line of business 1) Cash flow in the Investing Activities
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Financial Accounting third s2008 - SM299 Management as a...

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