CHEAT SHEET
ACC1000: Principles of Accounting and Finance
Monash University
1
Introduction to Accounting
Users - People that depend on and use the financial
information (provided by financial statements) to
make economic decisions.
• Assumptions of Financial Accounting –
• Accrual Accounting
• Going Concern
• Monetary unit
• Accounting Period
• Historical Cost
Qualitative Characteristics –
• Understandability
• Relevance
o Materiality
• Reliability
o Fair representation (represent what
really existed/happened)
o Neutrality (freedom from bias)
o Substance over form (reflects the
economic reality)
o Prudence (caution in estimates)
o Completeness (material info not
omitted, not misleading)
• Comparability
Business Entities: Sole Proprietor,
Company/Corporation, and Partnership
2
The Elements of Accounting
Accounting Equation – A = L + SE
Asset:
Definition: Resource controlled, Provide future
economic benefit, Result of past event
Recognition: Probable economic benefit, Reliably
Measured
Liability:
Definition: Present Obligation, Outflow of future
economic benefit, Result of past event
Recognition: Probable outflow of economic benefit,
Reliably Measured
Shareholders’ Equity:
Definition: Residual Interest
Accrual Accounting – Record economic impact of
transaction as they occur
Cash Accounting – Record impact of transaction at
time of cash flow
A
L
Rev.
Exp.
SE
Increase
DR
CR
CR
Decrease
CR
DR
DR
Balance
DR
CR
CR
DR
3
Revisiting the Recording Process
The Accounting Cycle:
CR
1)
2)
3)
4)
5)
6)
7)
8)
9)
Source Document
Journal Entries
Post to Ledger
Pre-Closing Trial Balance
Adjusting Entries
Adjusted Trial balance
Closing Entries
Post-Closing Trial Balance
Financial Statements
4
Trading Firms and Recording of Stock
using the Physical or Periodic Method
Perpetual Inventory System - Continually records
the impact of transaction on COGS and Inventory
control accounts.
Purchase Returns and Allowances –
DR Inventory
CR Cash/ Accounts Payable
OR
DR Purchase Returns and Allowances
CR Accounts Payable
Sales Returns or Allowances –
DR Sales Returns and Allowances
CR Cash/ Accounts Receivables
DR Inventory
CR COGS
Write –off:
DR inventory write-down
CR COGS
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Periodic Inventory System – Need to deduce COGS
using the formula:
COGS = O/B INVENTORY + PURCHASES - C/B
INVENTORY (AFTER A END OF YEAR Stock take).
Purchase Returns and Allowances DR Cash/ Accounts payable
CR Purchase Returns and Allowances
Sales Returns and Allowances Sales Returns or Allowance:
DR Sales Returns and Allowances
CR cash/ accounts receivable
5
Contra Account - Are accounts that record any
detraction from the historical cost of an asset or
liability control account
Allowance for Doubtful Debt
Creating Allowance for Doubtful Debt
DR Bad Debt Expense
CR Allowance for Doubtful Debt
Writing Off Bad Debt
DR Allowance for Doubtful debt
CR Accounts Receivable
Depreciation
DR Depreciation Expense
CR Accumulated Depreciation
Adjusting the Accounts
Expiration of Assets DR Insurance Expense
CR Prepaid Insurance
Unearned Revenue DR Unearned Revenue
CR Service Revenue
Accrual of Unrecorded Revenue DR Accrued Revenue
CR Service Revenue
Accrual of Unrecorded Expenses DR Wages expense
CR Accrued Wages
Closing Entries - Temporary accounts are closed to
leave them with zero balances in preparation for the
next reporting period.
Post Closing Trial Balance - Lists all permanent
accounts and their balances.
Prepare Financial Statements –
• Prepare Balance Sheet
• Income Statement
• Statement of Cash Flows
6
increase in total equity (not attributed to owners
contributions).
Expenses: outflow of economic benefits (as a result of
ordinary operating activities that result in a decrease
in total equity (not attributed to owners’
distributions).
Balance Sheets Asset: a resource that is controlled by the entity as a
result of a past event or transaction, which has the
potential to generate economic benefits for the firm.
Liabilities: A present obligation that arises from a past
event, and from which there will be a future sacrifice
of economic benefit by the firm to settle that
obligation.
Shareholders equity: The residual interest of assets of
the entity funded by shareholders/ owners.
Statement of Cash Flows –
Operating activities – involve income statement
items.
Investing activities – involve cash flows from
investments, non-current assets.
Financing activities – involve cash flows from noncurrent liabilities, owner’s equity items.
Preparing Financial Statements
Income Statement –
Revenue: Inflows of economic benefits (as a result of
ordinary operating activities) that result in an
7
Inventory – Retail Operations
Non – Financial Performance Management –
FIFO
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