Introduction to Accounting Preparing for a User’s Perspective Define standard asset accounts Debits and Credits Trainer By Kevin C. Kimball, CPA with support from www.canvas.net Free Jan. 2014 Available on the Google Play Store

How are assets defined by the FASB? “Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.” Statement of Financial Accounting Concepts No. 6 Elements of Financial Statements—a replacement of FASB Concepts Statement No. 3 (incorporating an amendment of FASB Concepts Statement No. 2) CON6-12.25 Copyrighted by, and reproduced with permission of, the Financial Accounting Foundation, 401 Merritt 7, Norwalk, CT 06856, USA. Let’s look at some standard asset accounts and see how they meet this definition

Common Asset Accounts Cash Accounts receivable Inventory Office supplies Prepaid insurance Prepaid rent Notes receivable (5 year) Warehouse equipment Land Patents Trademarks Copyrights Goodwill

Common Formats for Computing Ending Balances for Asset Accounts Horizontal equation format Beginning Balance + Increases – Decreases = Ending Balance Vertical equation format Beginning Balance + Increases – Decreases = Ending Balance T-Account Format Assets Beg. Balance + Increases - Decreases End. Balance

T-Account Format = + Assets Liabilities Equity Beg. Balance + Increases - Decreases End. Balance = Liabilities Beg. Balance - Decreases + Increases End. Balance + Equity Beg. Balance - Decreases + Increases End. Balance

CASH & CASH EQUIVALENTS Currency & Coin Money orders Checks Bank deposits US Treasury bills (original maturity < 3 months) Money market funds Cash Beg. Balance + Increases - Decreases End. Balance Cash received from: Cash paid to Customers Sale of long-term assets Lenders Issuance of stock Suppliers Purchase long-term assets Lenders Owners as dividends

Here’s the money I owe you. Accounts Receivable Here’s the money I owe you. Can I pay you later? Accts Receivable Beg. Balance + Increases - Decreases End. Balance Sales on acct to customers (also known as credit sales) Reversals of A/R write-offs Customer payments Customer sale returns Write-offs of bad A/R

Inventory Inventory Beg. Balance + Increases - Decreases End. Balance Cost of goods sold Destroyed inventory Stolen inventory Obsolete inventory Inventory purchases Direct materials, direct labor, manufacturing overhead

Office Supplies Office Supplies Beg. Balance + Increases - Decreases End. Balance Using up of supplies Destruction of supplies Theft of supplies Obsolescence of supplies Purchase of office supplies

Prepaid Rent Pay $12,000 in rent for next 12 months Use up prepaid rent December, X2 January to December, X3 Prepaid Rent Beg. Balance + Increases - Decreases End. Balance Using up of rental period Refund of prepaid rent Prepayments for future rent

Prepaid Insurance Pay $600 to insure car for next 12 months Use up prepaid car insurance December, X2 January to June, X3 Prepaid Insurance Beg. Balance + Increases - Decreases End. Balance Using up of insurance period Refund of prepaid insurance (cancellation) Prepayments for future insurance

Notes Receivable Lender Lender Borrower Borrower Notes Receivable Beg. Balance + Increases - Decreases End. Balance Receive loan repayments Write-off bad loans Make loans to borrowers

Warehouse Equipment Warehouse Equipment Beg. Balance + Increases - Decreases End. Balance Sell Warehouse Equip Destroy Warehouse Equip Dispose Warehouse Equip Purchase Warehouse Equip.

Land Land Beg. Balance + Increases - Decreases End. Balance Sell land Purchase land Sell land Destroy land

Patent A government issued, and protected right to a unique design, process or developed species (usually a plant). Patents have a limited life of 20 years. For more on patents see: http://www.uspto.gov/faq/trademarks.jsp#_Toc275426672 Patent Beg. Balance + Increases - Decreases End. Balance Purchase patent Legal fees to register patent Sell patent Expiration of patent

Trademark Trademark owners are allowed to protect unique numbers, words, phrases, symbols, and designs that distinguish their products and services from those of others. ™ = Unregistered Trademark for a product; SM = Service Mark for a service ® = Registered Trademark For more on trademarks see: http://www.uspto.gov/faq/trademarks.jsp#_Toc275426672 Trademark Beg. Balance + Increases - Decreases End. Balance Purchase trademark Register trademark (fees) Sell trademark Expiration of trademark

Copyright Copyrights protect creative works created by the original authors such as music, writings, and art. http://www.sciencenewsforkids.org/2013/03/what-is-a-patent/ Copyright Beg. Balance + Increases - Decreases End. Balance Copyright fees Legal fees paid for successful defense Sell copyright Expiration of copyright

Goodwill The excess purchase price paid to acquire another business in excess of its net identifiable assets. Example: Assume Company B were to purchase Company A’s net identifiable assets (i.e. $12 m in assets less $3 m in liabilities = $9 m) for $20 m. The excess $11 m payment would be goodwill and could be justified by Company A’s reputation or potential synergistic effects. Goodwill Beg. Balance + Increases - Decreases End. Balance Purchase Goodwill Goodwill impaired Sell company, remove goodwill

Introduction to Accounting Preparing for a User’s Perspective Define standard asset accounts Debits and Credits Trainer By Kevin C. Kimball, CPA with support from www.canvas.net Free Jan. 2014 Available on the Google Play Store