Question

1.for-profit, governmental, and not-for-profit.

"identifying, recording, and reporting" are the accounting activities?

2. Under the example exercises when filling in the missing calculations how do I find the missing “expense” column and the “losses” column?

3. What are the deferrals? and how do they have an effect on the balance sheet?

4.GAAP is a common set of rules, standards, and procedures that publicly traded companies must follow when composing their financial statements but what does it have to do with the FASB? ( financing accounting standards board). I'm pretty confused about it.

Answer 1

Ans 1) Organizations are divided into 3 categories: Profit, Governmental, and Not for Profit.

If we talk in a layman terms, then identifying, recording and reporting are the 3 basic steps of accouting activites for any organisation. However if we talk brief, then accounting activities consist of the following:

1. Analyze and record transactions: The first step in preparing the financial statement is to analyze and record all the transactions in a business. This is usually done through journal entries, which has a debit and a credit side.

2. Transfer transactions to the ledger: The journal entries are then transferred to the ledger account, also known as T-account. The main purpose of the ledger is to store the entries in an organised manner.

3. Prepare Unadjusted Trial Balance: Trial balance is a statement which shows all the transactions are recorded with the debit and credit side. Since accounts follow double entry book keeping system, the total of both the sides should come equal. If there is any variation in either of the side, a suspense account is being opened to balance the sides.

4. Adjust entries at the year end: Once all the entries are being recorded, the next step to record and adjust only those entries which are relevant for that given period of time, say that financial year or a quarter or any other time frame. There are four main types of adjustments: deferrals, accruals, tax adjustments, and missing transaction adjustments.

5. Adjust the Trial Balance: Once the adjustment of entries take place, again a new trial balance is prepared which contains all the adjusted and rectified entry so as to give a better position in preparing the financial statements.

6. Prepare the Financial Statements: Finally, the Financial statment of the company is prepared from the informations collected. This statemnent depicts all necessary financial activities of the company, such as where the business is invested, how much cash and assets the business has right now, how much the company has to pay to its creditors, and so on.

Ans 2) Gross profits for a company is the net amount of money it receives for a given period. The expenses reflect the money that was paid out to operate the company. If the costs are subtracted from the gross, net income is the actual benefit. By doing some simple calculations, calculate a missing sum from a revenue sheet.

Add specific expenses and subtract the sum from the expense total to find a missing single expense. For example, consider an income statement in which the expenses total $25,000. If you are missing a figure for the specific expense "utilities," add the other expenses such as "raw materials," "labor" and "advertising" first. Assuming these expenses add up to $18,000, you would subtract $18,000 from $25,000 to get $7,000 as the "utilities" expense.

Add the net income and the total expenses to find the gross income if that figure is missing. For example, consider an income sheet with $50,000 as the net income and $20,000 for the expenses. Add these figures to get $70,000 as the gross income.

Determine the net income, if that figure is missing, by subtracting the total expenses from the gross income. For instance, if you have $100,000 gross income and $30,000 expenses, you would subtract 30,000 from 100,000 to get a net income of $70,000.

Determine the net revenue figure by subtracting allowances and returns from the gross revenue. For example, if a company made $80,000 and had $2,000 in allowances and returns, you would subtract $2,000 from $80,000 to get net revenue of $78,000.

Ans 3) Deferral in layman's langauge means a postponement of an action or an event. In accrual accounting, a deferral is any account where the revenue or expenditure is not recognised until a future date (accounting period), such as annuities, costs, taxes, etc. The deferred item may be held as either an asset or a liability, depending on the form of deferral. Deferred expenses are expenses a company has prepaid. They are recorded as “Assets” on a balance sheet. Deferred revenue is income a company has received for its products or services, but has not yet invoiced for. They are considered “Liabilities” on a balance sheet.

Ans 4) Financing Accounting Standards Board or FASB is the source of Generally Accepted Accounting Principles or GAAP. FASB is an independent, private-sector, not-for-profit organization, estabilished in 1973 and is based in Norwalk, Connecticut. GAAP are the guiding rules and standards that have been set by the FASB, and adopted by the United States accounting profession as a whole.