Exam 28 March 2013
FINANCIAL ACCOUNTING FOR INTERNATIONAL BUSINESS
Income Statement = Total revenues of a company minus the company’s total expenses during a certain
so-called accounting period.
NET INCOME = REVENUES – EXPENSES
Revenues = increases in stockholder’s equity resulting from selling goods, rendering services, or
performing other business activities.
Expenses = decreases in stockholders’ equity resulting from the cost of selling goods or rendering
services and the cost of the activities necessary to carry on business.
Statement of Retained Earnings = this statement shows any changes in the ‘retained ...view middle of the document...
Any account which does not belong to these type of accounts increases on the credit side and decreases
on the debit side.
For assets: if assets increase, debit it. If assets decrease, credit it.
For liabilities: if liabilities decrease, debit it. If liabilities increase, credit it.
For stockholders’ equity: debit for decrease, credit for increase.
*An expense is always recorded on the debit side.
Journal Entries = used to account for financial transactions and involves always two T-accounts.
Shows the date of the transaction, the debited and the credited account(s).
The journal entry always involves one debit and one credit and the two side ALWAYS have to balance!
Trial Balance = a summary from all the journal entries/T-accounts made at the end of an accounting
period. To prepare a trial balance, follow these steps:
1. If a balance sheet or previous trial balance is given start with the information that is given on
there, you have to include all mentioned T-accounts.
2. Go through all journal entries that you made and add/subtract the amounts to the balance given
from the balance sheet.
3. Write down the final balance in the trial balance according to the side it would be on the Taccount.
4. Involve all accounts that are mentioned in the information given and in the journal entries. In
the end, the two sides (debit & credit) have to sum up to the same amount!
Adjusting Entries = end of term adjustments to a trial balance to add any unrecorded transactions.
*Each adjusting entry always involves one balance sheet account and one income statement account.
*Cash is NEVER involved.
Typical adjusting entries: supply changes, depreciation expense, rent expense, interest expense,
wage expense, prepaid rent or other costs, unearned revenue, and accounts receivable.
Single Step Income Statement = revenue – expense = net income.
Multistep Income Statement = different because it makes multiple steps. It starts with the revenue and
costs related to its core business (Sales Revenue – Cost of Goods Sold), and then continues by listing first
all Operating Expenses and then all Other Revenues and Expenses.
Perpetual Inventory System = inventory would be recounted after each period and an adjusting entries
would then be made.
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Exam 28 March 2013
A method which is slowly getting outdated by technology: under this method no entries would be made
when inventory is sold.
Periodic Inventory System = every change that occurs is immediately noticed, mentioned and written
down in the books.
Due to differences, journal entries and income statements will look slightly different with the 2 methods.
“Terms of Trade”= most purchases and sales are going with terms of trade.
First, it will contain a description of who is going to pay for the transport costs: FOB shipping
point/destination. FOB=free on board
FOB shipping point = Buyer pays.