CB Bookkeeper cheat sheet

Adjusting entries update account balances at period end so revenues are recognized when earned and expenses when incurred; each entry affects at least one income statement and one balance sheet account.

Accrued revenue: debit Accounts Receivable, credit Revenue. Accrued expense: debit Expense, credit Payable.

Deferred (unearned) revenue: debit Unearned Revenue, credit Revenue for the portion earned.

Prepaid expense: debit Expense, credit Prepaid Asset for the portion used or expired.

Depreciation adjustment: debit Depreciation Expense, credit Accumulated Depreciation; the asset account is not credited.

Adjusting entries never include Cash; cash receipts and payments are recorded in separate transactions.

Omitting an accrued expense overstates net income and understates liabilities; omitting an accrued revenue understates net income and assets.

The matching principle requires expenses to be recorded in the same period as the revenues they help generate, regardless of cash timing.

Revenue is recognized when a performance obligation is satisfied, not necessarily when cash is received.

A trial balance that does not balance indicates a one-sided entry, transposition, slide, or addition error; errors of omission, wrong account, duplicate entry, and compensating errors leave the trial balance in balance.

Transposition error: digits reversed (e.g., 54 recorded as 45); the difference between amounts is divisible by 9.

Slide error: decimal point moved (e.g., 100 recorded as 1,000); the difference is also divisible by 9.

Posting a debit as a credit for the same amount creates a trial balance difference equal to twice the amount.

Correcting entry: reverse the incorrect entry, then record the correct entry, or record the net difference between correct and incorrect amounts.

Error of omission: a transaction is entirely omitted; both trial balance sides are unaffected and it remains in balance.

Material prior-period errors are corrected by adjusting opening retained earnings and restating comparative statements; immaterial errors are corrected in the current period.

A suspense account holds the unexplained difference when a trial balance does not balance; it is cleared by identifying and correcting the error.

Counterbalancing errors reverse themselves over two periods; noncounterbalancing errors continue to affect later periods until corrected.

Gross pay = (regular hours × regular rate) + (overtime hours × overtime rate); under FLSA, nonexempt overtime is 1.5 times the regular rate for hours over 40 in a workweek.

Net pay = gross pay − employee deductions, including income tax withholding, FICA, and voluntary deductions.

Employee FICA: Social Security 6.2% up to the annual wage base and Medicare 1.45% on all wages, plus 0.9% additional Medicare tax above the applicable threshold.

Employer payroll taxes include the employer's matching FICA, FUTA, and SUTA; they are payroll tax expense, not employee deductions.

FUTA tax is 0.6% on the first $7,000 of wages per employee after the state unemployment tax credit; SUTA rates and wage bases vary by state.

Payroll entry: debit Wages Expense for gross pay; credit withholding liabilities and credit Net Wages Payable or Cash for net pay.

Employer tax entry: debit Payroll Tax Expense; credit FICA Payable, FUTA Payable, and SUTA Payable.

Form W-2 reports annual wages and withholdings to employees; Form 941 reports quarterly federal payroll taxes; Form 940 reports annual FUTA.

The payroll register lists each employee's gross pay, deductions, and net pay for a pay period.

Straight-line depreciation = (cost − salvage value) / useful life in years.

Units-of-production depreciation = [(cost − salvage value) / total estimated units] × units produced in the period.

Double-declining balance = beginning book value × (2 / useful life); salvage value is not used in the calculation but book value is not depreciated below salvage.

Sum-of-years'-digits depreciation = (cost − salvage) × (remaining life / SYD), where SYD = n(n+1)/2.

Book value = asset cost − accumulated depreciation; it is not the same as market value.

Depreciation allocates the cost of a long-lived asset over its useful life; it is not a cash payment or a valuation adjustment.

Land is not depreciated; land improvements, buildings, and equipment are depreciated over their useful lives.

A change in useful life or salvage value is applied prospectively over the remaining life; prior periods are not restated.

Partial-year depreciation under straight-line is prorated by the number of months the asset is in service.

Cost of goods sold = beginning inventory + purchases − ending inventory (periodic system).

FIFO assigns the oldest costs to cost of goods sold and the newest costs to ending inventory.

In rising prices, FIFO produces higher ending inventory, lower cost of goods sold, and higher net income than LIFO.

In rising prices, LIFO produces lower ending inventory, higher cost of goods sold, lower net income, and lower income taxes than FIFO.

Weighted average cost per unit = cost of goods available for sale / units available for sale.

Gross profit = sales − cost of goods sold; gross profit rate = gross profit / sales.

Overstating ending inventory overstates current-period net income and understates next-period net income when the error reverses.

Freight-in is added to inventory cost; freight-out is a selling expense; purchase discounts reduce inventory cost.

Lower of cost and net realizable value requires inventory to be written down when NRV falls below cost; LIFO and retail-method inventories use lower of cost or market under US GAAP.

COSO internal control components: control environment, risk assessment, control activities, information and communication, and monitoring.

Segregation of duties separates authorization, custody of assets, and recording; no single person should control all three.

Fraud triangle: pressure or incentive, opportunity, and rationalization.

Preventive controls stop errors or fraud before they occur; examples include approvals, passwords, and physical locks.

Detective controls identify errors or fraud after they occur; examples include reconciliations, audits, and inventory counts.

Bank reconciliation is a detective control that compares the bank statement with the company's cash records and is performed by someone independent of cash handling.

Physical controls include safes, locked storage, access cards, and restricted inventory areas.

Internal control limitations include collusion, management override, human error, and cost-benefit constraints.

The imprest petty cash system fixes the fund at a set amount; reimbursements are supported by receipts and recorded as expenses.