ALL PLANT ASSETS (FIXED ASSETS) MUST BE DEPRECIATED FOR ACCOUNTING PURPOSES.
WHEN PURCHASING LAND, THE COSTS FOR CLEARING, DRAINING, FILLING, AND GRADING SHOULD BE CHARGED TO A LAND IMPROVEMENTS ACCOUNT.
WHEN PURCHASING DELIVERY EQUIPMENT, SALES TAXES AND MOTOR VEHICLE LICENSES SHOULD BE CHARGED TO DELIVERY EQUIPMENT.
LAND IMPROVEMENTS ARE GENERALLY CHARGED TO THE LAND ACCOUNT.
ONCE COST IS ESTABLISHED FOR A PLANT ASSET, IT BECOMES THE BASIS OF ACCOUNTING FOR THE ASSET UNLESS THE ASSET APPRECIATES IN VALUE, IN WHICH CASE, MARKET VALUE BECOMES THE BASIS FOR ACCOUNTABILITY.
THE BOOK VALUE OF A PLANT ASSET IS ALWAYS EQUAL TO ITS FAIR MARKET VALUE.
RECORDING DEPRECIATION ON PLANT ASSETS AFFECTS THE BALANCE SHEET AND THE INCOME STATEMENT.
THE DEPRECIABLE COST OF A PLANT ASSET IS ITS ORIGINAL COST MINUS OBSOLESCENCE.
RECORDING DEPRECIATION EACH PERIOD IS AN APPLICATION OF THE EXPENSE RECOGNITION PRINCIPLE.
THE ACCUMULATED DEPRECIATION ACCOUNT REPRESENTS A CASH FUND AVAILABLE TO REPLACE PLANT ASSETS.
IN CALCULATING DEPRECIATION, BOTH PLANT ASSET COST AND USEFUL LIFE ARE BASED ON ESTIMATES.
USING THE UNITS-OF-ACTIVITY METHOD OF DEPRECIATING FACTORY EQUIPMENT WILL GENERALLY RESULT IN MORE DEPRECIATION EXPENSE BEING RECORDED OVER THE LIFE OF THE ASSET THAN IF THE STRAIGHT-LINE METHOD HAD BEEN USED.
SALVAGE VALUE IS NOT SUBTRACTED FROM PLANT ASSET COST IN DETERMINING DEPRECIATION EXPENSE UNDER THE DECLINING-BALANCE METHOD OF DEPRECIATION.
THE DECLINING-BALANCE METHOD OF DEPRECIATION IS CALLED AN ACCELERATED DEPRECIATION METHOD BECAUSE IT DEPRECIATES AN ASSET IN A SHORTER PERIOD OF TIME THAN THE ASSET'S USEFUL LIFE.
UNDER THE DOUBLE-DECLINING-BALANCE METHOD, THE DEPRECIATION RATE USED EACH YEAR REMAINS CONSTANT.
THE IRS DOES NOT REQUIRE THE TAXPAYER TO USE THE SAME DEPRECIATION METHOD ON THE TAX RETURN THAT IS USED IN PREPARING FINANCIAL STATEMENTS.
A CHANGE IN THE ESTIMATED USEFUL LIFE OF A PLANT ASSET MAY CAUSE A CHANGE IN THE AMOUNT OF DEPRECIATION RECOGNIZED IN THE CURRENT AND FUTURE PERIODS, BUT NOT TO PRIOR PERIODS.
A CHANGE IN THE ESTIMATED SALVAGE VALUE OF A PLANT ASSET REQUIRES A RESTATEMENT OF PRIOR YEARS' DEPRECIATION.
TO DETERMINE A NEW DEPRECIATION AMOUNT AFTER A CHANGE IN ESTIMATE OF A PLANT ASSET'S USEFUL LIFE, THE ASSET'S REMAINING DEPRECIABLE COST IS DIVIDED BY ITS REMAINING USEFUL LIFE.
ADDITIONS AND IMPROVEMENTS TO A PLANT ASSET THAT INCREASE THE ASSET'S OPERATING EFFICIENCY, PRODUCTIVE CAPACITY, OR EXPECTED USEFUL LIFE ARE GENERALLY EXPENSED IN THE PERIOD INCURRED.
A CURRENT LIABILITY MUST BE PAID OUT OF CURRENT EARNINGS
CURRENT LIABILITIES ARE EXPECTED TO BE PAID WITHIN ONE YEAR OF THE OPERATING CYCLE, WHICHEVER IS LONGER
THE RELATIONSHIP BETWEEN CURRENT LIABILITIES AND CURRENT ASSETS IS IMPORTANT IN EVALUATING A COMPANY'S ABILITY TO PAY OFF ITS LONG-TERM DEBT
A COMPANY WHOSE CURRENT LIABILITIES EXCEED ITS CURRENT ASSETS MAY HAVE A LIQUIDITY PROBLEM
NOTES PAYABLE USUALLY REQUIRE THE BORROWER TO PAY INTEREST
NOTES PAYABLE ARE OFTEN USED INSTEAD OF ACCOUNTS PAYABLE
A NOTE PAYABLE MUST ALWAYS BE PAID BEFORE AN ACCOUNT PAYABLE
A $60,000, 8%, 9-MONTH NOTE PAYABLE REQUIRES AN INTEREST PAYMENT OF $3,600 AT MATURITY
MOST NOTES ARE NOT INTEREST BEARING
WITH AN INTEREST-BEARING NOTE, THE AMOUNT OF CASH RECEIVED UPON ISSUANCE OF THE NOTE GENERALLY EXCEEDS THE NOTE'S FACE VALUE
INTEREST EXPENSE ON A NOTE PAYABLE IS ONLY RECORDED AT MATURITY
INTEREST EXPENSE IS REPORTED UNDER OTHER EXPENSES AND LOSSES IN THE INCOME STATEMENT
UNEARNED REVENUES SHOULD BE CLASSIFIED AS OTHER REVENUES AND GAINS ON THE INCOME STATEMENT
THE HIGHER THE SALES TAX RATE, THE MORE PROFIT A RETAILER CAN EARN
METROPOLITAN SYMPHONY SELLS 200 SEASON TICKETS FOR $50,000 THAT REPRESENTS A FIVE CONCERT SEASON. THE AMOUNT OF UNEARNED TICKET REVENUE AFTER THE SECOND CONCERT IS $20,000
DURING THE MONTH, A COMPANY SELLS GOODS FOR A TOTAL OF $108,000 WHICH INCLUDES SALES TAXES OF $8,000; THEREFORE, THE COMPANY SHOULD RECOGNIZE $100,000 IN SALES REVENUES AND $8,000 IN SALES TAX EXPENSE
CURRENT MATURITIES OF LONG-TERM DEBT REFERS TO THE AMOUNT OF INTEREST ON A NOTE PAYABLE THAT MUST BE PAID IN THE CURRENT YEAR
THE CURRENT RATIO PERMITS ANALYSTS TO COMPARE THE LIQUIDITY OF DIFFERENT SIZED COMPANIES
WORKING CAPITAL IS CURRENT ASSETS DIVIDED BY CURRENT LIABILITIES
FICA TAXES WITHHELD AND FEDERAL INCOME INCOME TAXES WITHHELD ARE MANDATORY PAYROLL DEDUCTIONS
A CORPORATION IS NOT AN ENTITY WHICH IS SEPARATE AND DISTINCT FROM ITS OWNERS.
A CORPORATION CAN BE ORGANIZED FOR THE PURPOSE OF MAKING A PROFIT OR IT MAY BE NOT-FOR-PROFIT.
A CORPORATION ACTS UNDER ITS OWN NAME RATHER THAN IN THE NAME OF ITS STOCKHOLDERS.
IF A CORPORATION PAYS TAXES ON ITS INCOME, THEN STOCKHOLDERS WILL NOT HAVE TO PAY TAXES ON THE DIVIDENDS RECEIVED FROM THAT CORPORATION.
A CORPORATION MUST BE INCORPORATED IN EACH STATE IN WHICH IT DOES BUSINESS.
A STICKHOLDER HAS THE RIGHT TO VOTE IN THE ELECTION OF THE BOARD OF DIRECTORS.
A PROXY IS A LEGAL DOCUMENT THAT INSTRUCTS A STOCKHOLDER'S AGENT HOW TO VOTE SHARES OF STOCK FOR THE STOCKHOLDER.
AS SOON AS A CORPORATION IS AUTHORIZED TO ISSUE STOCK, AN ACCOUNTING JOURNAL ENTRY SHOULD BE MADE RECORDING THE TOTAL VALUE OF THE SHARES AUTHORIZED.
THE PAR VALUE OF COMMON STOCK MUST ALWAYS BE EQUAL TO ITS MARKET VALUE ON THE DATE THE STOCK IS ISSUED.
WHEN NO-PAR VALUE STOCK DOES NOT HAVE A STATED VALUE, THE ENTIRE PROCEEDS FROM THE ISSUANCE OF THE STOCK BECOMES LEGAL CAPITAL.
A CORPORATION CAN ISSUE MORE SHARES THAN IT IS AUTHORIZED IN ITS CHARTER, IF THE BOARD OF DIRECTORS APPROVES OF AN INCREASE IN THE NUMBER OF AUTHORIZED SHARES.
THE MARKET VALUE OF A CORPORATION'S STOCK IS DETERMINED BY THE NUMBER OF SHARES THAT THE CORPORATION HAS BEEN AUTHORIZED TO ISSUE.
STOCK CAN BE ISSUED ONLY IN EXCHANGE FOR CASH.
THE PAR VALUE OF STOCK ISSUED FOR NON-CASH ASSETS IS NEVER A FACTOR IN DETERMINING THE COST OF THE ASSETS RECEIVED.
THE ACQUISITION OF TREASURY STOCK BY A CORPORATION INCREASES TOTAL ASSETS AND TOTAL STOCKHOLDERS' EQUITY.
TREASURY STOCK SHOULD NOT BE CLASSIFIED AS A CURRENT ASSET.
TREASURY STOCK PURCHASED FOR $25 PER SHARE THAT IS REISSUED AT $20 PER SHARE, RESULTS IN A LOSS ON SALE OF TREASURY STOCK BEING RECOGNIZED ON THE INCOME STATEMENT.
TREASURY STOCK IS A CONTRA STOCLHOLDERS' EQUITY ACCOUNT.
THE NUMBER OF COMMON SHARES OUTSTANDING CAN NEVER BE GREATER THAN THE NUMBER OF SHARES ISSUED.
PREFERRED STOCK HAS CONTRACTUAL PREFERENCE OVER COMMON STOCK IN CERTAIN AREAS.