ACCOUNTINGFORLAWYERS-NYUSchoolofLaw.docVIP

ACCOUNTING FOR LAWYERS Professors Slain and Sweeney Spring 1995 Accounting by the numbers Generally Balance sheet - a listing of resources and how they are financed Real accounts - balance sheet accounts Nominal accounts - income accounts Nominal accounts can be coneptualized as subidiaries of the shareholders equity account Closing the books is the process of zeroing out the nominal accounts and posting the profit/loss to retained earnings Post all nominal accounts to income summary Post income summary to retained earnings account Accounts Payable account should generally be used only for inventory purposes Account Receivable accounts embody funds over which we are entitled to payment Deffered Revenue/Credit - liability account for prepaid revenue Deffered Charge - asset account for prepaid expenses Control account - a summary account consisting of subsidiary ledgers (i.e., accounts receivable) Treasury stock - previously issued stock that the company bought back from shareholders Retained earnings - profits of the corporation not yet distributed to shareholders Asset depreciation Every asset can be conceptualized as a prepaid expense; this is exactly what takes place when we depreciate assets First ask how long do we expect to use the asset? This is not necessarily the assets useful life Salvage value - the assets residual value after it has been used for its expected usage period Straight-line depreciation: Periodic expense = (cost - salvage value)/(# of time periods) Depreciation is simply a method of turning an asset into an expense over time: Conceptually, you should debit depreciation expense and credit the asset Accounting convention requires that you use a contra-asset account: accumulated depreciation. This allows you to discern both the original acquisition price and the total amount of depreciation taken Cash receipts and disbursement method Income is recognized by changes in cash This method is inherently manipulable depending on if you defer or