Accounting Conventions
Important Conventions for UOPHX ACC 281
When using Online Practice for Financial Accounting, please assume the following:
• Accrual basis accounting is being used unless Online Practice specifies cash basis accounting. (Very briefly: in accrual basis accounting, revenues are recognized when earned, not necessarily when cash is received, and expenses are recognized when incurred, not necessarily when cash is paid. For more information, please see the Online Practice for Financial Accounting Dictionary.)
• The fiscal year is the calendar year (January 1 through December 31) unless a different fiscal year is specified. (Many entities have a non calendar fiscal year, typically beginning on the First day of a month other than January, and ending 12 months later; for example, the fiscal year of the State of California begins on July 1 and ends on June 30.)
• Before solving for dividends, it is helpful to review the basic equation used to determine ending stockholders' equity.
Ending stockholders' equity = Beginning stockholders' equity + Change in stockholders' equity
• Changes in stockholders' equity are the result of the company issuing additional stock, net income or net loss from operating the business, and the declaration or payment of dividends to stockholders.
Change in stockholders' equity = Issuance of stock + Net income - Dividends
• +There are two steps required to solve for dividends.
• Step 1: Calculate the amount of the change in stockholders' equity.
• Since dividends is one component of the change, knowing the amount of the change is necessary to solve the problem. Modify the basic equation for stockholders' equity to calculate the amount of change in stockholders' equity.
Change in stockholders' equity = Ending stockholders' equity - Beginning stockholders' equity = $48,300 - $24,200 = $24,100
• Now that the change has been calculated, we can calculate the dividends.
• Step 2: Calculate the dividends using the following
When using Online Practice for Financial Accounting, please assume the following:
• Accrual basis accounting is being used unless Online Practice specifies cash basis accounting. (Very briefly: in accrual basis accounting, revenues are recognized when earned, not necessarily when cash is received, and expenses are recognized when incurred, not necessarily when cash is paid. For more information, please see the Online Practice for Financial Accounting Dictionary.)
• The fiscal year is the calendar year (January 1 through December 31) unless a different fiscal year is specified. (Many entities have a non calendar fiscal year, typically beginning on the First day of a month other than January, and ending 12 months later; for example, the fiscal year of the State of California begins on July 1 and ends on June 30.)
• Before solving for dividends, it is helpful to review the basic equation used to determine ending stockholders' equity.
Ending stockholders' equity = Beginning stockholders' equity + Change in stockholders' equity
• Changes in stockholders' equity are the result of the company issuing additional stock, net income or net loss from operating the business, and the declaration or payment of dividends to stockholders.
Change in stockholders' equity = Issuance of stock + Net income - Dividends
• +There are two steps required to solve for dividends.
• Step 1: Calculate the amount of the change in stockholders' equity.
• Since dividends is one component of the change, knowing the amount of the change is necessary to solve the problem. Modify the basic equation for stockholders' equity to calculate the amount of change in stockholders' equity.
Change in stockholders' equity = Ending stockholders' equity - Beginning stockholders' equity = $48,300 - $24,200 = $24,100
• Now that the change has been calculated, we can calculate the dividends.
• Step 2: Calculate the dividends using the following