Term
| Know the Forms of Business Entities |
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Definition
| Proprietorship, Partnership, Limited Liability Company, and Corporation |
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Term
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Definition
| Inflows of resources that inrease retained earnings by delivering goods |
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Term
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Definition
| Outflows that decrease retained earnings due to operations |
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Definition
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Term
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Definition
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Term
| Who is responsible for GAAP? |
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Definition
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Term
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Definition
| Assets= Liabilities + Owners Equity |
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Term
| Name 3 activities that businesses engage in, with examples? |
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Definition
1. Operating- Selling goods
2. Investing- Long-term assets
3. Financing- Stock, dividends, pay loans |
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Term
| The international accounting standards board is responsible for? |
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Definition
| Creating a single set of standards |
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Term
| What do these standards help companies do? |
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Definition
| Reduce accounting costs, make it easier to acquire foreign companies, and facilitate comparisos between foreign companies |
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Term
| What is the primary objective of financial reporting? |
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Definition
| To provide information to people outside the firm |
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Term
| What makes information relevent? |
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Definition
| Must be capable of making a difference to the decision maker, having predictive or confirming value |
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Term
| Who should financial information be understandable to? |
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Definition
| Reasonably informed users of the information |
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Term
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Definition
| Assets, liabilities and owners equity |
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Term
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Definition
| Revenue - Expenses = Net Income |
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Term
| Assets are recorded at historical/original cost because? |
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Definition
| It is objective and verifiable |
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Term
| What do source documents indicate? |
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Definition
| A transaction has occured |
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Term
| How Owner invests in business affect accounting equation? |
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Definition
| Assets and Stockholder equity increase |
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Term
| How Purchasing supplies for cash affects accounting equation? |
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Definition
| The equation is unchanged (Increases one asset and decreases another asset) |
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Term
| How purchasing supplies on account affect accounting equation? |
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Definition
| Assets (supplies) increase and liabilities(account payable) increase by the same amount |
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Term
| How earning revenue and recieving cash affects accounting equation? |
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Definition
| Assets (cash) increase and Liabilities (retained earnings) increase by same amount |
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Term
| How earning revenue and recieving a promise affects accounting equation? |
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Definition
| Assets (Account receivable) increase and Liabilites (retained earnings) increase by same amount |
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Term
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Definition
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Term
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Definition
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Term
| An intial recording of a transaction is made in a |
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Definition
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Term
| After the entry is recorded in a journal, it is then posted to a |
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Definition
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Term
| What is a double entry accounting system? |
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Definition
| Each transaction affects at least two accounts |
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Term
| What is the purpose of a trial balance? |
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Definition
| It summarizes all the account balances for the financial statements and shows whether total debits equals total credits |
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Term
| What is accounts receivable? |
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Definition
| It holds the amounts that are future collections |
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Term
| What is accounts payable? |
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Definition
| The amounts that the company promises to pay |
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Term
| When is revenue recognized in accrual accounting? |
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Definition
| When the goods are transferred |
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Term
| When is revenue recognized in basis accounting? |
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Definition
| Before the cash is recieved |
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Term
| When are adjusting entries required? |
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Definition
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Term
| What is the adjusting entry for supplies? |
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Definition
Supplies Expense
Supplies |
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Term
| What is the adjusting entry for unearned revenue? |
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Definition
Unearned Service Revenue
Service Revenue |
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Term
| What is the adjusting entry for depreciation? |
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Definition
Depreciation Expense- Equipment
Accumulated Depreciation- Equipment |
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Term
| What is the adjusting entry for accrued salaries? |
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Definition
Salary Expense
Salary Payable |
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Term
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Definition
| Revenue and expense accounts are closed to retained earnings at the end of the year |
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Term
| What is a cash equivalent? |
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Definition
| Includes liquid assets such as time deposits, certificates of deposit, or high grade government securities |
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Term
| Which asset is most liquid? |
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Definition
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Term
| Bank reconciliation for deposit in transit? |
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Definition
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Term
| Bank reconciliation for outstanding checks? |
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Definition
| Subtract from the bank side |
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Term
| Bank reconcilation for service charges? |
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Definition
| Subtract from the book side |
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Term
| Bank reconcilation for interest earned? |
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Definition
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Term
| Bank reconciliation for errors? |
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Definition
| Add or subtract (could be bank or book errors) |
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Term
| What are some controls over cash sales? |
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Definition
| Separate duties, Bank lock boxes, and Point of sale terminals |
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Term
| Can a foolproof internal control system be designed? |
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Definition
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Term
| What accounting function can be preformed only by a CPA? |
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Definition
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Term
| What does 2/10, n/30 mean? |
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Definition
| The customer recieves a 2% discount if he pays within 10 days. He must pay within 30 days (no discount). |
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Term
| What does FOB shipping point mean? |
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Definition
| Ownership changes hands and revenue is recognized when the goods leave the sellers shipping dock |
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Term
| What does FOB destination point mean? |
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Definition
| Terms where the seller pays the shipping costs |
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Term
| Who owns inventory when it is in transit? |
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Definition
Shipping- Buyer
Destination- Seller |
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Term
Accounts Recievable is what type of account? |
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Definition
| Current Assets, amounts collectible from customers from the sale of goods and services |
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Term
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Definition
| Moral formal contract. A promisary note. |
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Term
| What are the two methods for accounting for bad debt? |
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Definition
| Direct Write-Off method and Allowance Method |
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Term
| Calculate Net Realizable value of accounts recievable |
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Definition
| Account recievable - Allowance for uncollectible accounts = Net account recievable |
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Term
| Calculate interest for notes recievable |
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Definition
Principal x Interest Rate x Time = Interst
(1000 x .09 x 4/12 = $30) |
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Term
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Definition
| Sales - Cost of Goods Sold |
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Term
| Notes to financial statements provide what? |
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Definition
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Term
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Definition
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Term
When inventory is sold, it becomes what?
What is this an example of? |
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Definition
Inventory becomes an expense (cost of goods sold)
An example of matching principle |
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Term
| Multiple-step Income Statement (which includes Gross Profit) is generally used by who? |
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Definition
| Merchandsers and Retailers |
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Term
| What is indicated by the inventory turnover ratio? |
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Definition
| The ratio of cost of goods sold to average inventory. Indicates how rapidly inventory is sold. |
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Term
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Definition
| The first costs into inventory are the first costs assigned to cost of goods sold. |
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Term
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Definition
| The last cost into inventory go immediately to cost of goods sold. |
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Term
| What is the weighted-average method? |
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Definition
| Based on the average cost of inventory during the period. (Cost of goods available/number of units available) |
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Term
| What is the specific identification method? |
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Definition
| Too expensive to use for inventory items that have common characteristics. |
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Term
| If FIFO is used ending inventory? |
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Definition
Increasing- Fifo is highest because its based on the most recent costs
Decreasing- Lowest |
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Term
| If LIFO is used ending inventory? |
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Definition
Increasing- Lowest because its based on oldest costs
Decreasing- Highest |
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Term
| Who would use specific identification? |
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Definition
| Real Estate, Jewel companies and automobile industry |
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Term
| Explain lower of cost or market |
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Definition
| It requires that inventory be reported in the financial statements at whichever is lower- historical cost or its market value |
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Term
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Definition
| Cost - Accumulated Depreciation |
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Term
| Which propery, plant and equipment asset is not depreciated? |
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Definition
| Costs that do not extend the assets capacity or it's useful life, but merely maintain the asset or restore it are recorded as expenses |
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Term
| What 3 things need to be known to calculate depreciation? |
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Definition
| Cost, Estimated Useful Life, and Estimated Residual value |
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Term
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Definition
| The process of allocating a plants assets cost ot expense over it's life |
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Term
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Definition
| The title of the expense associated with intangibles. It works like depreciation and is usually computed on a straight line basis |
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Term
| Calculate depreciation using Straight line method |
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Definition
| (Cost - Residual Value) / Useful life in years |
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Term
| Calculate depreciation using Units of produciton method |
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Definition
| (Cost - Residual Value) / Useful life, in units of production |
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Term
| Calculate depreciation using Double declining method |
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Definition
| (1 / Useful life, in years) x 2 |
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Term
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Definition
| Cash recieved from sale of the asset + Cost - Accumulated Depreciation |
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Term
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Definition
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Term
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Definition
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Term
| Definition of current liability? Give examples. |
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Definition
| Obligations due within one year or within the company's normal operating cycle. Examples are accounts payable, short term notes payable, and sales tax payable |
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Term
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Definition
| Current Assets / Current Liabilities |
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Term
| What is a contingent liability? Give examples. |
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Definition
| Not an actual liability. It's a potential liability that depends on the future outcome of past events. Examples are tax disputes, lawsuits, or alleged violations of environmental protection laws |
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Term
| What is long-term liability? Give examples. |
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Definition
| All liabilities that are not current. Examples are notes payable |
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Term
| What is long-term liability? Give examples. |
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Definition
| All liabilities that are not current. Examples are notes payable |
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Term
| What is long-term liability? Give examples. |
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Definition
| All liabilities that are not current. Examples are notes payable |
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Term
| What is long-term liability? Give examples. |
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Definition
| All liabilities that are not current. Examples are notes payable |
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Term
| What is long-term liability? Give examples. |
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Definition
| All liabilities that are not current. Examples are notes payable |
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Term
| What is long-term liability? Give examples. |
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Definition
| All liabilities that are not current. Examples are notes payable |
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Term
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Definition
| The issuer may call, or pay off, those bonds at a prearranged price whenever the issuer chooses |
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Term
| What is a convertible bond? |
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Definition
| Corporate bonds that are converted into the issuing company's common stock |
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Term
| Semi-annual interest payment = |
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Definition
principle x rate x time
(1000 x .09 x 6/12) |
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Term
| What is debenture bond (unsecured)? |
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Definition
| They are backed only by the good faith of the borrower. They carry a higher interest rate than secured bonds. |
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Term
| When is a bond issued for a discount or premium? |
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Definition
| Market conditions may force a company to issue bonds at a discount or premium. |
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Term
| Dicount on bonds payable is what type of account? |
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Definition
| A contra account to bonds payable, a decrease in the companys liabilities. It carries a debit balance. |
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Term
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Definition
| A long term noncancelable debt. Must meet one of four guidelines. |
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Term
| What is recorded in the accounting records for a capital lease? |
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Definition
| The lessee enters the asset into the lessee's long term asset account at the present value of the future cash outflows from the lease contract |
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Term
| What is long-term liability? Give examples. |
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Definition
| All liabilities that are not current. Examples are notes payable |
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Term
| What does high and low mean when reading stocks in a newspaper? |
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Definition
| The highest and lowest price for the stock over a 52 week period |
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Term
| What does change mean when reading stock in a newspaper? |
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Definition
| The amount the stock price has changed since it last closed |
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Term
| Retained earnings represent? |
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Definition
| The amount of stockholders equity the corporation has earned and not used for dividends |
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Term
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Definition
| An arbitrary amount assigned by a company to a share of its stock |
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Term
| Why do investors purchase preferred stock? |
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Definition
| They recieve dividends before common stockholders and also recieve assets first. |
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Term
| What is cumulative feature? |
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Definition
| Must recieve all dividends in arrears plus the currents years dividends before any go to common stockholders |
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Term
| If $1 par value stock is sold for $20, by what amount is Cash increased? |
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Definition
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Term
| If $1 par value stock is sold for $20, by what amount is common stock increased? |
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Definition
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Term
| If $1 par value stock is sold for $20, what amount is Additional paid in capital? |
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Definition
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Term
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Definition
| A company's own stock that it has issued and later bought back |
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Term
| Why would corporations buy treasury stock? |
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Definition
1. The company has issued all of its authorized stock
2. The business wants to increase net assets
3. Management wants to avoid a takeover
4. Increase its EPS
5. Uses a share repurchase program |
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Term
| How is treasury stock recorded? |
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Definition
(It is recorded at cost)
Treasury Stock
Cash |
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Term
| A company must have what to pay dividends? |
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Definition
1. Enough retained earnings to declare the dividend
2. Enough cash to pay the dividend |
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Term
| What are two important dates for dividends and what do they mean? |
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Definition
1. Declaration Date- Means they announce the dividend
2. Payment date- The date that the dividend is paid |
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Term
| What is the effect of stock dividend? |
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Definition
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Term
| What is the effect of a stock split? |
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Definition
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Term
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Definition
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Term
| What is the purpose of the statement of cash flows? |
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Definition
| Reports cash receipts and cash payments (where cash came from and where it went) |
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Term
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Definition
| Reconciles from net income to net cash |
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Term
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Definition
| Reports all cash receipts and cash payments |
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Term
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Definition
| How fast an asset can be converted to cash |
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Term
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Definition
| The state or condition of yeilding a gain |
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Term
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Definition
| Current Assets - Current Liabilities |
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Term
| How are common size income statements created? |
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Definition
| Each item is expressed as a percentage of the revenue (net sales) amount. Total revenue is therefore the common size. |
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Term
| Which ratio assesses capital structure and risk in a corporation? |
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Definition
| Debt to Equity ratio = Total liabilities / Total Stockholders’ Equity |
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Term
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Definition
| Cost of Goods Sold / Average inventory |
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Term
| Accounts Receivable Turnover = |
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Definition
| Net Sales / Average Net Accounts Recievable |
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Term
| Earnings Per Share (EPS) = |
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Definition
| (Net Income - Preferred Dividends) / Average Number of Shares of Common Stock Outstanding |
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