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Accounting Exam 1: Chapters 1-4
Chapters 1-4
104
Accounting
Undergraduate 1
02/27/2012

Additional Accounting Flashcards

 


 

Cards

Term
Accounting
Definition
an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization's business activities
Term
Recordkeeping/bookkeeping
Definition
recording of transactions and events, either manually or electronically
Term
Identifying(business activities)
Definition
selecting transactions and events relevant to an organization
Term
Recording(business activities)
Definition
keeping a chronological log of transactions and events measured in dollars and classified and summarized in a useful format
Term
Communicating (business activities)
Definition
preparing accounting reports, analyzing and interpreting such reports
Term
External Users
Definition
not directly involved in running the organization
Term
Financial Accounting
Definition
the area of accounting aimed at serving external users by providing them with general purpose financial statements
Term
Examples of External Users
Definition
Shareholders(investors), lenders, directors, customers, suppliers, regulators, lawyers, brokers, and the press, nonexecutive employees
Term
Internal Users
Definition
directly involved in managing and operating an organization
Term
Managerial Accounting
Definition
the area of accounting that serves the decision-making needs of internal users
Term
Examples of Internal Users
Definition
Managers, officers, sales staff, budget officers, controllers, internal auditors
Term
Ethics
Definition
beliefs that distinguish right from wrong: accepted standards of good and bad behavior
Term
Guidelines for Ethical Decisions
Definition

1. Identify Ethical Concerns

2. Analyze Options

3. Make Ethical Decision

Term
GAAP
Definition
generally accepted accounting principles: financial accounting is governed by concepts and rules
Term
FASB
Definition
financial accounting standards board : private group that sets both broad and specific principles
Term
IASB
Definition
International Accounting Standards Board: issues international standards that identify preferred accounting practices in other countries
Term
Measurement Principle (Cost Principle)
Definition
accounting information is based on actual cost
Term
Revenue Recognition Principle
Definition
provides guidance on when a company must recognize revenue
Term
Matching Principle (Expense Recognition)
Definition
Prescribes that a company must record its expenses incurred to generate the revenue
Term
Full Disclosure Principle
Definition
Requires a company to report the details behind financial statements that would impact user's decisions
Term
Going-Concern Assumption
Definition
accounting information reflects a presumption the business will continue operating
Term
Monetary Unit Assumption
Definition
we can express transactions in money
Term
Time Period Assumption
Definition
presumes that the life of a company can be divided into time periods, such as months and years
Term
Business Entity Assumption
Definition
A business is accounted for separately from its owner or other business entities
Term
Sarbanes-Oxley Act (SOX)
Definition
In response to a number of publicized accounting scandals (Enron, Tyco, WorldCom): help curb financial abuses: public companies apply both accounting oversight and stringent internal controls: more transparency, accountability, and truthfulness in reporting transactions
Term
Accounting Equations
Definition
Assets= Liabilities + Equity
Term
Examples of Assets (resources owned or controlled by a company)
Definition

Cash

Accounts Receivable

Notes Receivable

Land

Vehicles

Store Supplies

Equipment

Buildings

Term
Liabilities ( creditors' claims on assets)
Definition

Accounts Payable

Notes Payable

Taxes Payable

Wages Payable

Term
Equity (Owner's claim on assets)
Definition

Dividends

Contributed Capital

Retained Earnings

Term
Expanded Accounting Equation
Definition
Assets= Liabilities + Equity (Contributed Capital-Dividends+ Revenues-Expenses)
Term
Retained Earnings
Definition
Dividends+ Revenues- Expenses
Term
External Transactions
Definition
Exchanges of value between two entities which yield changes in the accounting equation
Term
Internal Transactions
Definition
exchanges within an entity
Term
Transaction Analysis
Definition
the process used to analyze transactions and events
Term
Income Statement
Definition
a company's revenues and expenses along with the resulting income or loss over a period of time due to earnings activities
Term
Net Income
Definition
is the difference between revenues and expenses
Term
Name the four financial statements
Definition

1. Income statement

2. Statement of Retained Earnings

3. Balance Sheet

4. Statement of Cash Flows

Term
Accounts on an Income Statement
Definition

Revenues

Consulting Revenue

Expenses

Salaries Expense

Net Income

Term
Statement of Retained Earnings
Definition
reports information about how retained earnings changes over the reporting period
Term
Accounts found on the Statement of Retained Earnings
Definition

Retained Earnings (usually $0)

Plus: Net Income

Less: Dividends

Retained Earnings

Term
Balance Sheet
Definition
describes a company's financial position at a point in time (snapshot)
Term
Accounts found on a balance sheet
Definition

Assets

Cash, Supplies, Equipment, Total Assets

Liabilities

Accounts Payable, Notes Payable, Total Liabilities

Equity

Common Stock, Retained Earnings, Total Liabilities and Equity

Term
Statement of Cash Flows
Definition
reports flows from operating activities, investing activities, and financing activities
Term
Accounts on the Statement of Cash Flows
Definition

Cash flows from operating activities

Cash received from clients

Purchase of Supplies

Cash paid to employees

Cash from investing activities

purchase of equipment

net cash used

Cash flows from financing activities

investment by shareholders

borrowed at bank

dividends paid

net cash

net increase in cash

Term
Return on Assets (ROA)
Definition

A profitability measure

 

net income/ average total assets

Term
Analyzing and Recording Process
Definition

1. Analyze each transaction and event from source documents

2. Record relevant transactions and events in a journal

3. Post journal information to ledger accounts

4. Prepare and analyze the trial balance

Term
Examples of Source Documents
Definition
Checks, bill from suppliers, purchase orders, bank statements, sales tickets, employee earnings records
Term
Account
Definition
a record of increases and decreases in a specific assets, liability, equity, revenue, or expense item
Term
General Ledger (Ledger)
Definition
a record containing all accounts used by the company
Term
Asset Accounts
Definition

Land

Cash

Buildings

Equipment

Supplies

Accounts Receivable

Notes Receivable

Prepaid Accounts

Term
Liability Accounts
Definition

Accounts Payable

Notes Payable

Accrued Liabilities

Unearned Revenue

Term
Creditors
Definition
individuals and organizations that have the right to receive payments from a company
Term
Unearned Revenue
Definition
a liability that is settled in the future when a company delivers its products or services
Term
Accrued Liabilities
Definition
amounts owed that are not yet paid
Term
Common Stock
Definition
corporations basic ownership share: capital stock
Term
Ledger
Definition
a collection of all accounts for an information system: a company's size and diversity of operations affect the number of accounts needed
Term
Chart of Accounts
Definition
A list of all accounts and includes an identifying number for each account
Term
Ledger/Chart of Accounts analysis
Definition
Assets = Liabilities + Equity (+common stock - dividends+ revenues- expenses)
Term
T-Account
Definition
represents a ledger account and is a tool used to undestand the effects of one or more transaction: left side debit, right side credit
Term
Double Entry Accounting ; Assets
Definition

Debit an Increase

Credit a Decrease

Term
Double Entry Accounting: Liabilities
Definition

Debit a decrease

Credit an increase

Term
Double Entry Accounting: Equity
Definition

Debit a decrease

Credit an increase

Term
Double Entry Accounting : Equity (ct)
Definition

1. Common Stock (Decrease debit, increase credit)

2. Dividends (increase debit, decrease credit)

3. Revenue (Decrease debit, increase credit)

4. Expenses (increase debit, decrease credit)

Term
Account Balance
Definition
the difference between the increases and decreases in an account
Term
Journalizing and Posting Transactions
Definition

1. Analyze transactions and source documents

2. Apply double-entry accounting

3. Record journal entry

4. Post entry to ledger

Term
Six Steps for Searching and Correcting Errors  (if trial balance does not balance, the errors must be found and corrected)
Definition

1. Verify that the trial balance columns are correctly added

2. Verify that account balances are correctly entered from the ledger

3. See whether a debit (or credit) balance is mistakenly listed as a credit (or debit)

4. Recompute each account balance in the ledger

5. Verify that each journal entry is properly posted

6. Verify that each journal entry has equal debits and credits

Term
Which financial statements represent a) point in time, b) period of time
Definition

a) point in time: beginning balance sheet, ending balance sheet

b) period og time; income statement, statement of retained earnings, statement of cash flows

Term
Debt Ratio
Definition

Describes the relationship between the the amounts of the company's liabilities and assets: helps to assess the risk that a company will fail to pay its debts

 

Total liabilities/total assets

Term
Accrual base accounting
Definition
uses the adjusting process to recognize revenues when earned and expenses when incurred (matched with revenues)
Term
Cash Basis Accounting
Definition
recognizes revenue when cash is received and records expenses when cash is paid: NOT consistent with GAAP or IFRS
Term
Adjusting Accounts
Definition
recorded to bring an asset or liability account balance to its proper amount
Term
Prepaid (Deferred Expenses)
Definition

resources paid for prior to receiving the actual benefits

Decrease assets(credit)

Increase Expense (debit)

Term
Plant Assets
Definition
long term tangible assets used to produce and sell products and services
Term
Depreciation
Definition
the process of allocating the costs of these assets over their expected useful lives
Term
Straight-Line Depreciation
Definition
allocates equal amounts of the asset's net cost to depreciation during the useful life
Term
Contra Account
Definition
an account linked with another account: has an opposite normal balance, reported as a subtraction from the other account's balance
Term
Closing Process: temporary (nominal) accounts
Definition
accumulate data related to one accounting period . They include all income statement accounts, dividends, and the income summary account: closed at the end of the period to get ready for the next accounting period
Term
The Closing Process: Permanent (real ) accounts
Definition
report activities related to one or more future accounting periods: they carry ending balances to the next accounting period and are not 'closed'
Term
Recording Closing Entries
Definition

1. Close Revenue Accounts

2. Close Expense Accounts

3. Close Income Summary Account

4. Close dividends Account (close out to retained earnings)

Term
How to close revenue acounts
Definition

Debit revenue

Credit income summary

Term
How to close expense accounts
Definition

Credit to Expenses

Debit to Income Summary

Term
How to close income summary account/dividends
Definition
close the accounts to  retained earnings
Term
Post Closing Trial balance
Definition

1. Trial balance prepared after the closing entries have been posted

2. The purpose : to insure that all nominal or temporary accounts have been closed

3. The only accounts on this trial balance = assets, liabilities, and equity

Term
9 Steps of the Accounting Cycle
Definition

1. Analyze Transactions

2. Journalize

3. Post

4. Prepare Unadjusted Trial Balance

5. Adjust

6. Prepare adjusted trial balance

7. Prepare Statements

8. Close

9. Prepare Post-Closing Trial Balance

Term
Classified Balance Sheet
Definition

Assets

Current Assets

Noncurrent assets

long-term investments

plant assets

intangible assets

 

Liabilities

Current liabilities

noncurrent liabilities

equity

Term
Current Items
Definition
those expected to come due (either collected or owed) within one year or the company's operating cycle, whichever is longer)
Term

Classified Balance Sheet

1. Plant Assets

2. Intangible Assets

Definition

1. Plant assets are tangible assets that are both long lived and used to produce or sell products or services. Examples include equipment, machinery, buildings, and land that are used to produce or sell prodcuts and services

2. Long term resources that benefit busines operations: lack physical form and have uncertain benefits( include patents, trademarks, copyrights, franchises, and goodwill)

Term

Liabilities

1. Current

2. Long-Term

Definition

1. obligations due to be paid or settled within one year or the operating cycle, whichever is longer

2. Obligations not due within one year or the operating cycle, whichever is longer

Term
Profit Margin
Definition

Measures the company's net income to net sales

 

net income/net sales

Term
Current Ratio
Definition

an important measure of a company's ability to pay its short-term obligations

 

current assets/current liabilities

Term
Merchandiser inventory/Merchandiser
Definition

an item not on a service  company's balance sheet

 

Net sales- cost of goods sold= gross profit

 

Gross profit- expenses= net income

 

earns net income by selling and selling merchandise

Term
Service company
Definition

revenues-expenses= net income

 

Term
Wholesaler
Definition
an intermediary that buys products from manufacturers or other wholesalers  and sells them to retailers or other wholesalers
Term
Retailer
Definition
an intermediary that buys products from manufacturers or wholesalers and sells them to consumers: retailers sell both products and services
Term
Purchase Discounts
Definition
a deduction from the invoice price granted to induce early payment of the amount due
Term
2/10, n/30
Definition

2= discount percent

10= number of days discount is available

n= otherwise net (or all) is due in thirty days

30= credit period

Term
What happens when a discount is not taken?
Definition
if we fail to take 2/10, n/30, 365(days in a year) / 20 days (number of additional days before payment) X 2% ( percent paid to keep money) = 36.5% annual rate
Term
Purchase returns
Definition
merchandise a buyer acquires but then returns to the seller
Term
Purchase Allowance
Definition
a reduction in the cost of defective or unacceptable merchandise that a buyer acquires
Term
FOB Shipping point
Definition
(buyer pays)
Term
FOB destination
Definition
(seller pays): ownership of seller until product gets to buyer
Term
Multiple-Step Income Statement
Definition
detailed computations of net sales and other costs and expenses (subtotals)
Term
Classified balance sheet
Definition
merchandise inventory as a current asset, usually after a/r according to an asset's nearness to liquidity
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