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exam 1
study guide
54
Accounting
Undergraduate 3
10/19/2009

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Cards

Term
what is not a balance sheet item, assets, common stock, retained earnings, or revenues
Definition
revenues
Term
retained earnings at the end of each year is calculated using what?
Definition
beginning retained earnings, net income, dividends
Term
what accounts represent the resources of a company?
Definition
assets
Term
if a company has gone bankrupt, its financial statements likely violate what assumption?
Definition
going concern assumption
Term
liabilities are best defned as what?
Definition
debts or obligations the company owes resulting from past transactions
Term
if a company has stockholder's equity of $60,000 at the end of the year, what is always true?
Definition
the company's assets exceed liabilities by $60,000
Term
true or false, operating activities include transactions that relate to the primary operations of the company?
Definition
true
Term
true or false, dividends represent a return of the company's profits to its owners, the stockholders?
Definition
true
Term
true or false, financial accounting has an impact on everyday business decisions as well as wide-ranging economic consequences?
Definition
true
Term
true or false, if total libilities of a company equal $16,000 and total stockholder's equity equals $9,000 then total assets equl $7,000?
Definition
false
Term
true or false, any transaction that affects the income statement ultimately affects the blance sheet through the balance of retained earnings
Definition
true
Term
true or false, investing cash flows generally include cash receipts and case payments for transactions involving revenue and expenses
Definition
false
Term
McGill purchases a delivery truck to better service its customers. This purchase is classified as what type of activity?
Definition
investing activity
Term
What is the equation that best describes the income statement?
Definition
revenues - expenses = net income
Term
true or false, auditors are trained individuals hired by a party to express a professional opinion of the accuracy of that company's financial statements
Definition
true
Term
the statement of stockholder's equity is a financial statement that summarizes the changes in stockholder's equity over an interval of time
Definition
true
Term
what form of business organization is legally separate from its owners?
Definition
corporation
Term
what is not a major section in the statement of cash flows?
Definition
cash flows from customers
Term
what is the primary purpose of closing entries?
Definition
update the balance of retained earnings and prepare revenue, expense, and dividend accounts for next periods transactions
Term
on april 1, a $3,000 premium on a one-year insurance policy on equipment was paid and charged to prepaid insurance. at the end of the year, the financial statements would report what?
Definition
insurance expense, $2,250; prepaid insurance $3,000
(3,000/12 months = 250 per month, 9 months til end of year = 2,250 insurance expense)
Term
the closing entry for expenses includes what?
Definition
debit retained earnings, credit expenses
Term
permanent accounts would not include what?
Definition
utilities expense
Term
which of the following is true about adjusting entries?
Definition
they are a necessary part of accrual-basis accounting
Term
when are accrual-basis revenues recorded?
Definition
when they are earned
Term
"all costs that are used to generate revenue are recorded in the period the revenue is recognized." this is the definition of which principle in accounting?
Definition
matching principle
Term
when a company makes an end-of-period adjusting entry which includes a credit to prepaid rent, the debit is usually made to what?
Definition
rent expense
Term
which would temporary accounts not include: salaries payable, advertising expense, supplies expense, dividends
Definition
salaries payable
Term
what is the formula for change in retained earnings?
Definition
net income - dividends
Term
the retained earnings account had a beginning credit balance of $26,000. during the period, the business had a net loss of $12,000, and the company paid dividends of $8,000. the ending credit balance in the retained earnings account is what?
Definition
$6,000
Term
true or false, paying wages to company employees is an example of an adjusting entry
Definition
false
Term
which of the following does cash flows from financing include: lending, salaries paid, the sale of land, dividends paid
Definition
dividends paid
Term
what is the petty cash fund?
Definition
small amount of cash ept on hand to pay for minor purchases
Term
what is a bank reconciliation?
Definition
matching the balance of cash in the bank account with the balance of cash in the company's own records
Term
what is the Sarbanes-Oxley Act?
Definition
prompted by accounting scandals, sets forth new guidelines related to auditor-client relations and additional internal controls
Term
the statement of cash flows reports cash flows from what activities?
Definition
financing, investing, and operating
Term
true or false, cash flows from investing activities include borrowing
Definition
false
Term
which of the following methods of payment would not be recorded as a cash sale: check, debit card, credit card, on account
Definition
on account
Term
under SOX, how long myst auditors retain working papers following an audit?
Definition
7 years
Term
what key piece of legislation ws passed in response to accounting scandals by Enron, Worldcom, and others?
Definition
Sarbanes-Oxley act
Term
a company's cash balance is reported in which two financial statements?
Definition
balance sheet and statement of cash flows
Term
true or false, accounts receivable is a common example of a cash equivalent
Definition
false
Term
what is separation of duties and what does it pertain to?
Definition
individuals who have physical responsibility for assets should not also have a access to accounting records. Important for internal controls
Term
when a company makes an end-of-period adjusting entry which includes a debit to supplies expense, the usual credit is made to what?
Definition
supplies
Term
when using an aging method for estimating uncollectible accounts, what estimate, if any, is made?
Definition
older accounts are considered less likely to be collected
Term
what does 2/10, n/30 mean?
Definition
this is shorthand for a discount if amount is paid in a given time period. 2/10, n/10 means a 2% discount is given if the amount is paid with in 10 days, otherwise "net thirty" the full amount must be paid within 30 days
Term
when a customer makes a payment on account what happens to the company's accounts?
Definition
credit accounts receivable, debit cash account
Term
hughes aircraft sold an airplane for $380,000, receiving a $50,000 down payment and a 12% note for the balance, this transaction would include what account activity?
Definition
debit to notes receivable
Term
the percentage of credit sales method of accounting for uncollectible accounts is sometimes described as what?
Definition
the income statement method
Term
collections of accounts receivable that previously have been written off are credited to what account?
Definition
accounts receivable
Term
when a note is paid with interest after a certain time period, what account activity takes place?
Definition
debit cash account, credit interest revenue account, credit notes receivable account
Term
FIFO
Definition
firt in first out, method of determining inventory cost that states that the first goods purchased are the first goods to be sold
Term
LIFI
Definition
last in first out, last goods purchased are first goods sold
Term
average cost method
Definition
method for determining inventory cost that assumes each good costs the average purchase price
Term
the largest expense on a retailer's income statement is typically what?
Definition
cost of goods sold
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