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Intro to ACC
final
139
Accounting
Undergraduate 3
12/08/2011

Additional Accounting Flashcards

 


 

Cards

Term
dividends
Definition
payments made by a corporation to its shareholder members; portion of corporate profits paid out to stockholders
Term
Assets =
Definition
liabilities + stockholder's equity
Term
net income =
Definition
total revenue - total expenses
Term
income statement
Definition
matches expenses with revenues that occur when operating a business (matching concept)
Term
balance sheet
Definition
total assets balance with (=) claims (liabilities & stockholders' equity) on those assets; accruals & deferrals
Term
Statements of cash flow
Definition
explains how a company obtained and used cash during the accounting period
Term
cash flow activities
Definition
financing, investing, and operating activities
Term
investing activities
Definition
involve paying cash to purchase long-term assets or receiving cash from selling long-term assets (ex: land, buildings)
Term
operating activities
Definition
involve receiving cash from revenue (customers) and paying cash for expenses (suppliers); ex: cash spent to purchase short-term assets like office supplies
Term
financing activities
Definition
cash receipts from borrowing funds or from issuing common stock, and cash payments to repay borrowed stock or for dividends; ex: cash paid to creditors for interest
Term
horizontal financial statement
Definition
| Balance sheet | income statement | statement of cash flows|
Term
double-entry bookkeeping
Definition
all transactions affect the accounting equation in at least 2 places
Term
retained earnings
Definition
portion of assets that has been provided by earning activities & not returned as dividends; permanent account
Term
FASB makes rules for:
which are known as:
Definition
financial accounting
Generally Accepted accounting procedures (GAAP))
Term
ABC Company issued $150,000 in capital stock in exchange for cash. What is the effect of
this transaction in regards to cash flow?
Definition
Cash flow from Financing Activities will increase.
Term
ABC Company paid $25,000 in dividends to stockholders. How does this impact ABC’s cash & retained earnings
accounts?
Definition
Cash will decrease by $25,000 and retained earnings will decrease by $25,000.
Term
A "Purchase of land with cash" for ABC Company would have what effect on total assets?
Definition
none
Term
ABC received $17,000 in payments from clients for services billed in a previous month.
Which accounts will be affected and by what amounts under the accrual basis of accounting?
Definition
Cash will increase by $17,000 and accounts receivable decrease by $17,000.
Term
realized transaction
Definition
exchange of cash
Term
recognized transaction
Definition
recording of the transaction
Term
Accruals
Definition
transaction is recorded but no money has been exchanged

Examples:
Accounts Receivable = Revenue earned but customers have not paid for product/service.

Accounts Payable = Suppliers give supplies to business before business pays for supplies.

Wages/Salaries Payable = Wages earned by employees but business has not paid employees.
Term
Deferrals
Definition
Money has changed hands but work has not been performed/product has not changed hands (no revenue or no expense)


Examples:
Prepaid Rent = Business pays 1 year in rent on Jan 1. Today is Jan 1 ($12,000 in prepaid rent).

Unearned Revenue = Customer pays for services/product in advance. Business has not performed any services or delivered any products.

Prepaid Insurance = Business pays for 1 month of insurance at the beginning of the month.
Term
Purchasing on Account
recognized or realized?
Definition
recognized
Term
prepaid rent
recognized or realized?
cost or expense?
Definition
recognized, realized, cost but no expense
Term
closing
Definition
process of transferring all the data in revenue, expense & dividend accounts (all temporary) to the Retained Earnings account; retained earnings + (revenue-expense-dividends) = after closing balance
Term
adjusting entries
Definition
made at end of accounting period to update account balances before preparing the financial statements; never affects Cash account

beginning balance + purchases = available for use
available for use - ending balance = items used
Term
account for supplies adjusting entry
Definition
beginning balance + supplies purchased = supplies available for use

supplies available for use - ending supplies balance = supplies used
Term
Know which account goes where
Cash Account =
Note Payable Account =
Common Stock Account =
Revenue & Expenses Accounts =
Definition
into:
Asset
Liabilities
Stockholders’ Equity
Retained Earnings (Stockholders’ Equity).
Term
cost vs expense
cost =
expense=
Definition
what you paid for it
when you use (expend) it
Term
perpetual inventory system
Definition
Inventory (perpetually) counted/accounted for when sold.; Inventory increased for each item purchased; Inventory decreased for each item sold
Term
periodic inventory system
Definition
Inventory counted/accounted for at an established period in time.; Offers practical solution for recording inventory in low-tech, high-volume environments; recording efficiency but less control of inventory
Term
FOB shipping point
Definition
buyer pays;

FOB shipping point > transportation in [freight in] >asset (inventory)

Add Transportation In costs to *total inventory costs*
Term
FOB destination
Definition
seller pays;

FOB Destination > Transportation Out [i.e. freight out]) > Expense (Operating)

Record as an operating expense NOT a cost of goods sold.
Term
Cash Flow Activities
Definition
Operating:
Generating revenue
Buying inventory
Paying suppliers

Investing:
Buying/selling long-term assets

Financing:
Acquiring stock
Paying Dividends
Borrowing money
Term
Accounts Receivable
Definition
Credit extended to customers (i.e. customer received goods now will pay for them later).
Term
Purchases* on account
*Inventory, supplies, repairs, etc.
Definition
Accounts Payable (i.e. supplier/vendor)
Term
Borrow Money
Definition
Notes Payable (i.e. bank)
Term
cost of goods available for sale
COGAS
Definition
total cost paid to obtain goods and make them ready for sale, including cost of beginning inventory plus purchases and transport-in costs, minus purchase returns and allowances and purchase discounts;
Term
cost of goods sold
COGS
Definition
total cost incurred for the goods sold during a specific accounting period; reported as expense in income statement
Term
gross margin
Definition
sales revenue - COGS
Term
gain
Definition
Sale Price > Cost of Asset
profit resulting from transactions that are not likely to regularly occur

shown on income statement
Term
loss
Definition
Sale Price < Cost of Asset

shown on income statement
Term
purpose of internal controls
Definition
Distinguishes a good business from a great business.

Ensures the financial statements fairly and accurately represent the true balances in each financial statement account.

Ensures business policies and procedures are executed efficiently and effectively.

Helps to protect and safeguard company assets.
Term
audits
Definition
are performed to ascertain the validity and reliability of information; also to provide an assessment of a system's internal control. The goal of an audit is to express an opinion of the person / organization / system (etc.) in question, under evaluation based on work done on a test basis.
Term
internal controls
Definition
a company's policies and procedures designed to reduce the opportunity for fraud and to provide reasonable assurance that its objectives will be accomplished
Term
unqualified opinion
Definition
most favorable; means auditor believes financial statements are in compliance with GAAP
Term
adverse opinion
Definition
most negative; one or more major departures from GAAP
Term
qualified opinion
Definition
in the middle; good for most part but something may be wrong
Term
bank reconciliation
Definition
explain differences between cash balance reported on bank statement and cash balance recorded in depositor's accounting records
Term
deposits in transit
Definition
deposits left in bank's night depository or are made on day following receipt of cash; must be added to unadjusted bank balance
Term
bookkeeping errors
Definition
must add back or subtract errors
Term
NSF non sufficient checks
Definition
checks that a company obtains from its customers and deposits in its checking account, but when checks are submitted to customer's banks for payments, bank refuse payments because there is insufficient money in customers account; must be deducted from balance
Term
checks outstanding
Definition
disbursements that have been properly recorded as cash deductions on the depoisitor's books, but bank has not deducted amounts from depositors bank account because checks have not been presented by payee to bank for payment; must be subtracted from unadjusted bank balance
Term
A business gets its financial resources from what three sources?
Definition
Investors and creditors and revenue
Term
A document that is evidence of ownership in a business (i.e. a claim to a business' assets) is called
Definition
common stock
Term
accounts receivable is a _____ account
Definition
ASSET
Term
Which financial statement element is the Common Stock account associated with?
Definition
equity
Term
What type of account is the Cost of Goods Sold account
Definition
expense
Term
What type of account is the Inventory Account?
Definition
asset
Term
Revenue is an account AND a financial statement element.
T/F
Definition
TRUE
Term
Expense is an account AND a financial statement element.
T/F
Definition
TRUE
Term
What type of account is the Unearned Revenue account?
Definition
liabilities
Term
Net income is an account AND a financial statement element.
T/F
Definition
TRUE
Term
prepaid accounts are ____
Definition
assets
Term
gains & losses are...
Definition
The addition or loss a company has from selling an asset through an activity OTHER THAN through operating.
Term
Receivables Allowance
Definition
the estimated amount of revenue earned on account that a company is confident it will not collect
there is always a chance the customer will not pay for services or products received on account


accounts affected:
allowance and retained earnings

statements affected:
Balance Sheet (less: allowance) & Income Statement (Uncollectible account expense)
Term
allowance for doubtful accounts
Definition
reps a company's estimate of the amount of uncollectible receivables

accounts receivable
- allowance for doubtful accounts
= net realizable value of receivables
Term
write off
Definition
the bad accounts are removed from the company’s general ledger
once the value is known the company must recognize the amount in the company’s accounting records

accounts affected:
accounts receivable and allowance

has no effect on statements?
Term
net realizable value =
Definition
A/R - Allowance
Term
notes receivable
Definition
when a company extends credit beyond the normal account terms or lends money; payment arrangements on a past due account; lending money to other businesses

accounts affected:
cash, notes receivable, interest receivable, & retained earnings
Term
FIFO
Definition
first in first out
Term
LIFO
Definition
last in last out
Term
weighted-avg
Definition
calculate avg cost per unit, then multiply by # of units sold
Term
specific identification
Definition
allocates costs between cost of goods sold and ending inventory using the cost of the specific goods sold or retained in the business
Term
effect of cost flow on financial statements
Definition
gross margin = sales - COGS
Term
tangible long term assests
Definition
property, plant & equipment; natural resources; land
Term
intangible assets with identifiable useful lives
Definition
ex: patents & copyrights
Term
intangible assets with indefinite useful lives
Definition
ex: coke & mcdonalds trademarks
Term
cost of equipment
Definition
purchase price (minus discounts), sales tax, delivery costs, installation, costs to adapt for intended use
Term
straight-line depreciation
Definition
produces equal amounts of depreciation expense each year; recognizing depreciation does not affect cash flow but reduces assets & equity

(asset cost-salvage value) / useful life = depreciation expense
Term
double-declining-balance depreciation
Definition
produces a large amount of depreciation in the first year of an assets life and progressively smaller levels of expense in each succeeding year

accelerated depreciation method

1)determine straight line rate
2) determine double declining balance rate; multiply straight line rate by 2
3) multiply double by book value of asset at beginning of period
Term
units-of-production depreciation
Definition
bases depreciation expense on actual asset usage

cost - salvage value unit of
_________________________________ x production =
total estimated units of production in current yr


annual depreciation
Term
book value =
Definition
cost - accumulated depreciation
Term
expensed costs
Definition
Routine Repairs/Maintenance

(Oil change, car wash, tune-ups, replace tires, suggested factory maintenance schedule, etc)
Term
capitalized costs
Definition
improves quality or extends life of an asset

(New paint job, overhaul engine, add components that improve gas mileage, upgrade sound system, upgrade rims and tires)
Term
depletion
Definition
method of systematically allocating the costs of natual resources to expense as there sources are removed from the land
Term
amortization
Definition
method of systematically allocating the costs of intangible assests to expense over their useful lives, also a term for coverting the discount on a note or a bond to interest expense over a designated period
Term
Current liabilities
Definition
are due within one year or an operating cycle, whichever is longer. Current liabilities, also called short-term liabilities

Accounts Payable
Short-Term Notes Payable
Wages Payable
Taxes Payable
Interest Payable
Term
long-term liability
Definition
liabilities with maturity dates beyond one yr or the companys operating cycle, whichever is longer; noncurrent
Term
contingent liabilities
Definition
potential obligation, amount of which depends on future events

if likely, a liability is recognized in financial statements
if not as likely, no liability reported but is disclosed in footnotes
if not likely, not included anywhere
ex: warranty obligations, potential lawsuits
Term
Sole proprietorships
Definition
Businesses (usually small) owned by one person.

disadvantage: unlimited liability
Term
Partnerships
Definition
Business entities owned by at least two people who share talents, capital, and the risks of the business.

disadvantage: unlimited liability
Term
Limited liability companies (LLCs)
Definition
Organizations offering many of the best features of corporations and partnerships and with many legal benefits of corporations (e.g., limited liability and centralized management) but permitted by the Internal Revenue Service to be taxed as a partnership, thereby avoiding double taxation of profits.
Term
Corporation
Definition
Legal entity separate from its owners; formed when a group of individuals with a common purpose join together in an organization according to state laws.

advantage: LIMITED LIABILITY
disadvantage: double taxation, heavy regulation
Term
Issued stock
Definition
stock sold to public
Term
Common stock
Definition
Basic class of corporate stock that carries no preferences as to claims on assets or dividends; certificates that evidence ownership in a company.

Most common type of stock. Usually has the most authority (i.e. voting rights)

most risk to shareholders
Term
Preferred stock
Definition
Stock that receives some form of preferential treatment (usually as to dividends) over common stock; normally has no voting rights.
Term
Treasury stock
Definition
When a company buys back its own stock
Term
Par value
Definition
Arbitrary value assigned to stock by the board of directors.
Term
Liquidity Ratios –
Definition
indicate a company’s ability to pay short-term debts. They focus on current assets and current liabilities.
Term
Solvency Ratios –
Definition
used to analyze a company’s long-term debt-paying ability and its financing structure.
Term
Profitability Ratios –
Definition
measure a company’s ability to generate earnings.
Term
Stock Market Ratios –
Definition
analyze the earnings and dividends of a company.
Term
Working Capital =
Definition
Current Assets – Current Liabilities
Term
Current Ratio =
Definition
Current Assets/
Current Liabilities
Term
Quick Ratio =
(or Acid-Test)
Definition
(Current Assets – Inventory – Prepaid items) /
Current Liabilities
Term
Managerial accounting:
Definition
Branch of accounting that provides information useful to internal decision makers and managers in operating an organization.
Term
Direct raw materials:
Definition
Costs of raw materials used to make products that can be easily and conveniently traced to those products.
Term
Direct labor:
Definition
Wages paid to production workers whose efforts can be easily and conveniently traced to products.
Term
Overhead:
Definition
Costs associated with producing products that cannot be cost effectively traced to products including indirect costs such as indirect materials, indirect labor, utilities, rent, and depreciation.
Term
when are product costs an asset?
Definition
materials
Term
when are product costs an expense?
Definition
labor/overhead
Term
Average cost:
Definition
The total cost of making products divided by the total number of products made.
Term
General, selling, and administrative costs:
Definition
All costs not associated with obtaining or manufacturing a product; in practice are sometimes referred to as period costs because they are normally expensed in the period in which the economic sacrifice is incurred.
Term
Financial
accounting
Definition
External
Big Picture (i.e. Level of Aggregation)
Regulated (i.e. GAAP)
Owner Focused (i.e. shareholder)
Decision Maker = Owners/Shareholders
Reporting Periods = Monthly, Quarterly, Annually
Term
managerial accounting
Definition
Internal
Per Unit/Detailed Focus (i.e. Level of Aggregation)
Unregulated (i.e. Value Added and/or accounting conventions)
Manager/Employee Focused
Decision Maker = Management
Reporting Periods = Depends on Management’s Needs
On demand, hourly, daily, weekly, monthly, quarterly, annually…
Term
product costs
Definition
It’s all the costs associated with created a product

It can be labor, materials, and/or overhead*
*Overhead is comprised of costs that are associated with the production of the product but cannot be directly traced to an individual product.
Term
Fixed cost:
Definition
Cost that in total remains constant when activity volume changes; varies per unit inversely with changes in the volume of activity.
Term
Cost behavior:
Definition
How a cost reacts (goes up, down, or remains the same) relative to changes in some measure of activity (e.g., the behavior pattern of the cost of raw materials is to increase as the number of units of product made increases).
Term
Mixed costs (semivariable costs):
Definition
Costs composed of a mixture of fixed and variable components.
Term
Variable cost:
Definition
cost that in total changes in direct proportion to changes in volume of activity; remains constant per unit when volume of activity changes
Term
break even point
Definition
sale-variable costs-fixed costs = profit
Term
Contribution margin:
Definition
Difference between a company's sales revenue and total variable cost; represents the amount available to cover fixed cost and thereafter to provide a profit.
Term
Avoidable costs:
Definition
RELEVANT COSTS

Future costs that can be avoided by taking a specified course of action. To be avoidable in a decision-making context, costs must differ among the alternatives. For example, if the cost of material used to make two different products is the same for both products, that cost could not be avoided by choosing to produce one product over the other. Therefore, the material's cost would not be an avoidable cost.
Term
Relevant costs:
Definition
Future-oriented costs that differ between business alternatives; also known as avoidable costs. p. 465
Term
Batch-level costs:
Definition
The costs associated with producing a batch of products. For example, the cost of setting up machinery to produce 1,000 products is a batch-level cost. The classification of batch-level costs is context sensitive. Postage for one product would be classified as a unit-level cost. In contrast, postage for a large number of products delivered in a single shipment would be classified as a batch-level cost.
Term
Product-level costs:
Definition
Costs incurred to support different kinds of products or services; can be avoided by the elimination of a product line or a type of service.
Term
Facility-level costs:
Definition
Costs incurred on behalf of the whole company or a segment of the company; not related to any specific product, batch, or unit of production or service and unavoidable unless the entire company or segment is eliminated.
Term
Unit-level costs:
Definition
Costs incurred each time a company makes a single product or performs a single service and that can be avoided by eliminating a unit of product or service. Likewise, unit-level costs increase with each additional product produced or service provided.
Term
Opportunity costs:
Definition
Cost of lost opportunities such as the failure to make sales due to an insufficient supply of inventory or the wage a working student forgoes to attend class. pp. 373, 464
Term
Special order decision:
Definition
Decisions of whether to accept orders from nonregular customers who want to buy goods or services significantly below the normal selling price. If the order's relevant revenues exceed its avoidable costs, the order should be accepted. Qualitative features such as the order's effect on the existing customer base if accepted must also be considered.
Term
Outsourcing:
Definition
The practice of buying goods and services from another company rather than producing them internally.
Term
Equipment replacement decisions:
Definition
Decisions regarding whether existing equipment should be replaced with newer equipment based on identification and comparison of the avoidable costs of the old and new equipment to determine which equipment is more profitable to operate.
Term
Qualitative characteristics:
Definition
Nonquantifiable features such as company reputation, welfare of employees, and customer satisfaction that can be affected by certain decisions.
Term
Quantitative characteristics:
Definition
Numbers in decision making subject to mathematical manipulation, such as the dollar amounts of revenues and expenses.
Term
Master budget:
Definition
Composition of the numerous separate but interdependent departmental budgets that cover a wide range of operating and financial factors such as sales, production, manufacturing expenses, and administrative expenses.
Term
Cash budget:
Definition
A budget that focuses on cash receipts and payments that are expected to occur in the future.
Term
Pro forma financial statements
Definition
: Budgeted financial statements prepared from the information in the master budget.

'"BEFORE"
Term
debt ratio
Definition
total liabilities / total assets
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