Term
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Definition
| Day-to-day transactions translated into accounting records. |
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Term
| How many steps are there in the accounting cycle |
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Definition
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Term
| What are the steps in the accounting cycle, in order |
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Definition
| 1) Analyze Transactions & Prepare Entries 2) Prepare adjustments 3) Prepare statements from trial balance 4) close all temporary accounts |
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Term
| What are the four fundamental types of business activities? |
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Definition
| 1) Financing the company 2) asset acquisition 3) revenue and expense recognition (operations) 4) Dividend Distribution |
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Term
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Definition
| They are used to reflect increases and decreases (debits/credits) to individual accounts as part of a transaction. |
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Term
| What's another name for the left side of a T-Account? |
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Definition
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Term
| What is the accounting term in which every transaction or event changes at least two different accounts |
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Definition
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Term
| How many T-Accounts are represented with a single transaction? |
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Definition
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Term
| Can there be more than one debit and one credit for a single transaction? |
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Definition
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Term
| What is the Revenue Recognition Principle? |
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Definition
| States that a company can recognize revenue if: 1) Revenues are earned and 2) Revenues are realized or realizable. |
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Term
| With respect to the Revenue Recognition Principle, when is a revenue "earned"? |
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Definition
| That the company (vendor) has done what is is required to do (e.g. delivered goods or service). |
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Term
| With respect to the Revenue Recognition Principle, when is a revenue "realized" or "realizable"? |
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Definition
| That the company (vendor) has received cash or will receive cash at some point in the future. |
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Term
| What is the Matching Principle? |
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Definition
| When we match revenues with their expenses that were accrued to generate those revenues in the *same period*. |
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Term
| Do financing activities affect the balance sheet? |
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Definition
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Term
| Do financing activities affect the income statement? |
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Definition
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Term
| Are dividends an expense? |
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Definition
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Term
| Do dividends impact net income? |
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Definition
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Term
| What are the two cornerstones of accrual accounting? |
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Definition
| 1) Recording expense when incurred 2) Recognizing revenue when it is earned. |
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Term
| How is cash accounting different from accural accounting? |
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Definition
| Cash accounting recognizes expense when cash is paid and revenues only when cash is received. |
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Term
| How many types of accounting adjustments are there? What are they? |
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Definition
| 1) Prepaid Expenses 2) Unearned Revenues 3) Accrued Expenses 4) Accrued Revenues |
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Term
| Give an example of a prepaid expense that might show up as an adjustment at the end of an accounting period. |
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Definition
| Pre-paid advertising and insurance. |
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Term
| What's another name for a prepaid expense? |
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Definition
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Term
| Give an example of a unearned revenues that might show up as an adjustment at the end of an accounting period. |
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Definition
| Annual, pre-paid software licenses, prepayment for goods or services to be delivered in the future. |
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Term
| Give an example of accrued expenses that might show up as an adjustment at the end of an accounting period. |
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Definition
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Term
| Give an example of accrued revenue that might show up as an adjustment at the end of an accounting period. |
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Definition
| Unpaid proceeds for goods or services delivered |
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Term
| What is the first step in preparing financial statements? |
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Definition
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Term
| What are the two types of trial balances? |
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Definition
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Term
| What is the point of doing a trail balance? |
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Definition
| To ensure all accounts aggregated have equal amounts debits and credits. |
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Term
| Which of the two types of trial balances are financial statement started from? |
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Definition
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Term
| Transaction analysis breaks up assets into two types. What are they? |
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Definition
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Term
| Transaction Analysis gives us more detail by breaking up equity into two parts. What are they? |
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Definition
| Contributed Capital, Retained Earnings* (book says "earned capital" is which a bit more generic). |
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Term
| What's another name for a write-down? |
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Definition
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Term
| When might a company show a write down? Give some examples. |
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Definition
| When the value of an asset declines unexpectedly. e.g. spoiled or damaged goods |
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Term
| Is intellectual property (e.g. software patents) considered an asset in accounting terms? |
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Definition
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Term
| What is meant by "cash equivalents"? |
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Definition
| Things easily converted into cash such as CD's, stock, etc. |
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Term
| What's the formula for computing working capital? |
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Definition
| Currents Assets - Current Liabilities |
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Term
| What does working capital tell us about a company? |
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Definition
| Whether or not a company has enough funds to pay for short term debts as they mature. |
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Term
| What is the working capital ratio? |
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Definition
| Net Sales / Avg Working Capital |
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Term
| What does the working capital ratio tell us? |
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Definition
| How effectively a company is using working capital. |
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Term
| Which of the financial statements would you find working capital? |
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Definition
| None, it's not typically reported, though you can compute it yourself. |
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Term
| What are the three things that make up "contributed capital"? |
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Definition
| Preferred stock, paid-in capital, treasury stock |
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Term
| How do you calculate gross profit? |
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Definition
| Net sales - cost of goods sold |
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Term
| How do you calculate operating income? |
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Definition
| Gross profit - operating expenses |
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Term
| What does operating income tell you about a company? |
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Definition
| How well the company is doing on it's own. |
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Term
| Would the sale of property show up on the income statement? |
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Definition
| No, it's not typically part of day-to-day operations so we avoid this sort of "contamination" |
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Term
| Who determines what an extraordinary item is? |
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Definition
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Term
| Which of the two accounting standards recognizes extraordinary items? |
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Definition
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Term
| Which financial statement between the Balance Sheet and Income Statement does Sales appear? |
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Definition
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Term
| Which financial statement between the Balance Sheet and Income Statement does Accumulated Depreciation appear? |
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Definition
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Term
| Which financial statement between the Balance Sheet and Income Statement does Depreciation Expense appear? |
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Definition
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Term
| Which financial statement between the Balance Sheet and Income Statement does Retained Earnings appear? |
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Definition
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Term
| Which financial statement between the Balance Sheet and Income Statement does Net Income appear? |
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Definition
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Term
| Which financial statement between the Balance Sheet and Income Statement does Plant, Property and Equipment appear? |
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Definition
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Term
| Which financial statement between the Balance Sheet and Income Statement does Selling, General and Administrative Expense appear? |
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Definition
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Term
| Which financial statement between the Balance Sheet and Income Statement does Accounts Receivable appear? |
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Definition
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Term
| Which financial statement between the Balance Sheet and Income Statement does Total Liabilities appear? |
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Definition
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Term
| Which financial statement between the Balance Sheet and Income Statement does Stockholder's Equity appear? |
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Definition
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Term
| How do you calculate profit margin? |
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Definition
| Net Income / Sales (x100) |
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Term
| How do you calculate the liabilities-to-equity ratio? |
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Definition
| liabilities / stockholder's equity (x100) |
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Term
| How do you calculate net income? |
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Definition
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Term
| What are all the components on the financial statement effects template? |
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Definition
| Cash, Non-Cash Assets, Liabilities, Contributed Capital, Earned Capital, Revenues, Expenses and Net Income |
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Term
| Is payment on the principle part of a loan an expense? |
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Definition
| No, only the interest is expensed. |
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Term
| Is the cost of goods sold considered an expense? |
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Definition
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Term
| When are accruals like wages accrued turned into an expense? |
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Definition
| They are expensed at the end of the period they were accrued as an adjustment. |
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Term
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Definition
| Gross sales less refunds, discounts and allowances |
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Term
| What's another name for operating income? |
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Definition
| Earnings before interest and taxes (EBIT) |
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Term
| How do you calculate Retained Earnings |
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Definition
| Prior period retained earnings + net income - dividends |
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Term
| What's another name for Gross Profit? |
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Definition
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Term
| What's the calculation that tells us how efficiently working capital is being used? |
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Definition
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Term
| What's another term for liabilities-to-equity ratio |
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Definition
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Term
| What calculation is a measure of profitability? |
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Definition
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Term
| What is the calculation that measures a company's profitability excluding taxes and interest |
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Definition
| Operating Income or Earnings Before Interest and Taxes (EBIT) |
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