Term
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Definition
| The ways in which businesses raise, allocate and use money and assets, while recognizing and managing risk. |
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Term
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Definition
| to provide funds for business |
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Term
| What are the 3-steps of the Cycle of Finance? |
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Definition
1. Assess the financial health of the company.
2. Plan
3. Execute the plan
(circular)
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Term
| What and who are the measurers of a business? |
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Definition
Measurers are focused on assessing and planning
- Controller
- Accountants
- Tax Accountants
- Cost Accountants
- Internal Auditors
- Budget Officers |
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Term
| What role and who are the managers of financial information? |
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Definition
Managers are focused on planning and execution.
- Credit managers
- inventory managers
- Plant managers
- capital budgeting staff
- budget officers
- sales staff |
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Term
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Definition
Accounting is a system that
- measures business activities
- processes information into reports and
- communicated these findings to stakeholders and decision makers.
It is the language of business |
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Term
| How do managers use financial information? |
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Definition
To set goals, evaluate progress toward a goal and determine corrective action if necessary.
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Term
| How do investors use financial information? |
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Definition
| to help determine what income they can reasonably expect from their investments. |
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Term
| How do Government regulatory agencies use financial information? |
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Definition
| to verify compliance with financial and other reporting requirments. SEC is an example |
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Term
| How do taxing authorities use financial information? |
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Definition
| authorities such as the IRS collect taxes based on income determined by using accounting information. |
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Term
| How do employees and the public benefit from accounting? |
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Definition
| Suppliers who are financially sound can provide quality products and services, invest in R&D for new products and innovative solutions and retain quality employees. |
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Term
| How do creditors benefit from accounting? |
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Definition
| when a company achieves strong financial performance it can meet commitments to repay debt |
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Term
| How do employees specifically benefit from accounting? |
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Definition
| Because strong financial performance creates a strong company able to create growth opportunities and job security. |
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Term
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Definition
| an information system that measures, processes and communicates |
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Term
| What is financial accounting? |
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Definition
| information for people outside of the company |
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Term
| What is Financial Accounting? |
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Definition
| Information for people outside of the company |
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Term
| What is Managerial Accounting? |
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Definition
| Information for internal decision makers |
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Term
| Who are the governing organizations of accounting? |
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Definition
IRS, tax authorities
Public Accounting Oversight Board
Governmental regulators
specific legislation (SarBox, FLSA, etc)
creditors
public opinion |
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Term
| What is ethics in accounting? |
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Definition
| A set of principles of right conduct or a system of moral values, is distinguished from morality, which is concerned with the goodness or badness of particular human actions. |
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Term
| How do you know you are facing an ethical conflict? |
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Definition
when significant values conflicts among differing interests, there are equally justifiable alternaties or significant consequences for "stakeholders"
An ethical dilemma exists when you are faced with making a tough choice. |
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Term
| What systems are in place to keep ethics in check? |
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Definition
Audits - performed by independant accountants
Sarbanes-Oxley Act - criminal offense to falsify financial statements
PCAOB- monitors work of accountants |
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Term
| What are the characteristics of a Proprietorship? |
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Definition
| One owner, self-employed, tax nothings (1040's) |
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Term
| What are the characteristics of a Partnership? |
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Definition
| Two or more owners, taxed with 1060's |
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Term
| What are the characteristics of a corporation? |
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Definition
| It's own legal entity, many owners |
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Term
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Definition
Generally Accepted Accounting Principles
The accounting guidelines that govern how accountants measure, process, and communicate financial information. Formulated by FASB. |
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Term
| What is the primary objective of financial accounting? |
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Definition
| provide information that is useful for making investment and lending decisions. |
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Term
GAAP- Assumptions
Economic Entity: |
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Definition
| assumes that the business is separate from its owners orother businesses. |
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Term
GAAP Assumptions
Going Concern: |
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Definition
| assumes that the business will be in operation for a long time. |
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Term
GAAP assumptions
Monetary Unit: |
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Definition
| assumes a stable currency is going to be the unit of record. |
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Term
GAAP assumptions
Periodic reporting: |
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Definition
| assumes that the business operations can be recorded and separated into different periods (commonly months, quarters and years) |
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Term
GAAP - Principles
historic cost: |
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Definition
| requires companies to account and report based on acquisition costs rather than fair market value for most assets and liabilities. |
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Term
GAAP principles
revenue recognition: |
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Definition
| requires companies to record when revenue is 1. realized or realizable and 2. earned, not when cash is received. |
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Term
GAAP Principles
matching principle: |
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Definition
| expenses have to be matched with revenues as long as it is reasonable to do so. Expenses are recognized not when the work is performed, or when a product is produced, but when the work or prudct actually makes its contribution to revenue. |
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Term
GAAP Principles
full disclosure: |
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Definition
| amount and kinds of information disclosed should be decided based on trade-off analysis as a larger amount of information costs more to prepare and use. Information disclosed should be enough to make a judgment while keeping costs reasonable. |
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Term
GAAP constraints
cost-benefit relationship: |
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Definition
| the benefit of providing the financial information should also be weighed against the cost of providing it. |
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Term
GAAP constraints
Materiality: |
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Definition
| the significance of an item should be considered when it is reported. |
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Term
GAAP constraints
Industry practices: |
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Definition
| accounting procedures should follow industry practices |
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Term
GAAP constraints
Conservatism: |
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Definition
| when choosing between two solutions, the one that will be least likely to overstate assets and income should be picked |
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Term
| What is the entity concept? |
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Definition
| states that each entity is an economic unit and is kept separate from other entities as to not confuse the affairs of various entities (including personal). |
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Term
| Reliability or objectivity principle states: |
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Definition
that accounting records should be based on the most verifiable data
- historical cost
- reasonably accurate
- report what actually happened
- free from bias
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Term
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Definition
| states that assets and services should be recorded at actual (historical) cost |
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Term
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Definition
| assumes that the entity will remain in operation for a long time |
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Term
| revenue is recognized ... |
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Definition
| when it is earned, not when cash is received |
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Term
| What is the accounting equation? |
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Definition
| Assets = Liabitilities + Owner's Equity |
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Term
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Definition
| something a company owns which has future economic value |
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Term
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Definition
Something a company owes.
A creditor's claims to the assets.
Obligations to outsiders. |
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Term
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Definition
| The owner's claim to the assets after subtracting the liabilities. |
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Term
| How is owner's equity increased? |
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Definition
| by owner investments and revenues (net) |
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Term
| How is Owner's Equity decreased? |
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Definition
| by owner withdrawls and expenses |
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Term
| How/When do expenses occur? |
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Definition
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Term
| What are some examples of Owner's Equity? |
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Definition
| Contribued capital (stock), retained earnings, accumulated deficit, treasury stock |
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Term
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Definition
the exchange of economic consideration between two parties.
An event that both affects the financial position of the business and can be reliably recorded so the equation can stay in balance. |
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Term
| How many accounts does a transaction effect? |
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Definition
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Term
| What are the key financial statements? |
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Definition
balance sheet
income statement
statement of cash flows
notes/disclosures |
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Term
| What is the expanded accounting equation? |
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Definition
assets = liabilities + equity + revenues - expenses
net income is revenues - expenses |
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Term
| What is another name for an income statement? |
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Definition
Profit and loss (P&L)
statement of earnings
statement of operations |
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Term
| an income statement shows: |
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Definition
it lists revenues and expenses and shows net income
net income = revenues - expenses |
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Term
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Definition
| The amounts received or to be received from customers for sales of products or services |
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Term
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Definition
| The amounts that have been or will be incurred to earn revenue. (saleries and wages, utilities, supplies used, advertising, etc.) |
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Term
| What is the layout of the Statement of Owners Equity and what is its definition? |
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Definition
It is the summary of changes in an entity's owner's equity during a specific period
Beginning Owner's equity
+ Owners investments
+ net income
net loss
- Owners withdrawals
Ending owner's equity |
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Term
| What goes in the heading of a balance sheet? |
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Definition
Business name
Balance Sheet
As of date |
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Term
| What is the purpose of a cash flow statement? |
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Definition
Predict future cash flows
Evaluate management decisions
Predict ability to pay debts and to pay dividends |
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Term
| How is cash flow generated? |
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Definition
Operating activities
Investing activities
Financing activities |
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Term
| What are operating activities and how do they affect the balance sheet? |
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Definition
They are the transactions that make up net income.
They also affect current assets and current liabilities on the balance sheet.
If a company can not generate a positive cash flow from its day to day operations, it will not be in business very long. |
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Term
| What are investing activities? |
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Definition
| transactions that increase and decrease long-term assets |
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Term
| What are financing activities? |
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Definition
| They increase and decrease in long-term liabilities and owner's equity |
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Term
| What are the examples of assets in order of liquidity? |
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Definition
| cash, a/r, notes receivable, marketable securities, short-term loans, prepaid expenses, inventories, land, buildings, equipment, vehicles, leasehold improvements, accumulated depreciation, long term notes, intagible assets (intellectual property, goodwill) |
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Term
| What are the two kinds of liabilities? |
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Definition
| Current (less than 1 year) and long-term (greater than one year) |
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Term
| What are examples of current liabilities? |
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Definition
| accounts payable, notes payable, short-term borrowings, salaries payable, taxes payable, current maturuity of ong-term debt |
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Term
| What are some examples of long-term liabilities? |
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Definition
| Bonds payable, long-term notes payable, long-term borrowings |
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Term
| What are some examples of Owner's Equity? |
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Definition
| Contributed capital (preferred stock, common stock, additional pain in capital, preferred stock, additional pain in capital, common stock) retained earnings, accumulated deficit, treasure stock |
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Term
| What are the list of financial statements? |
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Definition
| income statement, statement of owner's equity, balance sheet, statement of cash flows |
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Term
| What are the two standard reports which are the main sources of business financial information? |
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Definition
| Balance sheet and the Profit and Loss statement or income statement |
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Term
| What is the net income equation? |
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Definition
| net income = revenues - expenses |
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Term
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Definition
| Anyone can look at a balance sheet and tell the relative financial position of the buisiness at that POINT IN TIME. As long as a business owns more than it owes it is probably in good shape financially. If it owes more than it owns it my be in trouble or insolvent. It lays out the value of assets and liabilities of a business. |
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Term
| What is the accounting process? |
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Definition
1. Record transactions in the Journal.
2. Post to the ledger
3. Prepare the trial balance. |
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Term
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Definition
| A basic summary device. A detailed record of increases and decreases in specific assets, liabilities, or owner's equity during a period. |
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Term
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Definition
| A book or place where business transactions are first recorded in chronological order before being posted to the general ledger accounts. |
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Term
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Definition
| A book or printout holding all the accounts. All individual accounts posted to the ledger. Think of each account as having its own page in a book, called a ledger. The order of accounts should follow the equation. |
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Term
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Definition
| Worksheet lisitng the account balances from the general ledger prepared at the end of the accounting period. All acounts are listed in the order they appear int he ledger. Total debts must equal total credits. This is a worksheet, not a financial document. It is a convenient starting point for preparing your financial documents. |
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Term
| What does ALORE stand for? |
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Definition
| Assets, Liabilities, Owners Equity, Revenues, Expenses |
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Term
| If an account has receivable in the title where does it belong? |
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Definition
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Term
| If an account has payable in the title where does it belong? |
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Definition
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Term
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Definition
| An increase in the assets of an organization or the decrease in liabilities during an accounting period, primarily from the organizations operating activities. This may include sales, rendering of services, earnings from interest, dividends, etc. |
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Term
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Definition
| Results from or measures the using up of an asset or incurrence of a liability in order to obtain revenue in the current period. Applies to the cost of merchandise sold or services rendered. These should be ordinary course of business costs not incidental transactions. Expenses are deducted from revenue to derive net income. |
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Term
| What is a chart of accounts? |
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Definition
| List of all accounts used by a company along with the account numbers in ALORE order. |
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Term
| What accounts are on an income statement? |
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Definition
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Term
| What accounts are on a balance sheet? |
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Definition
| asset, liability and owners expense |
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Term
| Explain double entry bookkeeping. |
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Definition
| The standard practice for recording financial transactions. Bookkeeping refers only to the actual posting of transactions into various journals. Journal entries provide the underlying foundation for a system of accounting which accumulates and organized the raw data into useful information. |
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Term
| What is the effect of the double entry system? |
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Definition
| Record dual effects of each transaction, each trasaction affects at least two accounts, each trasnaction is recorded with at least one debit and one credit. |
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Term
| How is debit abbreviated and is it the left or the right of a t-account? |
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Definition
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Term
| How is credit abbreviated and it is the left or right of a t-account |
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Definition
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Term
| Which accounts increase in value when debited? |
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Definition
| dividend, expense, asset and losses DEAL |
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Term
| Which accounts increase in value when credited? |
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Definition
| Gains, Income, Revenues, Liabilitiy and Stockholder's (Owners) Equity GIRLS |
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Term
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Definition
| A simple tool for analyzing and determining the blaance in a given account. |
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Term
| What are the normal balances for each of the ALORE accounts? |
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Definition
| Assets - debit, Liability - credit, Owners equity - credit, revenue - credit, Expenses - debit |
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Term
| transactions affecting withdrawals and expenses are recorded as ... |
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Definition
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Term
| transactions affecting owner's capital and revenues are recorded as ... |
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Definition
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Term
| What is the process for journalizing transactions? |
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Definition
| identify each account affected and its type. Determine whether each account is increased or decreased. Use the rules of debit and credit, record transactions in the journal, including a brief explanation. |
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Term
| Which is recorded first in a journal entry? A debit or credit? |
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Definition
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Term
| What are a few of the style conventions of a general journal? |
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Definition
| Year is entered at the top of each page. The month is only entered for the frist entry on the page unless the month changes in the middle of the page, enter the numberical date for each transaction, even if there are many entries on the same date |
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Term
| What is the flow of accounting data? |
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Definition
| transaction occurs - source decuments are prepared - transaction is analyzed - transaction is journalized and posted ot the ledger. |
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Term
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Definition
| Summarizes the ledger in B/S order (ALORE), not a financial statement, internal company document, entries must balance |
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Term
| How do you locate a trial balance error? |
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Definition
| divide the difference by two - there may be a debit/credit balance for this amount posted in the wrong column., divide the difference by 9. If evenly divisible, the error may be a slide or transposition error |
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