Term
| When do you recognize revenue? |
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Definition
| When you have EARNED IT, not necessarily when we get the cash |
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Term
| When you make a cash payment to a supplier for materials, what is the journal entry? |
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Definition
Cash is CREDITED
Accounts Payable (Liability)is DEBITED |
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Term
| Where should the wages and salaries earned by a companies employees be recorded when they performed their labor services? |
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Definition
| DEBIT the expense account in the period the service is performed, which DEBITS RE (reduces), and thus DEBITS SE (reduces) |
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Term
| How do you order current assets on a balance sheet? |
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Definition
| From MOST liquid to LEAST liquid |
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Term
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Definition
| How quickly you can turn something into cash |
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Term
| What are investing activities? |
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Definition
| The buying or selling of investments and long term assets, lending cash to others, receiving principal payments on loans made to others |
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Term
| What are operating activities? |
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Definition
| Activities directly related to day to day operations of running the business. Buying and selling inventory, paying expenses, etc. |
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Term
| What are financing activities? |
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Definition
| Activities directly related to financing the business- making money for the business. Taking out and repaying back loans, issuing stock, paying dividends. |
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Term
| What is the equation for ending retained earnings? |
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Definition
| ENDING RETAINED EARNINGS= Beginning Retained Earnings + Net Income (Revenue- Expenses) - Dividends DECLARED DURING THE YEAR |
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Term
| What type of activity is collecting proceeds from disposal of investments? |
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Definition
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Term
| What are dividends declared? |
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Definition
| When we declare we have dividends, but have not paid them. DOES NOT go on statement of cash flows |
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Term
| What is a liability account that would be created at the end of the accounting period because the expense has been incurred but not paid or recorded yet? |
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Definition
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Term
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Definition
| The sum of all credits and debits. The total of each must equal each other |
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Term
| What are the five nominal accounts that get closed out in the closing entries? |
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Definition
| Revenues, Expenses, Gains, Losses, and Dividends |
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Term
| Where do you close the nominal accounts to at the end of the financial period? |
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Definition
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Term
| Where would you look if you want to know what accounting rules a company follows related to its inventory? |
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Definition
| The notes to the financial statements, or disclosures |
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Term
| What is an asset exchange transaction? |
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Definition
| When one asset is increased while another is decreased |
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Term
| What is an asset source transaction? |
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Definition
| Where an asset increases while a liability increases |
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Term
| What part of the accounting equation does unearned revenue go under? |
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Definition
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Term
| What type of account is accumulated depreciation? |
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Definition
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Term
| What is the primary purpose of a classified balance sheet? |
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Definition
| To provide financial statement users with information about the liquidity of the company by separating current from non current assets and liability |
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Term
| What does stock holders equity show? |
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Definition
| How much more we OWN than what we OWE |
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Term
| What is the equation for calculating net income? |
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Definition
| Net Income= Revenue - Expenses |
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Term
| What is on the statement of stock holders equity and what does it show? |
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Definition
| Common Stock and Retained Earnings and it shows what we are doing with our profits |
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Term
| What does DEAD stand for? |
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Definition
| Debits are Expenses, Assets, Dividends |
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Term
| How do you list journal entries? |
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Definition
| Debits first, then credits. Credits are indented. |
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Term
| What type of balance does an asset account have? |
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Definition
| Debit. If it has a credit balance, that means you have negative assets, and you did something wrong |
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Term
| What is listed on the income statement? |
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Definition
| Revenues are expenses- THAT'S IT! |
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Term
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Definition
| A transfer of wealth from the company to the owners (or stock holders). DIVIDENDS ARE NOT AN EXPENSE. When you pay dividends, it does not mean we LOST any money, we just transferred it to the owners |
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Term
| What is the equation for calculating Ending Common Stock? |
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Definition
| Ending Common Stock= Beginning Common Stock + Stock Issued |
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Term
| What does the statement of cash flows show? |
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Definition
| How your cash has flowed around this year. It shows operating, financing, and investing activities |
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Term
| What are the four financial statements? |
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Definition
| Balance Sheet, Income Statement, Statement of Changes in Stockholder's Equity, and Statement of Cash Flows |
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Term
| What is the formula for depreciation? |
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Definition
| Depreciation= (Original Cost - Salvage Value)/ Useful Life (in years) |
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Term
| How do you calculate book value? |
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Definition
| Original Cost - Accumulated Depreciation |
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Term
| What is Net PPE and how do you calculate it? |
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Definition
| Net property plant and equipment after depreciation has been taken out. Usually how it is written on the balance sheet. Net PPE= Total Assets - Accumulated Depreciation |
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Term
| What are the pros and cons of a corporation? |
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Definition
| The main benefit is that you have limited liability and it's easy to raise money, but corporations' profits are taxed twice by the government, once as income to the corporation, once as income to the shareholders |
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Term
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Definition
| Events that are recognized BEFORE cash is exchanged. |
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Term
| What is an accrued expense? |
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Definition
| When you paid cash AFTER the expense of revenue was recognized |
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Term
| What is an accrued revenue? |
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Definition
| When you receive cash after expense or revenue has been recognized. |
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Term
| What type of account are prepaid expenses? |
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Definition
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Term
| What is the order of how to make the 4 financial statements? |
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Definition
1. Transaction analysis (journal entries, T- accounts, etc.)
2. At the end of the year do unadjusted trial balance. Make sure debits equal credits
3. Adjusting Journal Entries: accruals and deferrals
4. Adjusted trial balance: rechecking the debits equal credits
5. 4 Statements: Income statement (because you have all revenues and expenses), Retained Earnings because you now have NI and you know dividends declared, Balance Sheet because you now have ending RE which you need for OE, Statement of cash flows because you can look at all transactions and see which ones involved cash
6. Closing entries: close out temporary accounts so you can start fresh next year |
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Term
| What is an asset use transaction? |
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Definition
| A decrease in asset and a decrease in liability or stockholder equity |
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Term
| What is a claims exchange transaction? |
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Definition
| One L or SE goes up, and the other goes down |
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Term
| What happens when the bookkeeper forgets to make an adjusting entry to recognize accrued salaries payable? |
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Definition
| It would cause an understatement of expenses and liabilities and an overstatement of stockholder's equity |
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Term
| What does the price earnings ratio show? |
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Definition
| How fast a company is expected to grow |
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Term
| How do you calculate the return assets ratio and what does it represent? |
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Definition
| Return Assets Ratio= Net Income/ Total Assets. It shows how much return you are expected to get on your investment |
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Term
| How can you determine the debt risk and what does it represent? |
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Definition
| Debt Risk= Total Liabilities/Total Assets. It represents how likely the company is to go into debt. |
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Term
| How do you determine the return on equity ratio and what does it represent? |
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Definition
| Return on Equity Ratio= Net Income/ Stockholder's Equity. It shows how much stockholder's will get back. |
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Term
| How do you calculate depreciation using the units- of- production method? |
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Definition
| (Cost - RV)/ Life in UNITS of Production |
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Term
| How do you calculate Cost of Goods Sold? |
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Definition
| Cost of Goods Sold= Beg. Inventory + Purchases - End. Inventory |
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Term
| How do you calculate gross profit? |
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Definition
| Gross Profit (Gross Margin)= Sales Revenue - CGS Expense |
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Term
| How do you calculate Gross Margin Percentage? |
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Definition
| Gross Margin (Profit) Percentage= (Sales Revenue - CGS Expense)/ Sales Revenue |
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Term
| What statement does inventory go on? |
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Definition
| The balance sheet as a current asset |
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Term
| What is FOB Shipping Point? |
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Definition
| Ownership changes at shipping point; buyer pays for shipping. |
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Term
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Definition
| When the seller pays for transportation cost and the goods become the buyers at the destination. Like buying from a clothing store. |
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Term
| What type of account is sales discount? |
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Definition
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Term
| What are the four assumptions we can make about inventory flow? |
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Definition
1. Specific Identification: the seller choses which piece of inventory is sold first. Each item must have a sticker on it. Used for small inventory.
2. FIFO- first in first out.
3. LIFO- last in first out
4. Weighted Average- CGS and EI are found using an average cost per unit |
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Term
| How do you determine the weighted average (cost per unit)? |
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Definition
| Weighted Average= Total cost of goods available for sale/ Total number of units available for sale |
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Term
| How does using the FIFO inventory flow method affect the four financial statements assuming rising prices? |
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Definition
COGS Expense: Lower
Taxes: Higher
Net Income: Higher
Ending Inventory: Higher |
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Term
| How does using the LIFO inventory flow method affect the four financial statements assuming rising prices? |
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Definition
COGS Expense: Higher
Taxes: Lower
Net Income: Lower
Ending Inventory: Lower |
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Term
| What inventory flow method do most companies use and why? |
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Definition
| Most companies use the FIFO method because they want a big Net Income which means higher stock prices, but the downside is it also means higher taxes. |
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Term
| What does it mean if the bank does a credit memo? |
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Definition
| They are "crediting" our account on THEIR books. The bank owes us money so they have a liability to us. Issuing a credit memo means they owe us more money which means liabilities increase which is a credit. |
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Term
| What type of account is the Allowance for Doubtful Accounts? |
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Definition
| Contra- Asset account and it works against Accounts Receivable |
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Term
| What is Net Realizable Value and how do you calculate it? |
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Definition
It is the face value less an allowance for doubtful accounts.
NRV= Accounts Receivable - Allowance for Doubtful Accounts |
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Term
| What type of balance for the Allowance for Doubtful Accounts have? |
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Definition
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Term
| Does depreciation expense lead to more or less taxes and why? |
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Definition
| It leads to less taxes because it is a non- cash expense |
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Term
| How do you use the Double- Declining Balance Method? |
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Definition
| Net Book Value x (2/useful life in years) or double straight line depreciation |
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Term
| How do you calculate Book Value? |
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Definition
| Book Value= Original Cost - Accumulated Depreciation |
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Term
| What does it mean to 'capitalize' the cost of an asset? |
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Definition
| When we are adding to the asset, not expensing it |
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Term
| What are product costs and give examples? |
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Definition
Product costs (inventory costs) are all costs incurred to acquire merchandise and ready it for sale. It is included in the inventory account.
EXAMPLES: shipping and handling, transit insurance, price of good purchased |
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Term
| What are selling and administrative costs and give examples? |
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Definition
All costs not included in the inventory account.
EXAMPLES: advertising, salaries, commission, interest |
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Term
| When using the lower- of- cost or market rule, when do you adjust your inventory value? |
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Definition
| When the market price is lower than your price. |
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Term
| What does a low current ratio represent? |
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Definition
| That the company is having difficulty paying its short- term obligations |
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Term
| What are two ways to finance (make money) for a company? |
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Definition
| Debt (bank loans, bonds), and equity (stock) |
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Term
| What are two ways for an investor to make money by owning stock? |
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Definition
| Buy a share low and sell high or dividends |
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Term
| What are outstanding shares? |
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Definition
| How much of the issued stock is on the market |
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Term
| What are treasury shares? |
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Definition
| How much of the issued stock has been bought back by the company |
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Term
| What does par value represent and what does it not equal? |
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Definition
| Par value is the amount of capital required by the state that has to stay inside the business and it DOES NOT equal market value. |
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Term
| What does market value change depending on? |
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Definition
| How much demand there is for the stock |
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Term
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Definition
| Stock issued to investors with a set fixed dividend rate every year. Preferred because they get dividends before common stock. They have NO voting rights |
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Term
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Definition
| Stock issued with a dividend set every year by a board of directors and investors get basic voting rights. Investors get paid last if company goes out of business |
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Term
| What are the two types of stockholder's equity accounts? |
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Definition
| Retained Earnings and Contributed Capital |
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Term
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Definition
| Paid- in capital; contributed capital in excess of par value. It is the amount a company received for their stock in excess of par value. |
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Term
| What are stock dividends? |
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Definition
| Stock issued instead of paying dividends |
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Term
| Why do companies split their stock? |
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Definition
| When stock prices become too high, companies split their stock so owners have twice as many stocks, but the stocks are worth half as much. They do this so people can afford their stock, and current owners share will not change. NO JOURNAL ENTRY IS NEEDED |
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Term
| What type of account is treasury stock? |
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Definition
| Contra- stockholder's equity account |
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Term
| What are the three dates for dividends? |
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Definition
1. Declaration Date: the day we say we will pay the dividend
2. Date of Record: we will pay everyone who is a shareholder at this date
3. Payment date: the day we actually pay the dividend |
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Term
| What is installment liability? |
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Definition
| When you borrow money and pay it back over time in pieces. Also called long term notes payable |
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Term
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Definition
| How much we owe of the principle value today |
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Term
| What is the order of the amortization table? |
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Definition
| DICDC- Date, Interest Revenue, Cash Paid, Difference, Carrying Value |
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Term
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Definition
| Getting paid an equal amount over time |
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Term
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Definition
| A money loan where you only pay the interest over time, and the amount of the bond at the end |
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Term
| What changes the price of a bond? |
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Definition
| The market, which is an opinion |
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Term
| What is the carrying value of a bond? |
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Definition
| Face Value - Remaining Discount of Face Value + Remaining Premium |
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Term
| What is the method called for amortizing bonds and what are the three steps? |
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Definition
Effective Interest Rate Method:
1. Find cash payment (coupon rate x face value)
2. Find interest expense (carrying value x market rate)
3. Use those two to find amortization (difference between the two) |
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Term
| What are discounts and premiums in terms of bonds? |
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Definition
| Discounts are debits and premiums are credits |
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Term
| What is a capital structure? |
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Definition
| The mix of debt and equity used to finance (raise money) for a company |
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Term
| What are debt securities? |
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Definition
| When you borrow a large amount of money |
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Term
| What are debenture bonds? |
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Definition
| Bonds that do not have a specific asset tied to them if the company goes out of business and there isn't an asset specified to be sold in order to pay back bond holders |
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Term
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Definition
| When the company can decide to "call" the bonds early, repay them early, for a specified price if the company does not want to continue paying money on them |
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Term
| How do you calculate the effective yield of a bond? |
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Definition
| Take the stated annual rate of the bond and divide it by the initial price of the bond |
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