Term
| What are the three things that accountants do? |
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Definition
1. identify report transactions that you can measure 2. measure if you can't measure it, you don't report it 3. comminucate via financial reports to lenders, owners, etc. |
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Term
| What is the basic accounting equation? |
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Definition
| Assets = Liabilities + Stockholders' Equity |
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Term
| Lenders/creditors correspond to what part of the accounting equation? |
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Definition
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Term
| Investors corresponds to what part of the accounting equation? |
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Definition
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Term
| What are the parts of a balance sheet? |
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Definition
Assets Liabilities Stockholders' Equity |
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Term
| If the word "receivable" is in the account, where is the account placed on the balance sheet? |
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Definition
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Term
| What are the accounts under liabilities on the balance sheet? |
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Definition
Accounts Payable Accrued Expenses Notes Payable Income Taxes Payable Long-Term Liabilities |
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Term
| If the word "payable" is in the account, what section of the balance sheet is the account placed in? |
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Definition
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Term
| What are the sections under Stockholders' Equity on the balance sheet? |
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Definition
Contributed Capital Common Stock Retained Earnings |
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Term
| What does an income statement measure? |
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Definition
| how much profit is earned over a period of time |
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Term
| What is the equation of the Income Statement? |
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Definition
| Net Income = Revenues - Expenses |
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Term
| What are the three sources of cash flow in a cash flow statement? |
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Definition
Financing Activities Investing Activities Operating Activites |
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Term
| What is the order of Assets in the Balance Sheet? |
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Definition
Cash Accounts Receivable Inventory LONG TERM Investments PPE Intageble = ALWAYS LAST |
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Term
| What is the Operating Cycle? |
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Definition
You start with cahs and buy inventory. You use the inventory to make goods to be sold and put into accounts receivable Accounts receivable turn into cash. THE MORE YOU RUN THROUGH THE CYCLE THE MORE MONEY YOU MAKE |
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Term
| What are thye catergories under liabilities? |
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Definition
Loans Payable Accounts Payable Anything Else Payable IN ORDER OF WHEN IT WILL BE PAID OFF. |
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Term
| What are the catergories under stockholders' equity? |
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Definition
Owners' Investment (Contributed Capital) Retained Earnings Dividends |
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Term
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Definition
| Describes where the cash and recievables come from |
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Term
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Definition
| Cash soent on rent, salaries, goods sold, etc. |
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Term
As assets increase, what else increases? |
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Definition
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Term
| What is the left side of the t-account called? |
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Definition
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Term
| What is the right side of the t-account called? |
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Definition
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Term
| What side do assets increase on in a t-account? |
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Definition
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Term
| What side do assets decrease on in a t-account? |
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Definition
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Term
| What side do liabilities and stockholders' equity increase on? |
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Definition
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Term
| What side do liabilities and stockholders' equity decrease on in a t-account? |
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Definition
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Term
| What side does revenues increase on in a t-account? |
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Definition
| on the right, credit side |
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Term
| What side does revenues decrease on in a t-account? |
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Definition
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Term
| What side do expenses increase on in a t-account? |
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Definition
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Term
| What side do expenses decrease on in a t-account? |
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Definition
| on the right, credit side |
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Term
| What is the extended accounting equation? |
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Definition
| Assets = Liabilities + Stockholders' Equity + Revenues - Expenses |
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Term
| What is the difference between revenue and cash? |
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Definition
revenue is done when it is recognized cash comes and goes as it comes and goes |
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Term
| How does revenue become recognized? |
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Definition
1. it has to be earned "not earned until it is in the door" 2. it has to be realized "must be placed in cash or accounts receivable" WITH REVENUES CASH GOES UP AND LIABILITIES GO DOWN |
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Term
| When are expenses recognized? |
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Definition
Direct Cause and Effect Relationship Period Expense (rent, utilities, etc.) Asset has no future value |
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Term
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Definition
If you can borrow money at one rate and invest at a higher one ex. invested $10000 borrowed at 1%, but invested at 5% if you owe 1,000 but you make 5,000 so the leverare is 4 |
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Term
| What is the leverage ratio? |
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Definition
| Assets/Stockholders' EQUITY |
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Term
| What does it mean if the leverage = 1? |
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Definition
| There is no risk in the company |
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Term
| What does it mean if leverage = 100? |
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Definition
| Members of the business are not using their own money for running the business |
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Term
| What is the asset turnover ratio? |
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Definition
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Term
| What does the asset turnover ratio mean? |
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Definition
| If the asset ratio for example is 3 for every $1 that is invested in the company, $3 is earned |
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Term
| Why are financial statements relevant? |
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Definition
1. the give predictive value = help to give predictions to future earnings 2. They give company feedback where accounting excels; the price of a stock is the best indicator of how a company is doing |
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Term
| What makes account reliable? |
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Definition
| the facts can be repeated |
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Term
| What is the tradeoff in reliability and revelantcy |
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Definition
Sometimes things are relevant but not reliable ex. when predicting future value you cant prove what it is actually going to be |
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Term
| What does it mean that accounting is comparable? |
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Definition
| using the same accounting principles in similar companies |
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Term
| What does it mean when accounting is consistant? |
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Definition
| it means the same accounting methods are used over and over |
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Term
| What is the Return on Equity ratio? |
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Definition
| ROE = Net Income/AVERAGE Stockholder's Equity |
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Term
| How would you increase ROE? |
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Definition
1. INCREASE SALES 2. DECREASE EXPENSES |
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Term
| How do you compute the cost of goods sold? |
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Definition
| beginning inventory + purchases = total availible in sale - inventory = cost of goods sold |
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Term
| What does net sales mean? |
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Definition
| Sales - Sales returnes and allowances - sales discounts |
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Term
| How do you calculate total purchases? |
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Definition
| Purchases + frieght in - purchase discounts - purchase returns and allowances |
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Term
| What are the items in order on an income statement? |
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Definition
Revenues Costs and expenses Operating Income Other Revenues and Gains Income Before Taxes Net Income Earnings per share |
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Term
How do you compute earnings per share? |
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Definition
| Net Income / AVERAGE number of shares outstanding |
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Term
| How is Retained Earnings Calculated? |
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Definition
| Beginning Retained Earnings + Net Income - Dividends = Current Retained Earnings |
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Term
| Is supplies a current asset or a prepaid expense? |
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Definition
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Term
| What catergory does prepaid expenses go under? |
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Definition
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Term
| What is the leverage ratio? |
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Definition
| AVERAGE Total Assets/AVERAGE Stockholders' Equity |
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Term
| How are earnings/share caluclated? |
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Definition
| NET INCOME/AVERAGE number of outstanding stock |
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Term
| What is the asset turnover ration? |
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Definition
| Revenue/AVERAGE total Assets |
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Term
| What does asset turnover calculate? |
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Definition
| the sales generated per dollar of assets |
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Term
| What is deferred revenue? |
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Definition
| cash received before a service or good is given |
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Term
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Definition
| cash received after a service or good has been given |
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Term
| What is deferred expense? |
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Definition
| Cash was given before the good or service was acquired |
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Term
| What is an accrued expense? |
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Definition
| an expense that is incurred but not paid off until a later date |
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Term
| What is an example of accrued expenses? |
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Definition
| interest expense, wage expense. utilities expense |
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Term
| What is the net profit margin ratio? |
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Definition
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