Term
| What are some primary roles of an accountant? |
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Definition
| Payroll, track inventory, purchases, monitor book keeper, and tax accounting |
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Term
| “cost” means the amount spent when an item was originally obtained; may be called “historical cost amounts” on financials; asset amounts are NOT adjusted upward to show any increase in value (so asset amount does not reflect amount received if sold asset in current market) |
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Definition
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Term
| US dollars are used, accountants ignore inflation |
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Definition
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Term
| accountant keeps all business transactions of a sole proprietorship separate from the owner’s personal transactions |
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Definition
| Economic entity assumption |
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Term
| it is possible to report business activities in a short, distinct time frame (e.g. 5 weeks or months from “x” to “y” dates); accountants include time periods in reports |
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Definition
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Term
| information should be disclosed in a statement or notes if it is important to investors/lenders using the financial statement; footnotes are often attached to financial statements (e.g. significant accounting policies, lawsuit, etc.) |
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Definition
| Full disclosure principle |
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Term
| a practice will exist long enough to meet its objectives not liquidate; accountant must disclose of the business will not be able to continue; lets a practice defer some of its prepaid expense until future accounting periods |
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Definition
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Term
| requires expenses to be matched to revenues; requires accrual-based accounting. Example: worker’s wages are reported as an expense in the week when the employee worked – not the week paid; sales commission expenses are reported in the time frame when the sales were made (not when the commission was paid) |
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Definition
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Term
| used in accrual-based accounting, recognize revenues as soon as product is sold or service is delivered- regardless of when money is received. Example: a practice could earn $12,000 in its 1st month, but receive NO cash in that month |
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Definition
| Revenue recognition principle |
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Term
| if an amount is immaterial, an accountant can violate another Principle. Example: financial statements show amounts rounded to the nearest dollar, nearest thousand, or nearest million |
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Definition
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Term
| if there are 2 ways to report something, the accountant chooses the way that results in less net income and/or less asset amount. Example: principle leads accountants to disclose losses but does not allow for similar action for gains; e.g. write inventory down to an amount LOWER than original cost (not HIGHER than original cost) |
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Definition
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Term
Cash Method of Accounting
-Simple, good for ___ businesses with little inventory
-Income is recorded when ___ & expenses are paid when they ___
-Income & expenses are put on the books and charged to the ___ in which they occur; taxes are paid on ___ revenue in hand
-Advantage: shows ___ ___; Limitation: may not show ___-term profitability |
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Definition
| small; received occur; timeframe; actual; cash flow; longer |
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Term
Accrual Method of Accounting
-Requires that income & expenses be entered into the ledger when a transaction occurs regardless whether _______________.
-Expenses are deductible when the practice is ___ (not when the expenses are paid)
-Taxes are paid on the revenue reported on the ledger with or without the revenue ___ ___
-Limitation: may have to pay taxes on $ ___ collected yet; may not show ___ ___ |
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Definition
| monies have been received; billed; in hand; not; cash flow |
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Term
| Monthly costs. Ex: loans, rent, phone, utilities, etc. |
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Definition
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Term
| Increase in total costs resulting from an increase in the amount of business conducted; As business increases, variable costs increase. Ex: costs of hearing aids, materials costs (electrodes, probe tips, ear impression material, etc.), warranty support, commissions |
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Definition
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Term
| costs not yet incurred; or can be reversed. Ex: use less expensive equipment, worker acts as janitor, not updating phones, etc., ask employees to pay part of insurance costs |
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Definition
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Term
| costs the business has to incur; costs will not be recovered; opposite of avoidable costs. Ex: costs of hearing aids, materials costs (electrodes, probe tips, ear impression material, etc.), warranty support, commissions |
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Definition
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Term
| what a business gives up to offer a service or product; Limited resources should be used to supplement profitable methods. Ex: using assets efficiently; ABR? |
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Definition
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Term
Double-Entry Bookkeeping:
-Treats a transaction as an ___ between 2 accounts
-Each transaction is recorded in ___ accounts and each account
-Shows debits in the ___ column & ___ in the right column |
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Definition
| exchange; TWO; left; credits |
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Term
Advantages of Double-Entry Bookkeeping:
-Show accurate ___ losses
-Includes assets & ___
-Can prep financial statements directly from ___
-Easier to spot ___ (errors, fraud, embezzlement) |
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Definition
| profits; liabilities; accounts; problems |
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Term
| A list of all transactions needed to record incoming revenue and pay bills |
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Definition
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Term
5 Tips to Prevent Embezzlement:
-Be very careful about who has access to the practice’s ___ information
-If owner/manager uses a financial advisor, do not give the advisor access to the practices ___, ___ accounts, or ___
-Check ___ of advisors/consultants
-Business entity such as corporation does NOT shelter owners/managers & others against ___ of responsibilities to file taxes
-Difficult to ___ WHO might embezzle funds |
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Definition
| financial; finances; bank; books; credentials; mismanagement; predict |
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Term
| How do you calculate breakeven analysis? |
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Definition
| Fixed expenses/gross profit per unit (gross profit=sales price per unit-variable cost per unit) |
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Term
| Explain the trade-offs between buying and leasing equipment |
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Definition
Buy: consumes capital and requires a down payment, specified payments, no upgrades
Lease: Saves capital and requires no downpayment, flexible payments, convenient, and can upgrade. |
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