Term
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Definition
| payments made by a corporation to its shareholder members; portion of corporate profits paid out to stockholders |
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Term
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Definition
| liabilities + stockholder's equity |
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Term
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Definition
| total revenue - total expenses |
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Term
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Definition
| matches expenses with revenues that occur when operating a business (matching concept) |
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Term
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Definition
| total assets balance with (=) claims (liabilities & stockholders' equity) on those assets; accruals & deferrals |
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Term
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Definition
| explains how a company obtained and used cash during the accounting period |
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Term
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Definition
| financing, investing, and operating activities |
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Term
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Definition
| involve paying cash to purchase long-term assets or receiving cash from selling long-term assets (ex: land, buildings) |
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Term
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Definition
| involve receiving cash from revenue (customers) and paying cash for expenses (suppliers); ex: cash spent to purchase short-term assets like office supplies |
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Term
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Definition
| cash receipts from borrowing funds or from issuing common stock, and cash payments to repay borrowed stock or for dividends; ex: cash paid to creditors for interest |
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Term
| horizontal financial statement |
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Definition
| | Balance sheet | income statement | statement of cash flows| |
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Term
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Definition
| all transactions affect the accounting equation in at least 2 places |
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Term
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Definition
| portion of assets that has been provided by earning activities & not returned as dividends; permanent account |
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Term
FASB makes rules for:
which are known as: |
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Definition
financial accounting
Generally Accepted accounting procedures (GAAP)) |
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Term
ABC Company issued $150,000 in capital stock in exchange for cash. What is the effect of
this transaction in regards to cash flow? |
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Definition
| Cash flow from Financing Activities will increase. |
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Term
ABC Company paid $25,000 in dividends to stockholders. How does this impact ABC’s cash & retained earnings
accounts? |
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Definition
| Cash will decrease by $25,000 and retained earnings will decrease by $25,000. |
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Term
| A "Purchase of land with cash" for ABC Company would have what effect on total assets? |
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Definition
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Term
ABC received $17,000 in payments from clients for services billed in a previous month.
Which accounts will be affected and by what amounts under the accrual basis of accounting? |
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Definition
| Cash will increase by $17,000 and accounts receivable decrease by $17,000. |
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Term
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Definition
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Term
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Definition
| recording of the transaction |
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Term
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Definition
transaction is recorded but no money has been exchanged
Examples:
Accounts Receivable = Revenue earned but customers have not paid for product/service.
Accounts Payable = Suppliers give supplies to business before business pays for supplies.
Wages/Salaries Payable = Wages earned by employees but business has not paid employees. |
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Term
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Definition
Money has changed hands but work has not been performed/product has not changed hands (no revenue or no expense)
Examples:
Prepaid Rent = Business pays 1 year in rent on Jan 1. Today is Jan 1 ($12,000 in prepaid rent).
Unearned Revenue = Customer pays for services/product in advance. Business has not performed any services or delivered any products.
Prepaid Insurance = Business pays for 1 month of insurance at the beginning of the month. |
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Term
Purchasing on Account
recognized or realized? |
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Definition
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Term
prepaid rent
recognized or realized?
cost or expense? |
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Definition
| recognized, realized, cost but no expense |
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Term
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Definition
| process of transferring all the data in revenue, expense & dividend accounts (all temporary) to the Retained Earnings account; retained earnings + (revenue-expense-dividends) = after closing balance |
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Term
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Definition
made at end of accounting period to update account balances before preparing the financial statements; never affects Cash account
beginning balance + purchases = available for use
available for use - ending balance = items used |
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Term
| account for supplies adjusting entry |
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Definition
beginning balance + supplies purchased = supplies available for use
supplies available for use - ending supplies balance = supplies used |
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Term
Know which account goes where
Cash Account =
Note Payable Account =
Common Stock Account =
Revenue & Expenses Accounts = |
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Definition
into:
Asset
Liabilities
Stockholders’ Equity
Retained Earnings (Stockholders’ Equity). |
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Term
cost vs expense
cost =
expense= |
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Definition
what you paid for it
when you use (expend) it |
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Term
| perpetual inventory system |
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Definition
| Inventory (perpetually) counted/accounted for when sold.; Inventory increased for each item purchased; Inventory decreased for each item sold |
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Term
| periodic inventory system |
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Definition
| Inventory counted/accounted for at an established period in time.; Offers practical solution for recording inventory in low-tech, high-volume environments; recording efficiency but less control of inventory |
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Term
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Definition
buyer pays;
FOB shipping point > transportation in [freight in] >asset (inventory)
Add Transportation In costs to *total inventory costs* |
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Term
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Definition
seller pays;
FOB Destination > Transportation Out [i.e. freight out]) > Expense (Operating)
Record as an operating expense NOT a cost of goods sold. |
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Term
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Definition
Operating:
Generating revenue
Buying inventory
Paying suppliers
Investing:
Buying/selling long-term assets
Financing:
Acquiring stock
Paying Dividends
Borrowing money |
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Term
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Definition
| Credit extended to customers (i.e. customer received goods now will pay for them later). |
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Term
Purchases* on account
*Inventory, supplies, repairs, etc. |
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Definition
| Accounts Payable (i.e. supplier/vendor) |
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Term
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Definition
| Notes Payable (i.e. bank) |
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Term
cost of goods available for sale
COGAS |
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Definition
| total cost paid to obtain goods and make them ready for sale, including cost of beginning inventory plus purchases and transport-in costs, minus purchase returns and allowances and purchase discounts; |
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Term
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Definition
| total cost incurred for the goods sold during a specific accounting period; reported as expense in income statement |
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Term
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Definition
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Term
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Definition
Sale Price > Cost of Asset
profit resulting from transactions that are not likely to regularly occur
shown on income statement |
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Term
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Definition
Sale Price < Cost of Asset
shown on income statement |
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Term
| purpose of internal controls |
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Definition
Distinguishes a good business from a great business.
Ensures the financial statements fairly and accurately represent the true balances in each financial statement account.
Ensures business policies and procedures are executed efficiently and effectively.
Helps to protect and safeguard company assets. |
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Term
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Definition
| are performed to ascertain the validity and reliability of information; also to provide an assessment of a system's internal control. The goal of an audit is to express an opinion of the person / organization / system (etc.) in question, under evaluation based on work done on a test basis. |
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Term
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Definition
| a company's policies and procedures designed to reduce the opportunity for fraud and to provide reasonable assurance that its objectives will be accomplished |
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Term
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Definition
| most favorable; means auditor believes financial statements are in compliance with GAAP |
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Term
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Definition
| most negative; one or more major departures from GAAP |
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Term
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Definition
| in the middle; good for most part but something may be wrong |
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Term
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Definition
| explain differences between cash balance reported on bank statement and cash balance recorded in depositor's accounting records |
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Term
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Definition
| deposits left in bank's night depository or are made on day following receipt of cash; must be added to unadjusted bank balance |
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Term
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Definition
| must add back or subtract errors |
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Term
| NSF non sufficient checks |
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Definition
| checks that a company obtains from its customers and deposits in its checking account, but when checks are submitted to customer's banks for payments, bank refuse payments because there is insufficient money in customers account; must be deducted from balance |
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Term
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Definition
| disbursements that have been properly recorded as cash deductions on the depoisitor's books, but bank has not deducted amounts from depositors bank account because checks have not been presented by payee to bank for payment; must be subtracted from unadjusted bank balance |
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Term
| A business gets its financial resources from what three sources? |
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Definition
| Investors and creditors and revenue |
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Term
| A document that is evidence of ownership in a business (i.e. a claim to a business' assets) is called |
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Definition
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Term
| accounts receivable is a _____ account |
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Definition
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Term
| Which financial statement element is the Common Stock account associated with? |
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Definition
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Term
| What type of account is the Cost of Goods Sold account |
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Definition
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Term
| What type of account is the Inventory Account? |
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Definition
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Term
Revenue is an account AND a financial statement element.
T/F |
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Definition
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Term
Expense is an account AND a financial statement element.
T/F |
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Definition
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Term
| What type of account is the Unearned Revenue account? |
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Definition
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Term
Net income is an account AND a financial statement element.
T/F |
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Definition
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Term
| prepaid accounts are ____ |
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Definition
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Term
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Definition
| The addition or loss a company has from selling an asset through an activity OTHER THAN through operating. |
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Term
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Definition
the estimated amount of revenue earned on account that a company is confident it will not collect
there is always a chance the customer will not pay for services or products received on account
accounts affected:
allowance and retained earnings
statements affected:
Balance Sheet (less: allowance) & Income Statement (Uncollectible account expense) |
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Term
| allowance for doubtful accounts |
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Definition
reps a company's estimate of the amount of uncollectible receivables
accounts receivable
- allowance for doubtful accounts
= net realizable value of receivables |
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Term
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Definition
the bad accounts are removed from the company’s general ledger
once the value is known the company must recognize the amount in the company’s accounting records
accounts affected:
accounts receivable and allowance
has no effect on statements? |
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Term
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Definition
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Term
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Definition
when a company extends credit beyond the normal account terms or lends money; payment arrangements on a past due account; lending money to other businesses
accounts affected:
cash, notes receivable, interest receivable, & retained earnings |
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Term
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Definition
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Term
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Definition
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Term
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Definition
| calculate avg cost per unit, then multiply by # of units sold |
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Term
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Definition
| allocates costs between cost of goods sold and ending inventory using the cost of the specific goods sold or retained in the business |
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Term
| effect of cost flow on financial statements |
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Definition
| gross margin = sales - COGS |
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Term
| tangible long term assests |
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Definition
| property, plant & equipment; natural resources; land |
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Term
| intangible assets with identifiable useful lives |
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Definition
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Term
| intangible assets with indefinite useful lives |
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Definition
| ex: coke & mcdonalds trademarks |
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Term
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Definition
| purchase price (minus discounts), sales tax, delivery costs, installation, costs to adapt for intended use |
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Term
| straight-line depreciation |
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Definition
produces equal amounts of depreciation expense each year; recognizing depreciation does not affect cash flow but reduces assets & equity
(asset cost-salvage value) / useful life = depreciation expense |
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Term
| double-declining-balance depreciation |
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Definition
produces a large amount of depreciation in the first year of an assets life and progressively smaller levels of expense in each succeeding year
accelerated depreciation method
1)determine straight line rate
2) determine double declining balance rate; multiply straight line rate by 2
3) multiply double by book value of asset at beginning of period |
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Term
| units-of-production depreciation |
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Definition
bases depreciation expense on actual asset usage
cost - salvage value unit of
_________________________________ x production =
total estimated units of production in current yr
annual depreciation |
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Term
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Definition
| cost - accumulated depreciation |
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Term
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Definition
Routine Repairs/Maintenance
(Oil change, car wash, tune-ups, replace tires, suggested factory maintenance schedule, etc) |
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Term
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Definition
improves quality or extends life of an asset
(New paint job, overhaul engine, add components that improve gas mileage, upgrade sound system, upgrade rims and tires) |
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Term
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Definition
| method of systematically allocating the costs of natual resources to expense as there sources are removed from the land |
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Term
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Definition
| method of systematically allocating the costs of intangible assests to expense over their useful lives, also a term for coverting the discount on a note or a bond to interest expense over a designated period |
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Term
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Definition
are due within one year or an operating cycle, whichever is longer. Current liabilities, also called short-term liabilities
Accounts Payable
Short-Term Notes Payable
Wages Payable
Taxes Payable
Interest Payable |
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Term
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Definition
| liabilities with maturity dates beyond one yr or the companys operating cycle, whichever is longer; noncurrent |
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Term
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Definition
potential obligation, amount of which depends on future events
if likely, a liability is recognized in financial statements
if not as likely, no liability reported but is disclosed in footnotes
if not likely, not included anywhere
ex: warranty obligations, potential lawsuits |
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Term
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Definition
Businesses (usually small) owned by one person.
disadvantage: unlimited liability |
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Term
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Definition
Business entities owned by at least two people who share talents, capital, and the risks of the business.
disadvantage: unlimited liability |
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Term
| Limited liability companies (LLCs) |
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Definition
| Organizations offering many of the best features of corporations and partnerships and with many legal benefits of corporations (e.g., limited liability and centralized management) but permitted by the Internal Revenue Service to be taxed as a partnership, thereby avoiding double taxation of profits. |
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Term
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Definition
Legal entity separate from its owners; formed when a group of individuals with a common purpose join together in an organization according to state laws.
advantage: LIMITED LIABILITY
disadvantage: double taxation, heavy regulation |
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Term
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Definition
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Term
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Definition
Basic class of corporate stock that carries no preferences as to claims on assets or dividends; certificates that evidence ownership in a company.
Most common type of stock. Usually has the most authority (i.e. voting rights)
most risk to shareholders |
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Term
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Definition
| Stock that receives some form of preferential treatment (usually as to dividends) over common stock; normally has no voting rights. |
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Term
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Definition
| When a company buys back its own stock |
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Term
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Definition
| Arbitrary value assigned to stock by the board of directors. |
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Term
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Definition
| indicate a company’s ability to pay short-term debts. They focus on current assets and current liabilities. |
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Term
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Definition
| used to analyze a company’s long-term debt-paying ability and its financing structure. |
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Term
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Definition
| measure a company’s ability to generate earnings. |
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Term
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Definition
| analyze the earnings and dividends of a company. |
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Term
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Definition
| Current Assets – Current Liabilities |
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Term
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Definition
Current Assets/
Current Liabilities |
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Term
Quick Ratio =
(or Acid-Test) |
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Definition
(Current Assets – Inventory – Prepaid items) /
Current Liabilities |
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Term
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Definition
| Branch of accounting that provides information useful to internal decision makers and managers in operating an organization. |
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Term
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Definition
| Costs of raw materials used to make products that can be easily and conveniently traced to those products. |
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Term
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Definition
| Wages paid to production workers whose efforts can be easily and conveniently traced to products. |
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Term
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Definition
| Costs associated with producing products that cannot be cost effectively traced to products including indirect costs such as indirect materials, indirect labor, utilities, rent, and depreciation. |
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Term
| when are product costs an asset? |
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Definition
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Term
| when are product costs an expense? |
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Definition
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Term
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Definition
| The total cost of making products divided by the total number of products made. |
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Term
| General, selling, and administrative costs: |
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Definition
| All costs not associated with obtaining or manufacturing a product; in practice are sometimes referred to as period costs because they are normally expensed in the period in which the economic sacrifice is incurred. |
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Term
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Definition
External
Big Picture (i.e. Level of Aggregation)
Regulated (i.e. GAAP)
Owner Focused (i.e. shareholder)
Decision Maker = Owners/Shareholders
Reporting Periods = Monthly, Quarterly, Annually |
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Term
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Definition
Internal
Per Unit/Detailed Focus (i.e. Level of Aggregation)
Unregulated (i.e. Value Added and/or accounting conventions)
Manager/Employee Focused
Decision Maker = Management
Reporting Periods = Depends on Management’s Needs
On demand, hourly, daily, weekly, monthly, quarterly, annually… |
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Term
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Definition
It’s all the costs associated with created a product
It can be labor, materials, and/or overhead*
*Overhead is comprised of costs that are associated with the production of the product but cannot be directly traced to an individual product. |
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Term
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Definition
| Cost that in total remains constant when activity volume changes; varies per unit inversely with changes in the volume of activity. |
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Term
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Definition
| How a cost reacts (goes up, down, or remains the same) relative to changes in some measure of activity (e.g., the behavior pattern of the cost of raw materials is to increase as the number of units of product made increases). |
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Term
| Mixed costs (semivariable costs): |
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Definition
| Costs composed of a mixture of fixed and variable components. |
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Term
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Definition
| cost that in total changes in direct proportion to changes in volume of activity; remains constant per unit when volume of activity changes |
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Term
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Definition
| sale-variable costs-fixed costs = profit |
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Term
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Definition
| Difference between a company's sales revenue and total variable cost; represents the amount available to cover fixed cost and thereafter to provide a profit. |
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Term
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Definition
RELEVANT COSTS
Future costs that can be avoided by taking a specified course of action. To be avoidable in a decision-making context, costs must differ among the alternatives. For example, if the cost of material used to make two different products is the same for both products, that cost could not be avoided by choosing to produce one product over the other. Therefore, the material's cost would not be an avoidable cost. |
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Term
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Definition
| Future-oriented costs that differ between business alternatives; also known as avoidable costs. p. 465 |
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Term
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Definition
| The costs associated with producing a batch of products. For example, the cost of setting up machinery to produce 1,000 products is a batch-level cost. The classification of batch-level costs is context sensitive. Postage for one product would be classified as a unit-level cost. In contrast, postage for a large number of products delivered in a single shipment would be classified as a batch-level cost. |
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Term
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Definition
| Costs incurred to support different kinds of products or services; can be avoided by the elimination of a product line or a type of service. |
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Term
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Definition
| Costs incurred on behalf of the whole company or a segment of the company; not related to any specific product, batch, or unit of production or service and unavoidable unless the entire company or segment is eliminated. |
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Term
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Definition
| Costs incurred each time a company makes a single product or performs a single service and that can be avoided by eliminating a unit of product or service. Likewise, unit-level costs increase with each additional product produced or service provided. |
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Term
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Definition
| Cost of lost opportunities such as the failure to make sales due to an insufficient supply of inventory or the wage a working student forgoes to attend class. pp. 373, 464 |
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Term
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Definition
| Decisions of whether to accept orders from nonregular customers who want to buy goods or services significantly below the normal selling price. If the order's relevant revenues exceed its avoidable costs, the order should be accepted. Qualitative features such as the order's effect on the existing customer base if accepted must also be considered. |
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Term
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Definition
| The practice of buying goods and services from another company rather than producing them internally. |
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Term
| Equipment replacement decisions: |
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Definition
| Decisions regarding whether existing equipment should be replaced with newer equipment based on identification and comparison of the avoidable costs of the old and new equipment to determine which equipment is more profitable to operate. |
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Term
| Qualitative characteristics: |
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Definition
| Nonquantifiable features such as company reputation, welfare of employees, and customer satisfaction that can be affected by certain decisions. |
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Term
| Quantitative characteristics: |
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Definition
| Numbers in decision making subject to mathematical manipulation, such as the dollar amounts of revenues and expenses. |
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Term
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Definition
| Composition of the numerous separate but interdependent departmental budgets that cover a wide range of operating and financial factors such as sales, production, manufacturing expenses, and administrative expenses. |
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Term
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Definition
| A budget that focuses on cash receipts and payments that are expected to occur in the future. |
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Term
| Pro forma financial statements |
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Definition
: Budgeted financial statements prepared from the information in the master budget.
'"BEFORE" |
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Term
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Definition
| total liabilities / total assets |
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