Accounting Exam 2 Flashcards

Terms Definitions
merchandise
Ware
property (fixed assets)
Anlagevermögen
(liability) (dept) (obligation)
Schuld 3x
asset
anything of value thats owned
accounting
planning, recorinding, analyzing, and interpreting financial info
Chartered Accountant
prepares accounting information for members of the public and business people
sole proprietorship
business owned by one person
Posting
Process of transferring journal entry information to the ledger; computerized systems automate this process.
appreciates
in fixed assets, value of land
Accounts Payable (A/P)
Liability, Balance Sheet, Credit
Operating Income
Gross Profit - Operating Expenses; measures the results of the entity's major ongoing activities
Corporation
a business owned by stockholders who share in its profits but are not personally responsible for its debts
Acid-test Ratio
(Cash + Short-Term Investments + Current Receivables)/Current Liabilities
compound interest
earn interest on both principal invested as well as all previously earned interest
pension plan
an arrangement where an employer provides benefits to retired employees for services they provided in their working years
Liquidating Dividend
A dividend that exceeds retained earnings and that a corporation usually pays only when it is going out of business or reducing its operations
gross profit
a perliminary, quick to calculate profit figure calculated from the firm's revenues minus its cost of revenues (the direct costs of getting the revenues)
Journal
A form for recording transactions in chronological
effective interest method
allocates interest expense over the bond life to yield a constant rate of interest; interest expense for a period is found by multiplying the balance of the liability at the beginning of the period by the bond market rate at issuance
endorser
a person or company whose name is written on the back of a check
which word represents the shares sold in an IPO or a seasoned new issue
issued shares
Consolidated financial statements
Financial statements that reflect the combined operations of a parent company and its subsidiaries
mutual agency
branch of accounting that focuses on information for internal decision makers of a business
Single-step Income Statement
Income statement format that includes cost of goods sold as an expense and shows only one subtotal for total expenses.
Retained Earnings equation
Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings
represents the total investment in the corporation by its stockholders
capital stock
Absorption Costing
treats all costs of production as product costs, regardless of whether they are variable or fixed.
An inventory costing method that uses the weighted average unit cost to allocate the cost of goods available for sale to ending inventory and cost of goods sold.
Average-Cost Method
Period costs
Costs that are taken directly to the income statement as expenses in the period in which they are incurred or accrued
checking account
a bank account from which payments can be ordered by a depositor
adjusted journal entry for supplies
supplies expense X
supplies X
accounts payable
work has been done, customer needs to pay for
Bond Normal
Stated rate = market rate, Bond price = Par value of bond.
Sales budget
budgeted unit sales X selling price = total sales *also includes schedule of expected cash collections
What two things decrease from issuing dividends?
equity and cash
MD&A report
a section of the annual report that presents management's views on the company's ability to pay liabilities and to fund operation and expansion
Ending Inventory
Merchandise on hand at the end of an accounting period
Sales tax
a tax on a sale of merchandise or services
terms of sale
an agreement between a buyer and a seller about payment for merchandise
post-closing trail balance
a trail balance prepared after all the adjusting and closing entries have been posted to ensure that all temporary accounts have zerio balances and that total debits equal total credits
Accounting Principles Board (APB)
Purpose was (1) advance the written expression of accounting principles, (2) determine appropriate practices, and (3) narrow the areas of difference and inconsistency in practice. They issued opinions. Later charged with lack of productivity and failing to act promptly to correct alleged accounting abuses
VOH efficiency variance is most effective in measuring
The difference between actual hours utilized in production and standard hours allowed at certain levels of output
What does complex structure mean?
It includes securities that could have a dilutive effect on Earnings per common share.
expense xxx
A/P xxx
How would you record a JE when expense is incurred before payment is made in accrual adjustments?
The materials purchase budget:A. is the beginning point in the budget process.B. must provide for desired ending inventory as well as production.C. is accompanied by a schedule of cash collectionsD. is completed after the cash bud
B. must provide for desired ending inventory as well as for production
What should happen to the communicated data?
this info should be communicated to the managers and owners, they will then use this info to make the business more efficient.
Once a work sheet is complete, the accountant can use it to:
1. record the adjusting entries in the general journal
2. record the closing entries in the general journal, this preparing the records for the new period
3. prepare the financial statements
inventories
assets
X=
The level of activity
principal
monetary amount to be paid.
Proprietorship
business owned by one person
common stock
Corproration's basic ownership share; generically called capital stock
invoice
a paper showing quantity description prices of items total amount pf purchase and tersm of payment is a
Liability
An amount owned by a business.
NSF
Account did not have enough money
General Corporation sold (issued) 30 of its $1,000 bonds payable, 5% annual interest, due in ten years. The bonds were sold at 98. Assume straight-line amortization. Interest expense each year would be
$1,560
Income Statement
A financial statement showing the revenue and expenses for a fiscal period
Materiality
companies must use GAAP for all significant transactions that will affect an investor's decisions, but insignificant transactions may be treated in alternative ways.
accounting system
a planned process for providing financial information that will be useful to management
Customer
someone who pays for goods or services
sole propritionships
A business owned by one person
Matching Principle
Principle requiring that the expenses incurred in an accounting period are matched with revenue earned in the same period.
**balance sheet**
**financial statement that reports a firm's financial condition at a specific time and is composed of three major accounts: assets, liabilities, and owners' equity >> what a company owns and owes on a certain day**
According to the Damaged/Obsolete goods can be sold at a reduced price, they are included in inventory at their ___________________.
Net Realizable Value
Earnings per Share
Net income- preferred stock dividends/average common shares outstanding(Shares at the beginning of the year+shares at the end of the year divided by 2)
What is the basic accounting equation?
Assets-Liabilities= Stockholders Equity
OR
Assets=Liabilities+Stockholders Equity
Book Value
equals the salvage value after all depreciation is taken
managerial accounting
The phase of accounting concerned with providing information to managers for use in planning and controlling operations and in decision making.
a stock dividend is reported on the
balance sheet
ethics
The principles of right and wrong that guide an individual in making decisions.
overhead cost
supports the production of the product but is not directly related to the product
Contribution Income Statement
Organizes costs by behavior, not required by GAAP, for internal use only
Accrual basis (accounting)
recognize revenue when earned and match expenses with revenues. This means the exonomic effects of revenues and expenses are recorded when earned or incurred, not when cash is received or paid. The accrual basis is consistent with GAAP
Accrued Revenues
May accumulate with the passing of time, such as interest revenue. Or may result from services that have been preformed but are neither billed nor collected.
LIFO Conformity Rule
Supreme Court Decision that requires US companies that use LIFO for taxes also use it in financial reports to stockholders
Net Realizable Value
Expected selling price (value) of an item minus the cost of making the sale.
Two-Stage Cost Allocation
the basic approach in product costing is to allocate costs in the cost pool to the individual cost objects, which are the products or services of interest. we assign, or allocate, these costs to the individual cost objects by using appropriate cost allocation bases or cost drivers.
Return on common stockholders equity
(net income - Preferred dividends)/Average common stockholders equity
objective of the accounting process
the preparation of financial statements
Reporting period
the life of the business must be divided into periods of time to allow reports to be prepared, and the accounting records should reflect the Reporting period in which a transaction occurs.
investors in common stock
Trying to determine whether the company's net income will result in a stock price increase.
no-par value stock
capital stock that has not been assigned a value in the corporate charter
This statement shows the result of the Revenues and Expenses, and the consequent result of those in Profit or Loss.
Income Statement
sales journal
a book of original entry used for the recording of sales of merchandise on credit only
What is Accrual Accounting?
Under this basis, the effects of transactions and other events are recognised when they occur (not always when the cash or equivalent is received) and is recorded in the financial statements of the period to which they occur.
debt to equity ratio
anything above one means more debt than equity, higher is worse
A company has a cost that is $3 per unit when 9,000 units are made and $2.90 per unit when 10,000 are made. The total cost must be:
mixed
What is the Prudence/Conservatism convention?
The tendency to caution or pessimism rather than optimism. this will be reflected in lower profits and asset amounts and higher liability amounts.
long-term liability
debt that is not due for at least one year
credit card sale
a sale in which a credit card is used for the total amount of the sale at the time of the transaction
LESSOR CRITERIA FOR CLASSIFYING A LEASE
(1) Lease transfers ownership of the leased asset at the end of the lease term.

(2) Lease contains a "bargain" purchase option.

(3) Lease term is for 75% or more of the leased asset's life

(4) Discounted present value of the contracted lease payments, as of the start of the lease, is 90% or more of the fair market value of the leased asset at that time.

AND

(1) Collection of the contractual lease payments is reasonably assured

(2) There are no significant uncertainties regarding the amount of un-reimbursable costs yet to be incurred by the lessor under the provisions of the lease agreement.
What are the first 7 steps of the Accounting Cycle?
1. Analyze Transaction2. Journalize3. Post4. Prepare Unadjusted Trial Balance5. Adjust6. Prepare Adjusted Trial Balance7. Prepare Financial Statements
Why are the Employee and Customer Entities shown twice?
If we showed them only one time there will be many cross-lines. It is to avoid crosslines.
Debit
left hand side
budgeted cost
a predicted cost
variable
variable or fixed? electricity expense
Resources
Resources that the organization acquires and uses. Resources are things that have economic value to the organization.
entrepreneur
someone who organizes a business venture and assumes the risk for it
Revenue
An increase in owner's equity resulting from the operation of a business
Periodic Inventory System
Records merchandise acquisitions, discounts and returns in temporary accounts (Purchases, Purchase Returns, Purchases Discounts) rather than the merchandise inventory account. Records only the revenue aspect of sales-related events; updates inventory and determines cost of goods sold only at the end or the accounting period. The Merchandise Inventory account can be updated as part of the adjusting or closing process.
Steps in Decision Making
1.Define problem
2.Identify alternative solutions
3.Evaluate alternative solutions
4.Make decision
General Ledger
Contains all the assets, liabilities, stockholder's equity, revenue, & expense accounts.
Liabilities
Are economic obligations (debt of the business)
financial accounting
used by outsiders to make decisions
FIFO method
Start with beginning inventory and work from first purchase onward
Cash Basis Accounting
Accounting system that recognizes revenues when cash is received and records expenses when cash is paid.
Leases that are sometimes referred to as off-blance sheet financing, must be disclosed in the footnotes
operating
Service Business
A business that performs an activity for a fee
net earnings
the amount of money remaining after deductions are taken away
Peak load pricing
practice of setting prices highest when the quantity demanded for the product approaches capacity
Direct Materials
become an integral part of the finished product and costs can be traced to that product
financial statements
a set of accounting reports that convey information to the outside users such as creditors and investors
revenue recognition principle
revenue is recognized when earned, proceeds from selling products doesn't need to be in cash, revenue measured in cash recieved plus the cash value of items recieved
Sales Mix
the relative percentage in which a company sells its multiple products
Temporary Accounts
accounts used to accumulate info until it is transferred to the owner's capital account
During 2007, Sensa Corporation incurred operating expenses amounting to $100,000 of which $75,000 was paid in cash; the balance will be paid in January 2008. Transaction analysis of operating expenses for 2007 should reflect only the following
decrease stockholders' equity, $100,000; decrease assets, $75,000; increase liabilities, $25,000.
Credit
An amount recorded on the right side of a T accoun
The 2 costing methods will...
produce different figures for NOI
Amortization
is the shorter of the useful life of the intangible or the legal life of the intangible.
credit memorandum
a form prepared by the vendor showing the amount deducted for returns and allowances
financial statement analysis
involves the examination of both the relationships among financial statement numbers and the trends in those numbers over time
Long-Term Liabilities
Obligations not due to be paid within one year or the operating cycle, whichever is longer.
Correcting Entry
A journal entry made to correct an error in the ledger.
When an impairment of an equity investment that is classified as available for sale occurs for a reason that is judged to be "other than temporary," the investment is written down to its fair value and the amount of the write-down is:
included in income
Generally accepted accounting principles (GAAP) are?
determined by the Financial Accounting Standards Board (FASB) in the U.S.
Promissory note
A written and signed promise to pay a sum of money at a specified time.
Deposits in transit
Deposits sent to the bank, not yet added to the account by the bank
Credit Card Expense
an expense account that is used to record discounts paid when receipts for credit card sales are deposited with the back that issued the card or with the credit card company that issued the card
STABLE MONETARY (MONEY OR CURRENCY)CONCEPT
BASED ON ASSUMPTION
DO NOT ACCOUNT FOR INFLATION OR DEFLATION OF THE VALUE OF CURRENCY
How to qualify special charges? Examples?
Unusual or infrequent. Restructuring, gains/losses on asset sales, write-down/write-off.
increased
an entry made on the debit side of a n expense account indicates that the a ccount has been
the growth to price earnings ratio
earnings growth rate/PE ratio, helps understand if you are getting what your paying for, which company is the better buy
How is an income statement used?
1) assess company's performance or management over a period of time
2) shows how operations for period increase net assets through revenues and decrease net assets through expenses
3) net income measures amt. by which increase in newly acquired assets (revenues) exceeds expiration of other assets (expenses)
4) a measure of the wealth created by an entity during the accounting period
5) evaluate success of a period's operations
The chart of accounts
is a list of all ledger accounts with their identification numbers.
Calculation of Interest
P x R x T (Principle x Rate x Time) ...time is a 360 day year; exclude the date the date the note was issued..know # of days in each month
Prior to the write off of a $30 customer account, Washington Company had the following account balances:
Accounts recievable               $5,600
Allowance for doubtful accounts         $400
The net relizable value of the recievab
Before = $5,200   After = $5,200
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Term:
Definition:
Definition:

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