Accounting 2 Flashcards

Terms Definitions
Relevance characteristics are:
Predictive value
Feedback value
Information not generally disclosed in the summary of significant accounting policies is:
a related party transaction
Entries in the cash payments journal are made from
a. sales invoices.
b. purchase invoices.
c. prenumbered checks.
d. cancelled checks.
c. prenumbered checks.
The assumption that assumes a company will continue in operation long enough to carry out its existing objectives is
a. going concern.
b. economic entity.
c. monetary unity.
d. time period.
a. going concern.
Which of the following economic events would not be recorded in the cash receipts journal?
a. Cash sales of merchandise
b. Collections of accounts receivable
c. Credit sales
d. Cash purchase of merchandise
T or F: A debit to an account always indicates an increase in that account.
The balance sheet shows:
a. Revenues, liabilities, and stockholders’ equity.
b. Expenses, dividends, and stockholders’ equity.
c. Revenues, expenses and dividends.
d. Assets, liabilities, and stockholders’ equity.
d. Assets, liabilities, and stockholders’ equity.
GAAP include which of the following pronouncements:
All of the above (Statements of Financial Accounting Standards, Accounting Research Bulletins, Accounting Principles Board Opinions)
Depreciation expense for a period is computed by taking the
a. original cost of an asset – accumulated depreciation.
b. depreciable cost ÷ depreciation rate.
c. cost of the asset ÷ useful life.
d. market value of the asset ÷ useful life.
c. cost of the asset ÷ useful life.
A transaction cannot be recorded in a special journal
a. the company must refuse to enter into the transaction.
b. it is recorded in the general journal.
c. it is recorded directly in the accounts in the general ledger.
d. it is recorded as an adjustment
b. it is recorded in the general journal.
Large corporations must follow the ----- basis of accounting.
The qualitative characteristic that means there is agreement between a measure and a real-world phenomenon is:
= Representational faithfulness
OIF: Gain on the Sale of Automobile formerly used in the business
Prepaid expenses are:
a. paid and recorded in an asset account before they are used or consumed.
b. paid and recorded in an asset account after they are used or consumed.
c. incurred but not yet paid or recorded.
d. incurred and already paid and recorded.
a. paid and recorded in an asset account before they are used or consumed.
Financial accounting
Historical statements
Normal balance for capital
Planning, recording, analyzing and interpreting financial information.
prepaid rent
asset, balance statement, debit
Public Accounting
audits financial statements, income tax work, and management advisory services.
Items a merchandise has in stock
equity equals
common stock plus retained earnings
Balance sheet (statement of finacial position)
anything of value that is owned
items of ownership convertible into cash; total resources of a person or business, as cash, notes and accounts receivable, securities, inventories, goodwill, fixtures, machinery, or real estate (
accounting records
Organized summaries of a business's financial activities
Investment Income
Interest or dividends earned from purchased stocks
accrued expenses ad. entry
debit increase (expense account)
credit increase (liability account)
file maintenance
The procedure for arranging accounts in a general ledger, assigning account numbers, and keeping records current
income statement
statement of operations is another name for what statement?
Accounting Cycle
The series of accounting activities included in recording financial information for a fiscal period.
Fiduciary fund stmts:
1.Stmt of fiduciary net assets-fiduciary funds (assts; liab.; net assets held in trust)2. stmt changes in fiduciary net assets-fiduciary funds (additions; deductions; change in net assets; net assets: beginning; net assets: ending)
acquisition method
the accounting method used for business combinations. It replaced the purchase method and addresses:
1) recognition and measurement of the assets and liabilities of the combined entities
2)initial recognition and susequent accounting for goodwill
3)recognition and measuremnt of the noncontrolling interest
working capital
The amount by which current assets exceed current liabilities
step 4
make the dividends account equal zero via the Retained earnings account. This entry transfers the dividends to the debit side of Retained earnings.
at the beginning of a new fiscal period, temporary accounts have a --- balance
the amount added to the cost of merchandise to establish the selling price.
Owner's Equity
The amount remaining after the value of all liabilities is subtracted from the value of all assets
Section 404 of SOX 2002
management's responsibilities are annual reports to include a report on the company's internal controls in which management acknowledges its responsibility for designing and maintaining internal controls and its assessment of the effectiveness of those controls
A journal
gives a complete record of each transaction in one place; it shows the debits and credits for each transaction.
The ability to earn enough income to attract and hold investment capital.
It is not necessary to post adjusting entries.
Current Liabilities
DEBTS of a business that are generally PAID WITHIN ONE YEAR
Cash Discount
Amount a customer can deduct from the amount owed for purchased merchandise of payment within a certain time
a fixed amount of money paid to an employee for each pay period.
sales invoice
An invoice used as a source document for recording a sale on account
Schedule of Accounts Receivable
A listing of customer accounts, account balances, and total amount due from all customers.
The only plant asset that does not depreciate is:
A) office supplies.
B) furniture.
C) land.
D) patents.
C) Land

Static Budget

is a projection of budget data at one level of activity. Static budget is appropriate in evaluating a manager’s effectiveness in controlling costs when: 1. The actual level of activity closely approximates the master budget activity level and/or 2. The behavior of the costs in response to changes in activity is fixed.So it is appropriate for fixed manu costs and selling and admin expenses, not variable costs.
What is retained income?
additional owners equity generated by income or profits
special amount column
A journal amount column headed with an account title
Capital structure
The mix of debt and equity that a company uses to generate its assets.
Schedule of Accounts Payable
A listing of vendor accounts, account balances, and total amount due all vendors.
Time Period Assumption
This states that the life of a business can be divided into artificial time periods and that useful reports covering those periods can be prepared for the business.
What is an account format?
classified balance sheet with the assets at the left
Debit purchases, credit accounts payable
If a funeral director purchases a casket from a casket manufacturer on a 30 day account, he would record the transaction as follows
Under the periodic inventory system
the Merchandise Inventory and Cost of Goods Sold accounts are not updated as purchases, sales, and other inventory transactions occur.
GAAP - Generally accepted accounting principles
The general guidelines and principles, standards and detailed rules, plus industry practices that exist for financial reporting.
If Hayes Corporation sells and issues 100 shares of its $1 par value common stock at $15 per share, the entry to record the sale will not include a
credit to retained earnings of $1,500.
The entry to record a $750 sale with terms of 2/10, n/30 would include a(n
increase to Sales for $750.   
Every bond is a contact which has the following:
Maturity Value: Amount that must be repaid (usually in $1,000s)
Maturity Date: Date the maturity value amount must be repaid
Stated Interest Rate: "Coupon" - amount paid as interest, periodically- monthly, semi-annually or annually
Market Yield/Effective interest rate: The interest the company really incurs, and the investor really earns
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