Accounting 5 Flashcards

Terms Definitions
accrued revenues
accrued expenses
snapshot in time
balance sheet
profit and loss statement
income statement
Financial Accounting Standards Board- They figure out the rules for GAAP
intangible assets
rights, privileges, and competitive advantages; non-current assets which have no physical substance; EXAMPLES: franchises, patents. copyrights, and trademarks or trade names; some intangible assets are amortized, and charged to the income statement as an expense, to indicate their contribution to the revenue-producing process for the period
the dominant form of business organization that acquires capital from investors in exchange for ownership interest and from creditors borrowing
Debenture bonds
Not secured with the pledge
a customer billing for merchandise bought on credit
without deductions; total, as the amount of sales, salary, profit, etc., before taking deductions for expenses, taxes, or the like (
accounting equation
An equation showing the relationship among assets, liabilities, and owner's equity
Adjusted R squared
correlation coefficient squared and adjusted for the number of independent variables used to make the estimate
a company with either an account payable or not payable on its books
cost principle
accounting information is based on actual cost
period cost
period of product cost? administrative building's rent
Balance Sheet
A financial statement that reports assets, liabilities, and owner's equity on a specfic date.
Threats to cash collections?
1. Theft of cash
Master file
Stores cumulative information about an organization's resources (e.g. inventory) and agents (customers, employees)
Updated to reflect the effect of specific transactions
Absorption Costing is generally used for...
external financial reports
public accounting firm
provide clients a variety of accounting services including the independent stuff
which of these doesnt qualify as a current asset?
A funeral car is purchased by a funeral home for $30,000. The vehicle will be used for five years and then replaced. If the estimated salvage value will be $5,000, what will be the amount of yearly depreciation using the straightline method of depreciation for computation
Electronic Funds Transfer
A computerized cash payments system that transfers funds without the use of checks, currency, or other paper documents
General Ledger
A ledger that contains all accounts needed to prepare financial statements
role of detective controls
upgrade the organization's intrusion detection system in a manner that would decrease the value of D by 12 minutes; to detect intrusions in a timely manner and monitor the effectiveness of preventive controls
accounting cycle
refers to the steps in preparing financial statements; it is a cycle because all steps are repeated each reporting period.
Sales order
customer places an order with the company -- from the sellers perspective
What's risk adverse?
People who don't take a risk
Post-Closing Trial Balance
A trial balance prepared after closing entries have been journalized and posted.
Chart of Accounts
A list of accounts in a ledger
Normal Cost System
applies an overhead to jobs by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the jobs.
managerial accounting
the area of accounting that serves the decision-making needs of internal users
product- overhead
period of product cost? corn oil for potato chips
estimated salvage value
amount an owner expects to receive when a plant asset is removed from use
gross profit
net sales minus cost of goods soldaka called gross margin
What does income measure?
the entity's performance in generating net assets - not the measure of entity's performance in generating cash
an owner of one or more shares of a corporation
Accounts receivable increases; revenues increase
When delivery revenue is earned on account, which accounts increase & decrease
total product cost/ total volume sold
product cost per unit equation
Total Manufacturing costs
Direct Materials + Direct Labor + Mfg Overhead
How is income calculated?
it is the difference between revenue and expense
Event 4: receipt of cash in advance from customer
asset increase (cash)
liability increase (unearned service revenue)
Calculate Finished Goods (COGS)
Beg.inv Finished Goods + COG man. = COGavail. - End. FG inv. = COGS
benefits of JIT
1. less cash is tied up in inventories 2. storage costs are reduced 3. the time needed to fill an order is reduced 4. defect rates are reduced 5. reduction in production time and an increase in production and volume
According to the Most Serious Limitations the Human Fraud :
Involves intent by people to defeat internal controls, such as management override, for personal gain
a. Market Value
b. Par Value 
If the stock dividend is less than or equal to 25% then you record it at          a            
If the stock dividend is above 25% then you record it at        b          
Formula For Payback (Unequal Cash Flow)
Investment Amount / (Y1 + Y2 + R/Y3) Add cash from each year until equals balance, if remainder is less than full amount turn remainder and year amount into fraction
book value-sale price
anthing owned of value
the owners interest
-contributed capital (common stock), retained earnings, dividends, expenses, revenues
Liabilties Short Term
Morgages, Bank loans,
component percentage
the percentage relationship between one financial statement item and the total that includes that item
Availability of resources to meet short-term cash requirements
Net Income
occurs when revenues exceed expenses
Sales Discounts
Contra Revenue Account-Cash discount offered by the seller to a customer for early payment of an account
the other half of an entry
The increase in economic benefit in the form of inflows, or enhancements of assets, or decreases in liabilities that result in increases of equity, but NOT owner's equity.
- Increase in economic benefit
- Increase in equity
- Not a contribution by the owner
a decrease in owners equity resulting from the operation of a business
A language of business employed to communicate financial information based upon the recording, classification, summarization, & interpretation of financial data is called
the account used to summarize the owner's equity in a business
Preferred stockholders
have a liquidation preference over common stockholders
Process of tranfering the debits and credits from the journal to the ledger
LIST: Financial statements
Income Statements, Statement of Retained earning, Balance Sheet
Trade Discounts
discounts from the list prices in published catalogs or special discounts offered to certain classes of buyers
check stub
a form on which information is recorded by the drawer of a check concerning the check drawnl; a source of document
subsidary ledger
A ledger that summarized in a controlling account in the general ledger.
Accrual basis accounting
transactions that change a company's financial statements are recorded in the periods in which the events occur
a group of accounts; also referred to as a general ledger
Double-entry Accounting
the recording of debit and credit parts of a transaction
Service Business
A business that performs an activity for a fee.
Current Assets 
Assets that a company expects to convert to cash or use up within on year or its operating cycle, whichever is longer.
Debt financing
When a company obtains funds (cash) in exchange for a liability to repay the borrowed funds.
credit terms
specify the amount of the cash discount and time period in which it is offered, also the time period in which to pay the full invoice price
A check that has been issued but not yet presented for payment
list price
the retail price listed in a catalog or on an Internet site
A business form ordering a bank to pay cash from a bank account
cash flows show changes in cash which is a asset of the
balance sheet
Schedule of accounts receivable
a listing of customer accounts, account balances, and total amount due from all customers
What are Sales Discounts?
Sales discounts are usually not recorded until a customer actually pays with the discount period
interim financial statements
one, three, or six months of activity
earlier cash receipts that have turned out to be worthless, subtract these
non sufficient funds checks
Lookback Period
The 12 Month period that ends on June 30th of the prior year.
weighted-average inventory costing method
using the average cost of beginning inventory plus merchandise purchased during a fiscal period to calculate the cost of merchandise sold
Operating Cycle of a
Merchandising Business
1. company purchases inventory from a vendor
2. Company sells the inventory to a customer
COmpany collects cash from customer
Can financial statements be completed from incomplete records?
yes....sometimes they must be constrcted from incomplete data because documents may have been stolen, destroyed or lost
a comparative financial statement
places two or more years of a financial statement side by side in order to compare the results
How are partnerships and proprietorship taxed?
They are taxed through personal income taxes.
debit office supplies and credit accounts payable
purchase of office supplies on credit is recorded by
revising salvage value and service life estimates
effect of change should be accounted for in period of change if:
change effects only that period
and future periods if the change effects both
example: historical cost 1000, accumulated depr. is 600, remaining book value is 400. a change now means that asset will last 6 more years with a 100 salvage value. revised depreciaiton expense is 50
Investment pool side: to record assets received from (name) fund at FMV
(DB) Cash (DB) Acc'd int receivable (DB)Investments (CR)Due to (fund name) (i.e. the internal participant) (CR) Additions-deposits in pooled funds (external participant)
What happens when you drop a segment?
you lose its SM but not its fixed costs...
accounts recievable
Accounting Terminology=
assets = capital+liabilities
Investment centers
Revenues, costs and investments
Revenue Account-Reports total sales price of the merchandisethat has been sold (the original sales price)-(delivered to customer)
An enity that buys accounts recievable
an amount owed by a business
a business activity that changes assets, liabilities, or owner's equity
The left side of an account.
resources owned by the business which are expected to provide a value or service to the business at some point in the future
net purchases
purchases minus purchase returns and allowances minus purchase discounts
last in, first out. concerned with cash flow, not goods flow.
practice followed in an attempt to ensure that uncertainties and risks inherent in business situations are aduately considered
book value
or net amount. Asset cost-accumulated depreciation account=NET AMOUNT.
Contribution margin
the amount that product sales contributes towards covering fixed costs and providing for income.
Manufacturing Overhead
All manufacturing costs except direct materials and direct labor.
Information on Fleming COmpany's direct material costs follows:Actual amount of direct materials used: 20,000 lbsAcutal direct material costs:$40,000Standard price of direct materials: 2.10 per lb.Direct material efficiency
C> 2000 favorable
Examples of Assets
Inventory, Factory, Land, Supplies, Receiveables
Stock Split
Is the issuance of additional shares of stock to stockholder's accompanied by a reduction in the par or stated value, an increase in number of shares & no journal entry.
Consumption Ratio
The proportion of an activity consumed by a particular product
Processing stamp
Stamp placed on an invoice that outlines a set of steps to be followed in processing the invoice for payment
contra account
an account balance that is opposite the normal balance
Total Asset Turnover
Net Sales / Average Total Assets
Checking Account
Bank account from which payments can be ordered by a depositor.
Balance sheet accounts
or permanent accounts (or real) because their balances can extend past the end of an accounting period. The balances are not set back to zero.
Valuation Ratios for a company are measures of value for the company's securities, and are commonly used in investment decision making.

Valuation Ratios include:

(i) Payout & Yield Ratios
(ii) Sustainable Growth
Rate & Implied Total Return, and (iii) Per Share Ratios
prepaid expenses
recorded when a company pays for an expense item in advance; asset account
business ethics
The use of ethics in making business decisions
operating Leverage Factor
a measure of a firm's operating leverage at difference sale volumes
Captial Stock
Shows the dollar amount of stock sold to people
Common Stock -
A basic class of corporate stock. Stock is issued for cash and represents ownership in a company.
The acid-test ratio
is used to assess the company's liquidity or ability to pay its current debts; it differs from the current ratio by excluding less liquid current assets.
Mixed Costs
This is a cost that contains both variable and fixed cost elements.
residual income
equals the net op income above the required return on operating assets - result in better overall company decision versus ROI which focuses too much on segments
sales tax
a tax on a sale of merchandise or services
Scale on Account
A scale for which cash will be received at a later date.
recognition, containment, recovery, and follow-up
4 steps of the incident response process
Maturity Date
specific day on which the note must be paid
cash flow
the sum of the after-tax profit of a business plus depreciation and other noncash charges: used as an indication of internal funds available for stock dividends, purchase of buildings and equipment, etc.
Sale on Account
A sale for which cash will be received at a later date.
% increase in net income=
Degree of operating leverage X % increase in sales
If the credit to record the payment of an account payable is not posted
cash will be overstated
Where is the value in any accounting system?
in the information it provides
How does cash flow impact adjusting entries?
1) cash receipts and disbursements may precede or follow the adjusting entry that recognizes the related revenue or expense
2) adjusting entries for expiration of unexpired costs and realization (earnings) of unearned revenues are usually made subsequent to the cash flows
3) adjusting entries for accrual of unrecorded expenses and revenues are made before the cash receipts and cash disbursements occur
General Ledger - def
alternative ways
subsidiary ledgers -
A/R - each page will b a different customer
A/P - each page will be a different vendor
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