Accounting Midterm Flashcards

Terms Definitions
service revenue
provide service
owners of a corporation
Types of business?
Financing, Investing, Operating
earnings per share
income per stock
Cost-Volume-Profit assumes inventory levels...
do not change
an amount owed by a business
a business owned by one person
resources with future benefits that are owned or controlled by a company. (resources owned or controlled by a company)
ablitity to finance an investment through borrowed funds
a written acknowledgment of having received a specified amount of money, goods, etc.
The account used to summarize the owner's equity in a business
an increase in owners equity resulting from the operation of a business
The beginning balance in the supplies account is $600. During the month an additional $800 worth of supplies were purchased. At the end of the month, an inventory of the supplies found that only $300 remained on hand. What would be the amount of the adjusting entry for the supplies account?
The principle that states revenue should be recognized at the time goods are sold or services rendered is called:
Revenue realization.
Outstanding Checks
checks written that haven't cleared the statement in the same month
Know the major categories (4) of long-lived assets
Service Business
Provide Services rather than products to customers. EX - Disney, Hotels, Radio
What are T-accounts?
simplified versions of ledger accounts
purchases return
Credit allowed for the purchase price of returned merchandise, resulting in a decrease in the customer's accounts payable
temporary owner's equity accounts
accounts utilized to accumulate income, expenses and owner's withdrawls for one accounting period only
cash sale
A transaction in which the business receives full payment for the merchandise sold at the time of the sale.
break even point in dollars
fixed costs/contribution margin ratio
matching principle
prescribes that a company must record its expenses incurred to generate the revenue reported
Special Endorsement
an endorsement indicating a new owner of he check.
THe ability of a company to pay obligations that are expected to become due within the next year or operating cycle
The practice of allocating the cost of assets to a number of years.
Callable preferred stock
Preferred stock that gives the issuing corporation the right to repurchase the preferred stock at a stipulated price.
The steps involved in handling all of the transactions and events completed during an accounting period, beginning with placing data in a book of original entry and ending with a post-closing trial balance, are referred to collectively as the accounting c
Sales Discount
A deduction from the sales invoice as a n incentive for customers to pay their invoices early
lower of cost or market
Conservative valuation rule which requires certain types of assets (such as inventory) to be valued either at their historical cost or at the current replacement cost whichever is less. We can apply the _____ concept on an individual item basis, for similar categories of inventory, or for the inventory as a whole.
net pay
the total earnings paid to an employee after payroll taxes and other deductions
financing activities
cash either paid to or received from owners and creditors
Going concern
the assumption that an entity is not in the process of liquidation and that it will continue indefinately
Brand Name
A registered name that can be used only by its owner to identify a product or service
Revenue Recognition Principle
revenue should be recognized in the accounting period in which it is earned
Sinking fund bond
reduce the holder's risk, require the issuer to cr
Securtities and Exchange Commission (SEC)
is the government agency that supervises the work of the FASB and the PCAOB
premium on bonds payable
increases the carrying value of the liability
Key Ratio Analysis
Measures how much the firm earned for each dollar of investment. In general, a higher return indicates management is doing a better job selecting investments
Transactions are recorded under the periodic inventory system as follows:
a.     All purchases of merchandise are debited to the Purchases account and credited to Accounts Payable or Cash. The purpose of the Purchases account is to accumulate the cost of merchandise purchased for resale during the period. b.     The return of goods to the supplier for credit is recorded with a debit to Accounts Payable and a credit to the Purchases Returns and Allowances account. The latter appears as a contra account to purchases on the income statement. c.     Payment on account is recorded with a debit to Accounts Payable and credit to Cash. d.     When a cash sale is made, Cash is debited and Sales is credited for the amount of the sale. When a credit sale is made, Accounts Receivable is debited and Sales is credited. e.     Delivery costs for goods sold are recorded with a debit to Delivery Expense and a credit to Accounts Payable or Cash. f.      When a credit customer returns goods for a refund, Sales Returns and Allowances is debited and Accounts Receivable is credited. The former functions as a contra account to sales on the income statement. g.     The receipt of payment on account is recorded with a simple debit to Cash and credit to Accounts Receivable.
What is matching?
the recording of expenses in the same tinme period as the related revenues are recognized
which of the following would indicate a cash disbursement
an increase in prepaid expenses
The income summary account is closed
After revenue and expense accounts have been closed, the Income Summary account will have either a debit balance or a credit balance. If a credit balance exists, then Income Summary must be debited for the amount required to give it a zero balance, and the owners Capital account is credited for the same amount. The reverse is done when Income Summary has a debit balance.
Lower of Cost and Market (LCM)
Required method to report inventory at market replacement cost when that market cost is lower than recorded cost.
stock dividend effects on the accounts
only effects equity account for either small or large dividends
When do you recognize compensation expense?
In the periods in which its employees perform the service. also called the service period
When and why do companies most often use LIFO?
In a time of rising prices, companies use LIFO because of the lower income tax benefit.
net sales
income statement
Costs of doing business
Individuals or organizations entitled to receive payments
Accumulated Depreciation...
Contra asset, Balance Sheet
the committing of a business transaction and the events surroundingsuch into writing
A record summarizing all the information pertaining to a single item in the accounting equation.
Differential income
the difference between differential revenue and differential cost
net income _______ retained earnings and a net loss _____ retained earnings
Internal Controls
Procedures and processes within a company that ensure the intergrity of accounting info.
Cost Accounting
Calculating the costs of production for a manufacturing business and prepared cost budgets, production planning and reports.
statements of position
provide guidance on financial reporting topics until the FASB sets standards on the issue in question ; may update, revise, and clarify audits and accounting guides.
most preferred stocks have the following characteristics, except
voting rights
Account Cycle
is analysis of transaction and selected other events
coverage limit
the maximum amount the insurance company will pay if you file a claim.
CM ratio
contribution margin divided by selling price
Warren Company plans to depreciate a new building using declining-balance depreciation with 200 percent acceleration rate. The building cost $800,000. The estimated residual value of the building is $50,000 and it has an expected useful life of 25 years.
Permanent accounts
Balance sheet accounts whose balances are carried forward to the next accounting period, assets and liabilities
Operating Cycle
Normal time between paying cash for merchandise or employee services and receiving cash from customers.
owner's equity
the amount remaining after the value of all liabilities is subtracted from the value of all assets
the merchandise that a shop has on hand
Payroll Register
Business form used to record payroll information.
financial rights to the assets of a business
accounting companies use everyday; used to help the company run better each day
What is managerial accounting?
Income Summary
Temporary account used only in the closing process to which the balances of revenue and expense accounts (including any gains or losses) are transferred; its balance is transferred to the capital account (or retained earnings for a corporation).
Gross Profit
Net Sales - COGS expense = ?
Features of corporation
Separate legal entity, no mutual agency, limited liability of stockholders,
Finished Goods
Units of production that have been completed but have not yet been sold to customers
Sales Invoice
an invoice used as a source document for recording a sale on account
Special order
order that will not affect other sales and is usually a short run occurrences
multiple-step income statement
breaks net income (or loss) into several components which financial statement users find useful
industrial espionage
way that competitors may try to gain access to company data in order to harm the organization
True or False- A cost driver is an activity that causes cost to occur.
Mearchindising Business
A buisness that buys goods and sells them back
Operating Lease
Accounted for as if leassee is renting the asset. Debit rent expense and credit cash.
What's positive correlation?
When one set of data (variable) increases its value, the other set of data (variable) also increases.
fixed liabilities/long term liabilities
liabilities that are not due and payable within one year
What is a Company?
An artificial legal person which has an identity separate from that of those who own or manage it.
Return on Equity
measure is often used to measure the profitability of the stockholders' investment.
accrual basis of accounting
companies record events that change a company's financial statements in the periods in which those events occur, rather than in the periods in which the company receives or pays cash
What is standard deviation?
it represents the level of Dispersion of the total data distribution
total current assets is equal to
cash plus accounts receivable plus supplies
What is the "Separation of duties" internal control?
It divides responsibilities for transactions between two or more people.
Bonds Payable: Discount and Premium
1) compute the price of the bond (maturity value X price as a %
2) compute the interest that will be paid in cash (maturity value X coupon rate/payments per year
3) prepare the amortization schedule: receiving less than maturity value is a discount
Free Cash Flow to Equity (FCFE)
Cash from Operations – Net Capital Investment + Net Borrowing

is the cash flow available to stockholders.

Note: Change in Leverage does affect FCFE.
Actual equipment cost rates are calculated at the beginning of the year they pertain to.
When a contract is signed with a subcontractor the full amount that will be paid to the subcontractor is a committed cost.
What is the purpose of a trial balance?
used as an internal report to check for errors in the accounting and to aid in preparing financial statements
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