Accounting Test Flashcards

Terms Definitions
OIF: Depreciation Expense
T or F: A general ledger should be arranged in statement order beginning with the balance sheet accounts.
T or F: A trial balance does not prove that all transactions have been recorded or that the ledger is correct.
Which of the following items would not be included as a cash flow from operating activities on a statement of cash flows?
a. collections from customers
b. interest on note payable
c. purchase of equipment
d. purchase of inventory
c. purchase of equipment
A trial balance is a listing of
general ledger accounts and balances.
Which of the following is not a justification for adjusting entries?
a. Adjusting entries are necessary to ensure that revenue recognition principles are followed.
b. Adjusting entries are necessary to ensure that the matching principle is followed.
c. Ad
d. Adjusting entries are necessary to bring the general ledger accounts in line with the budget
The journal entry to record the borrowing of cash and the signing of a note payable involves:
a. A debit to note payable and a credit to cash.
b. Debits to cash and interest expense and a credit to cash.
c. A debit to cash and a credit to note payable.
c. A debit to cash and a credit to note payable.
balance sheet equations
Securities and Exchange Commission
planning, recording, analyzing, and interpreting financial information
Net Income
total revenue is greater
Product cost
cost of manufacturing; inventorial cost- "capitalized" cost, debited to "inventory" account and is an asset cost until sold
Statement of cash flows
identifies cash inflows.
The quality of information that indicates the information makes a difference in a decision. p. 65
strategic planning
Broad, long-range planning usually conducted by top management.
Notes Payable (N/P)
Liability, Balance Sheet, Credit
Accounting Cycle
The series of accounting activities included in recording financial information for fiscal period.
Securities Act of 1933
requires registration statements before you issue stock
sole proprietorship
A business owned by one person.
An increase in proprietorship as the result of a business transaction is an
An amount recorded on the right side
when being able to see similarities and differences in financial statements
financial ratio
comparison between 2 items of financial information
Current Liabilities
Liabilities payable within one year. Examples are accounts payable and payroll taxes payable.
The account used to summarize the owners equity in
Periodic System
The inventory system in which the inventory records do not show the amount available for sale or sold during the period
a piece of commercial paper drawn on funds in a bank account and payable on demand
a____is willing to take the risks of running a buisness
a dishonest act by an employee that results in personal benefit to the employee at a cost to the employer
accounts receivable ledger
A subsidiary ledger containing only accounts for charge customers
FOB Destination
The seller pays shipping costs and buyer accepts ownership of goods at the buyer's place of business.
Additions and Improvements
costs incurred to increase the operating efficiency, productive capacity, or useful life of a plant asset.
Debit - the plant asset affected.
Referred to as capital expenditures
Intangible Assets
Assets that do not have physical substance yet often are very valuable.
Product Cost using Variable Costing
Direct MaterialsDirect LaborVariable Overhead=Total Variable Costing
operating cycle
average time it takes to purchase inventory, sell it on account, and then collect cash from customers
consigned goods
goods that have been shipped to a company but do not have to paid for until they are sold
owners equity shows same period of time as
the income statement
pension fund
what should be shown as a separate legal and accounting entity? (has its own set of books and financial statements)
retail merchandising business
a merchandising business that sells to those who use or consume the goods.
Chad Jones is the sole owner and manager of Jones Glass Repair Shop. In 2006, Jones purchases a truck for $30,000 to be used in the business. Which of the following fundamentals requires Jones to record the automobile at the price paid to buy it?
Cost Principle
one whose items are roadly grouped into assets, liabilities, and equity
Classified balance sheet
schedule of accounts payable
a listing of vendor accounts, account balances, and total amount due all vendors
Par value
a value assigned to a share of stock and printed on the stock certificate
an owner of one or more share of a corporation
The Work Sheet
A working paper used to organize the data for financial statements
Lessens the possibility of omitting an adjustment
Helps the accountant check the arithmetical accuracy of the accounts
What is a compound entry?
transaction affecting more than two accounts
State unemployment tax
a state tax used to pay benefits to unemployment workers
How does unearned revenues work?
Debit cash then credit a unearned revenues account. Then when you actually earn the revenue you debit unearned revenue and you credit the revenue account you earned it from.This is recorded as a current liability.
Expense Accounts ( Owner's Equity Accounts)
use for expenses incurred by the business
Cash Register Controls 8 Steps
1. Each shift starts with a change fund. 2.Cash register displays amount for customer verification. 3.Customer gets a reciept. 4.Clerk and supervisor count the money, which equals change fund plus cash sales. 5.Cash is taken to the safe. 6.Reciepts taken to accounting department where sales are totaled for journal entries. 7.Cash is deposited to bank. 8.Bank makes duplicate deposit slip for accounting verification.
To record issuance of property tax bills based on a composite tax rate
(DB) Taxes receivable for other funds and units-current (CR) Due to other funds and units
If fixed expenses stay the same, how will an increase or decrease in the contribution margin affect the net operating income?
There will be a dollar for dollar increase or decrease in net operating income.
future economic benefit
actuarial assumptions
pension calculations involve
Net Loss
total expenses is greater
Notes Payable
Short-term or long-term liabilities that a business promises to repay by a certain date.
those who must verify the effectiveness of internal controls.
Resources owned by a business. p.10
temporary accounts
accounts used to accumulate information until it is transferred to the owner's capital account
Accumulated Depreciation, Truck
Asset, Balance Sheet, Credit
consistency principle
companies use the same accounting methods period after period so the financial statements of succeeding periods will be comparable
source document
A business paper from which information is obtained for a journal entry
price-earning ratio
market price per common share/earnings per share
accounting records
Organized summaries of a business's financial activities.
Closing Entries
Journal entries used to prepare temporary accounts for a new fiscal period
Which of the following depreciation methods best fits those assets that tend to wear out before they become obsolete?
A) Straight-line
B) Depletion
C) Double-declining-balance
D) Units-of-production
D) Units-of-production
Public Company Accounting Oversight Board
Establishes Auditor's rules.
An increase in owners equity resulting from the op
Service Business
A business that performs an activity for a fee
the face value of a promissory note upon which interest is computed
a business that buys finished products and then sells them is called a
merchandising business
The amount added to the cost of merchandise to establish the selling price
Cash Discount
Reduction in the price of merchandise granted by a seller to a buyer when payment is made within the discount period.
A lease
is a contractual agreement in which the owner of an asset (the lessor) allows another party (the lessee) to use the asset for a period of time at an agreed price.
the process of determining whether the amounts of cash recorded in a business's accounting records and the amounts in its checkbook agree
proving cash
Product Costs vs. Period Costs
Product: Manufacturing CostsDirect MaterialsDirect LaborOverhead (Indirect Materials, Indirect Labor, other indirect costs)Period Costs: Nonmanufacturing CostsSelling ExpensesAdministrative Expenses
Gross profit
net sales minus cost of goods sold
Direct materials
Materials that become a part of a finished product and costs can be traced to it
a form on which a brief message is written describing a transaction
time deposit
a savings account with a a commercial bank
short terms notes
bank loans, notes payable, short term, less than a year
gains and losses
Changes in APBO resulting from change in assumptions
Merchandise purchases budget (merchandise only)
Budgeted unit sales +Desired ending inventory = Total Needs -Beginning Inventory = Required purchases
If the market rate of interest is 10%, a rational person would just as soon receive $1,100 three years from now as what amount today (round to the nearest dollar)?
the process of allocating the costs of these assets over their expected useful lives
contra account
Cost of merchandise sold
the original price of all merchandise sold during a fiscal period
special journal
a journal used to record only one kind of transaction
The closing process prepares:
the books for the next accounting period. After closing, the revenue, expenses, and Withdrawels accounts (temporary accounts) have zero balances. The updated owners Capital account reflects withdrawels and net income or net loss for the period just ended. The balance sheet accounts (permanent accounts) show the correct balances, which are carried forward to the next period.
What are generally accepted accounting principles (GAAP)?
broad concepts, guidelines, and practices that together make up accepted accounting practice in the United States at any given time
Look back period
the 12 month period that ends on June 30th of the prior year
What are accumulated rights?
Rights that can be carried over but must be accrued.
Revenue Accounts ( Owner's Equity Accounts)
use for revenue earned by the business
What is the accounting concept going conern?
Is applied when financial statements are prepared with the expectation that a business will remain in operation indefinitely.
Adjust investments to fmv at the end of each period
either directly adjust the investment account or use an investments: allowance for changes in fair value account
A company has a contingent loss that can be estimated, but the chance of it occurring is remote. How should this contingency be reported?
A) It should not be accrued or reported in the notes to the financial statements.
B) It should be accrued and reporte
A) it should not be accrued or reported in the notes to the financial statements
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