Accounting Test 2 Flashcards

Terms Definitions
Current assets minus current liabilities equals:
Working Capital
_______ is a unique category of revenue for private clubs, which often makes up approximately 50% of club revenue.
Membership Dues
The profit margin percentage is computed by dividing net income by
a. common stockholders’ equity.
b. total assets.
c. net sales.
d. current assets.
c. net sales.
Purchases Return
whole return
Includes exceptional management, desirable location, good customer relations, skilled employees, high-quality products, etc.
Only recorded when an entire business is purchased.
Goodwill is recorded as the excess of ...
purchase price over the FMV of the identifiable net assets acquired.
Internally created goodwill should not be capitalized
not a mathematical relationship between the balance sheet and income statement; defined and measured independently
recording transactions in a journal
Administrative Expenses
expenses incurred in the administrative or general operations of the business
represents the percentage of your sales dollars that end up in net income; profitability from sales
Accounting recognition of revenue or expense in a period after cash is exchanged
Salvia Company recently purchased a truck. The price negotiated with the dealer was $40,000. Salvia also paid sales tax of $2,000 on the purchase, shipping and preparation costs of $3,000, and insurance for the first year of operation of $4,000. For the t
Employee Benefits
Payments to employees for nonworking hours and to insurance and retirement programs is called
Financial statements
Financial reports that summarize the financial condition and operations of a business
accounting records
Organized summaries of a business's financial activities.
Two or more parties, not incorporated, separate entity from the owners, income flows through to individuals
the job of reviewing and evaluating the records used to prepare a company's financial statements
merchandising master budget
Sales budget Merchandise Purchases budget Selling/Administrative Expenses budget Cash budget Budgeted Income Statement Budgeted Balance sheet
Full-disclosure Principle
All information that could affect decisions should be reported.
Long term unsecured debt, backed only by the issue
Financial rights to the assets of a business
owner's equity
The amount remaining after the value of all liabilities is subtracted from the value of all assets
which of the following payroll costs are shared equally by the employer and the employee
social security
income statement equation
revenues - expenses = net income
Current Assets
Cash nad other assets expectedto be exchanged for cash or consumed within a year.
inventory turnover
how many times inventory sold and replaced
A the bottom of an income statement, ($$) stands for ____.
Who uses Accounting Information? (4 answers)
IndividualsInvestors and CreditorsTaxing AuthoritiesNon Profit Organizations
Income Statement
Describes a co. revenues and expenses along with the resulting net income or loss over a period of time due to earnings.
define normal balance
what ever increases the account ie debit or credit
Two elements of nonmanufacturing costs
marketing costs and administrative costs
The holder or person owning stock in a corporation is the
Debit Cash, Credit Revenue
Journalize Cost of goods sold (business perspective)
purchase invoice
an invoice used as a source document for recording a purchase on account transaction
periodic systems
used by small business who can not afford the cost of perpetual systems, low cost items
Adjusting entries:
Occur at the end of every reporting period to ensure:
-matching principle:revenue is recognized when it is realized realizable or earned and expenses are recognized in the period where they contribute to the production of revenue
some accounts are valued at market value rather then original cost including:
investments:at market value
inventories: at lower of cost or market value
receivables: at net realizable value rather then face value
(net realizable value: amount of cash firm expects to collect) 
common aspect: each adjustment involves at least one balance sheet and one income statement account but not cash account (except when reconciling cash itself)
Capital leases
a purchase financed by a lease and required to be treated as a purchase and sale for accounting purposes (purchase is secured by assets purchased)
statement of account
a report sent to each other customer, usually at the end of the month, which indicates the status of their account
standard quantity allowed
the amount of an input that should have been used to complete the period's actual output
Merchandise Inventory
The amount of goods on hand for sale to customers.
Cash Flow = Money in – Money Out
Process cost system
Costing system that keeps track of the costs applied to a product as it moves through one or more manufacturing process (could also be job costing)
What is a Budget?
A financial plan for the short term, typically one year.
GASB: Changes in fv or investments:
1.reported as a component of investment income(not as a separate amt on the f/s) 2. Optional: can be disclosed in the notes
petty cash fund is replenished when necessary and at least...
at the end of the month
what are some examples of a driver?
labor hours, labor costs, machine hours, jobs
Which of the following is true when using the effective interest amortization method when a bond has been issued at a discount?
The amount of interest expense recognized each period increases over time.
What is the purpose of Off Balance Sheet Financing Methods??
allow a company to acquire the certain assets, but do not require any corresponding debt to be shown company's balance sheet.
Economic entity assumption
Sole proprietorship
A one-owner business
increase the value of something
current ratio
current assets/current liabilities, 2:1 is considered good
an amount owed by a business
the amount of goods on hand
A company has 5 million shares issued and 400,000 held in treasury. If the board of directors declares a $16 million cash dividend, then the dividends per share would be $3.20.
A form for recording transactions in chronological orders is called a
Retained Earnings
Credit balance, Balance sheet and Retained Earnings, Permanent
an amount recorded on the right side.
Total tax liability
The amount of tax owed
Managerial Accounting
accounting used to provide information and analyses to managers within the organization to assist them in decision making
**retained earnings**
**the accumulated earnings from a firm's profitable operations that were kept in the business and not paid out to stockholders in dividends**
Going Concern Assumption
The entity will continue indefinitely.
Accurate figures should be included in the reports. The figures should be verified by accounting documents.
Operating expenses
expenses of operating a business other than cost of goods sold. examples include depreciation, rent, salaries, utilities, advertising, delivery expense, property taxes and supplies expense.
Profit = sales - cost of goods sold
which financial statement is prepared as of a specific date
the balance sheet
contributed capital
investments made by owners into the business
work sheet
a columnar accounting form used to summarize the general ledger info needed to prepare financial statements
A person that owns stock in a corporation
Examples of Multi Period Estimated Liabilities
Pension Benefits, Warranties
Adjusted Trial Balance
List of accounts and balances prepared after periodend adjustments are recorded and posted.
plantwide allocation method
allocation method that uses one cost pool for the entire plant by using one overhead allocation rate, or one set of rates, for all of a plant's departments
One who has made a sale is called a
Unearned revenue
Liability where job has been paid for before it has been done.
purchases discount
a cash discount on purchases taken by a customer
sales discounts
get cash back on merchandise to get old seasonal merchandise out and new merchandise in, it is an adjustment to the selling price
accural and deferral adjusting entries
accural:asset or liability increases, or builds up, as time passes. 
example: intrest receivable from bank or intrest payable related to a loan
deferral: asset or liability decreases as time passes
capitalization: item originally recorded on balance sheet when acquired or received. 
end of period: do we have all of asset/owe all of liability?
yes: no adjusting entry
no: adjust
ABC three stage process
1.Allocate factory overhead costs to activity pools (cost drivers)
2.Assign factory overhead costs to jobs or processes based on relative number of activities to complete the job
3.Assign total factory overhead costs to individual units of product in the job or process
take home pay/net pay
the amount of pay after deductions (income taxes, FICA taxes, etc) have been subtracted
a signature or stamp on the back of a check transferring ownership
Declaring a Dividend
Action by a board of directors to distribute corporate earnings to stockholders.
1. Income Statement2. Balance Sheet3. Statement of Cash Flow
Depreciation Expense
part of the cost of an asset allocated as an expense to each accounting period in which the asset is used
What is adverse variances?
Taken alone, have the effect of making the actual profit lower than the budgeted profit.
Private purpose trust funds: record assets received
at fmv at date of gift
what items cause retained earnings to increase
revenues because they increase net income which increases retained earnings.
generally accepted accounting principals (GAAP)
the term that applies to all the broad concepts and detailed practives to be followed in preparing and distributing financial statements. It includes all the conventions, rules, and procedures that together comprise accepted accounting practice.
The primary purpose of the balance sheet is to
report the financial position of the reporting entity at a particular point in time.
The chance that an event will occur is called
its probability of occurence or just probability
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