The Adjusting Process
1. Cash basis accounting records revenues only when cash is received and expenses only when
cash is paid. Accrual basis accounting records revenues when earned and expenses when
2. Accrual basis a
Introduction to Managerial Accounting
1. The primary purpose of managerial accounting is to provide information to help managers
plan and control operations.
2. Planning means choosing goals and deciding how to achieve them, wh
Plant Assets, Natural Resources, and Intangibles
1. Plant assets are long-lived, tangible assets used in the operation of a business.
Examples include land, buildings, equipment, furniture, and automobiles.
2. The historical cos
Statement of Cash Flows
1. The statement of cash flow reports on a businesss cash receipts and cash payments for a
The statement of cash flow helps users do the following:
Predict future cash flows.
1. A debt security represents a credit relationship with another company or governmental entity
that typically pays interest for a fixed period.
2. An equity security represents stock ownership in another company th
1. A merchandiser is a business that sells merchandise, or goods, to customers. The
merchandise that these types of businesses sell is called merchandise inventory.
2. Merchandisers are often identified
Management Systems: Activity-Based, Just-In-Time, and
Quality Management Systems
1. The formula to compute the predetermined overhead allocation rate is: Total estimated
overhead costs / Total estimated quantity of the overhead
Capital Investment Decisions
1. A capital asset is an operational asset used for a long period of time. A capital investment is
the acquisition of a capital asset. Capital budgeting is the process of making capital
1. Companies that manufacture batches of unique products or provide specialized services use
job order costing systems. Some examples would be accounting firms, lawyers, building
contractors, and custom furnitur
1. The four budgeting objectives are:
Develop strategiesoverall, long-term business goals
Planbudget for specific actions to achieve goals
Actcarry out the plans
Controlfeedback to identify corrective action
1. The consistency principle states that businesses should use the same accounting methods and
procedures from period to period.
2. The disclosure principle requires that a company must report enough inform
1. Accounts receivable represent the right to receive cash in the future from customers for
goods sold or for services performed. Accounts receivable are usually collected within a short
period of time such as 30 or
Financial Statement Analysis
1. The three main ways to analyze financial statements are horizontal analysis, vertical analysis,
and ratio analysis.
2. An annual report (10-K) is a report required by the Securities and Exchange
Current Liabilities and Payroll
The three main characteristics of liabilities are:
They occur because of a past transaction or event.
They create a present obligation for future payment of cash or services.
They are an unavo
Accounting and the Business Environment
1. Accounting is the information system that measures business activities, processes the
information into reports, and communicates the results to decision makers. Accounting is the
Recording Business Transactions
1. The three categories of the accounting equation are assets, liabilities, and equity. Assets include
Cash, Accounts Receivable, Notes Receivable, Prepaid Expenses, Land, Building, Equipment,
Responsibility Accounting and Performance Evaluation
1. In a small company, the owner or top manager often makes all planning and controlling
decisions. Small companies are most often considered to be centralized companies beca
1. Absorption costing is a costing method that considers direct materials, direct labor, variable
manufacturing overhead, and fixed manufacturing overhead as product costs. Absorption
costing is required by GAA
1. A corporation is a business organized under state law that is a separate legal entity.
Characteristics of a corporation are the following(students are required to list three):
Internal Control and Cash
1. Internal control is the organizational plan and all the related measures adopted by an entity
to safeguard assets, encourage employees to follow company policies, promote operational
1. The current portion of notes payable is reported in the current liability section of the
2. An amortization schedule details each loan payments allocation between principal
and interest a
Job Order Costing
1. If the manager knows the cost to produce each unit of product, then the manager can plan and
control the cost of resources needed to create the product and deliver it to the customer. It
enables them to set
1. Variable costs are costs that increase or decrease in total in direct proportion to increases or
decreases in the volume of activity. An example of a variable cost is the battery used in a
Short-Term Business Decisions
1. The four steps in short-term decision making are: (1) Define business goals; (2) Identify
alternative courses of action; (3) Gather and analyze relevant information; compare
alternatives; and (4
Completing the Accounting Cycle
1. The financial statements are prepared from the adjusted trial balance.
2. The income statement reports revenues and expenses and calculates net income or net loss for
the time period.
3. The st