Acc 231 Test 1

Front 1

Assets

Back 1

= Debit Balance

Stuff; used to generate revenues

Front 2

Liabilities

Back 2

= Credit Balance

Claims-to-Stuff of someone who is NOT an owner of the organization

Front 3

Owner's Equity

Back 3

= Credit Balance

Claims-to-Stuff of owners of the Organization

Front 4

Revenue

Back 4

= Normal Credit Balance

Front 5

Expenses

Back 5

= Normal Debit Balance

Front 6

Accounts Receivable

Back 6

Money owed to a company by its debtors. (Debit Column)

Front 7

Accounts Payable

Back 7

Money owed by a company to its creditors. (Credit Column)

Front 8

Common Stock

Back 8

Shares entitling their holder to dividends that vary in amount and may even be missed, depending on the fortunes of the company.
(Credit Column)

Front 9

Consulting Revenue

Back 9

revenue earned from providing or performing consulting services. It belongs to the income statement.
(Credit Column)

Front 10

Rent Expense

Back 10

any amount you pay for the use of property you do not own. (Debit Column)

Front 11

Salaries Expense

Back 11

A fixed regular payment, typically paid on a monthly or biweekly basis but often expressed as an annual sum, made by an employer to an employee. (Debit Column)

Front 12

Utilities Expense

Back 12

a company that performs a public service; subject to government regulation. (Debit)

Front 13

Corporation

Back 13

A company or group of people authorized to act as a single entity (legally a person) and recognized as such in law. Individuals do not own the company's assets, rather they have a stake in the company distributed through stocks.

Front 14

Merchandising Company

Back 14

Buys items from another company that manufactures the items. Then sells those items to the final consumer.

Front 15

Accrual Basis Accounting

Back 15

Records the impact of a business event as it occurs regardless of whether the transaction affected cash.

Front 16

Matching Principle

Back 16

Records expenses when incurred to sell goods or provide services.

Front 17

Revenue Recognition Principle

Back 17

Records revenue when it is earned.

Front 18

Fiscal Period

Back 18

Any consecutive twelve-month period

Front 19

Accumulated Depreciation

Back 19

The cumulative sum of all depreciation recorded for an asset

Front 20

Adjusted Trial Balance

Back 20

A list of accounts with their adjusted balances.

Front 21

Adjusting Entry

Back 21

Entry made to assign revenues to the period in which they are earned and expenses to the period incurred.

Front 22

Book Value

Back 22

The asset's cost less its accumulated depreciation.

Front 23

Contra-Account

Back 23

An account whose normal balance is opposite that of its companion account.

Front 24

Depreciation

Back 24

The allocation of a long-term asset's cost to expense over its useful life.

Front 25

Long-Term Asset

Back 25

Long-lived asset used to operate a business.

Front 26

Accrued Expense

Back 26

Expenses incurred during a given accounting period for which payment has not yet been made.
Recognition now; cash later.

Front 27

Accrued Revenue

Back 27

Revenues earned but not yet received in cash or recorded.
Recognition now; cash later.

Front 28

Economic Event

Back 28

every transaction has two sides: give & take

Front 29

Financial Accounting

Back 29

accounting focused on reporting an entity's activities to an external party; ie: shareholders

Front 30

Examples of Financial Reports

Back 30

1) Income Statement
2) Statement of Stockholder's Equity
3) Balance Sheet
4) Statement of Cash Flows

Front 31

Managerial Accounting

Back 31

An area of accounting concerned with reporting results to managers and others who are internal to an organization

Front 32

Examples of Managerial Reports

Back 32

1) Budgets
2) Cost analyses
3) Performance reports

Front 33

Purpose of Accounting

Back 33

Provide data so that informed business decisions
can be made:

1) Accumulate financial data
2) Measure financial performance
3) Communicate financial information

Front 34

Relevance

Back 34

Capacity to make a difference
in a decision

Front 35

Reliability

Back 35

Free from error and bias
(Faithful representation)‏

Front 36

Types of Business Activities (Transactions)‏

Back 36

1) Financing activities
2) Investing activities
3) Operating activities

Front 37

Financing activities

Back 37

Obtain capital/funding from external sources
(investors/creditorsand to repay them

Front 38

Investing activities

Back 38

Use capital to purchase long-term (LTA) assets to generate revenue and also to sell LTA assets

Front 39

Operating activities

Back 39

nvesting activities

Front 40

Revenue (Timing and Recognition)

Back 40

All of the following:
1) SALE is complete (revenue has been EARNED)
2) AMOUNT of Revenue can be measured
3) COSTS of generating revenue can be determined
4) PAYMENT is reasonably assured

Front 41

Expenses (Timing and Recognition)

Back 41

As assets are consumed/used up in the process of generating revenues, the value of the asset is REDUCED (expense has been INCURRED)‏

Front 42

Temporary Accounts (RED Accounts)

Back 42

ARE CLOSED (brought to a zero balance) at end of accounting period:

1) Income Statement accounts: Revenues & Expenses
2) Statement of Stockholders’ Equity account: Dividends
3) Close to Retained Earnings

Front 43

Permanent Accounts

Back 43

NOT CLOSED at year end:
1) Balance Sheet accounts: Assets, Liabilities and O/E (S/E)
2) Balances ARE carried forward to next period

Front 44

Normal Debit Accounts

Back 44

ADE: Assets, Dividends & Expenses

Front 45

Closing Process

Back 45

Record entries that reduce all temporary accounts to a zero balance at the end of the accounting period:
CLOSED to RETAINED EARNINGS.

Front 46

Income Statement (I/S)

Back 46

1st Statement Prepared/Accrual based/Period of time:
Revenues – Expenses = Net Profit (Loss)‏

Front 47

Multi-Step Income Statement

Back 47

THREE important subtotals:
1) Gross Profit/Margin
2) Operating Profit/Income
3) Income before taxes

Front 48

Gross Profit/Margin

Back 48

Operating Revenues - Cost of Good Sold (COGS)

Front 49

Operating Profit/Income

Back 49

Gross Profit/Margin - Operating Expenses

Front 50

Income before taxes

Back 50

Operating Profit/Margin - Income Tax Expenses

Front 51

Statement of Retained Earnings (R/E)

Back 51

2nd Statement Prepared/Accrual based/Period of time:
1) Shows CHANGES in the components of R/E: Net income/(net loss) and Dividends
2) 2. LINKS the Income Statement & the Balance Sheet
3) Shows the TOTAL AMOUNT invested by owners through retention of profits (after dividend payments).

Beg. R/E + N/I – Dividends = End. R/E

Front 52

Balance Sheet (B/S)

Back 52

3rd Statement Prepared/Accrual based/Point in time:
1) Point in time (snapshot) look at investing and financing activities
2) Represented by the Accounting Equation

Front 53

Statement of Cash Flows (SCF)

Back 53

4th Statement Prepared/Cash based/Period of time:
1) Cash flows related to operating, investing & financing activities

Front 54

Cash flows related to operating activities

Back 54

Purchase and sale of products or
services (txns that impact I/S)‏

Front 55

Cash flows related to investing activities:

Back 55

Acquisition and sale of long-term
assets and “investment” securities

Front 56

Cash flows related to financing activities:

Back 56

Issuance and repayment of
long-term liabilities and stock txns

Front 57

Going Concern Principle

Back 57

1) Cash invested and generated at multiple points in time
2) Income generating activity occurs almost continuously

Front 58

Time Period Assumption

Back 58

1) Uniform time periods facilitate comparisons and analyses
2) SEC requires quarterly and annual reporting

Front 59

Typical Operating Process for a Firm

Back 59

Buy Inv. - Sell Inv. - Collect Cash
Revenue is earned & Expenses are incurred (irregardless of when cash is received or paid)

Front 60

Accrual Accounting

Back 60

An accounting method that measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur.

Front 61

Cash Flows

Back 61

The total amount of money being transferred into and out of a business, esp. as affecting liquidity.

Front 62

Under Accrual Accounting

Back 62

Cash receipts THIS period may be from transactions that occurred in PREVIOUS periods
Cash payments THIS period may relate to transactions that will be started/completed in FUTURE periods

Front 63

Matching Principle

Back 63

addresses limitations of cash flow accounting by making/utilizing adjusting journal entries (AJEs):
1) Each AJE involves at least one income statement account AND one balance sheet account.
2)“Matching” Revenues & Expenses

Front 64

BEFORE cash (Accrual AJEs)

Back 64

1) Accrued liability/Expenses
2) Accrued Revenue/Assets

Front 65

AFTER cash (Deferral AJEs)

Back 65

1) Prepaid Expenses (Incl. Depreciation)/ Deferred Expenses/
Prepaid Assets
2) Unearned revenue/Deferred revenue

Front 66

Prepaid Expenses (Incl. Depreciation)/ Deferred Expenses/
Prepaid Assets

Back 66

Cash paid BEFORE expense is incurred:
1) Prepaid rent
2) Prepaid insurance
3) Prepaid office supplies

Front 67

Depreciation (Type of Prepaid/Deferred Exp)

Back 67

Long-term/fixed asset is purchased BEFORE expense is incurred:
1) Buildings
2) Equipment
3) Machinery, furniture

Front 68

Depreciation

Back 68

Process of systematically allocating the original cost of plant/equipment to expense over the periods benefited

Front 69

Accumulated Depreciation

Back 69

contra-asset account for plant/equipment (Normal Credit)

Front 70

Book value (BV)

Back 70

asset’s original cost LESS any accumulated depreciation

Front 71

Salvage value (SV)

Back 71

amount expected to be received when the asset is sold at the end of its useful life

Front 72

Unearned Revenue / Deferred Revenue

Back 72

Cash is received BEFORE revenue is earned:
1) Retainer fees
2) Gift certificates
3) Down payments/deposits paid in advance
4) Subscriptions collected in advance

Front 73

Accrued Liability / Accrued Expense

Back 73

Expense incurred BEFORE cash is paid:
1) Wages/Salaries
2) Taxes
3) Interest

Front 74

Dividends

Back 74

a voluntary distribution to stockholders:
1) Temporary account – is NOT an expense (and NOT on the I/S)
2) Normal balance is a DEBIT
3) CLOSED to retained earnings (R/E) by crediting dividends and debiting R/E (reduces R/E)

Front 75

Accounts Payable

Back 75

Money owed by a company to its creditors. (Normal Credit Balance)

Front 76

Accounts Receivable

Back 76

Money owed to a company by its debtors. (Normal Debit Balance)

Front 77

Cash

Back 77

an account with a securities brokerage whose transactions are settled on a cash basis. (Normal Debit Balance)

Front 78

Common Stock

Back 78

Shares entitling their holder to dividends that vary in amount and may even be missed, depending on the fortunes of the company. (Normal Credit Balance)