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42 Cards in this Set
- Front
- Back
Who are the providers of financial information? |
Profit-oriented companies, not-for-profit companies, and households. |
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Who are the users of financial information? |
External - investors, creditors, employees, customers, suppliers, govt agencies, etc. |
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Who currently sets standards for accounting? |
FASB |
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What does the FASB issue? |
Accounting standards updates and financial accounting concepts. |
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What are the different types of internal auditing? |
1. Financial audits - making sure a company is following financial rules. 2. Operational audits - figuring out where mistakes are made in operation. 3. Reviews of internal controls - who's handling money 4. Compliance audits - casino. |
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To be RELEVANT, information must possess: |
Predictive value and/or confirmatory value. |
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To have FAITHFUL REPRESENTATION, information must possess: |
Completeness, neutrality, and freedom from material errors. |
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What are the fundamental qualitative characteristics of recording financial information? |
Relevance and faithful representation. |
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How can you improve the qualitative characteristics of recording financial information? |
By showing: comparability, consistency, verifiability, timeliness, understandability. |
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What are the constraints of recording financial information? |
Cost effectiveness, materiality, and conservatism. |
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Give an example of cost benefit analysis. |
If a company buys a trashcan that is $20 with a useful life of 10 years, they can capitalize the cost and expense it immediately rather than depreciating it yearly as the cost of doing this outweighs the benefit. |
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What are the 3 types of adjustments? |
Prepayments (insurance), accruals (salaries payable), and estimates (bad debts). |
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Give examples of accrued liabilities. |
Payable expenses, revenue in a receivables account that has not been earned yet. |
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Closing entries. |
Close revenues to I/S Close expenses to I/S Close I/S to retained earnings Close dividends to retained earnings |
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Give examples of internal controls. |
A certain person designated to handling cash, someone to record cash, someone to deposit cash, someone to write checks for disbursements. |
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Describe petty cash. |
Used for minor expenditures, replenished periodically. |
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Why does a business offer credit terms knowing that some portion of the credit sales will be uncollectible? |
To increase their initial sales. If they offer attractive interest rates they'll make sales but run into bad debts later. |
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What are the 3 classifications for receivables? |
1. Current vs long term 2. Trade receivable vs nontrade receivable 3. A/R vs N/R |
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What are trade receivables? |
Anything involved in sale of goods/services - inventory. |
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What are nontrade receivables? |
Fixed assets that aren't involved in the sale of goods/services. |
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What does 2/10, n/30 means? |
2% discount if purchased within 10 days, otherwise net/all is due within 30 days. |
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What type of account is sales returns and allowances? |
Contra-revenue. |
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Describe the income statement approach of bad debts. |
Focuses on past credit sales, emphasizes the matching principle. |
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Describe the balance sheet approach of bad debts. |
Estimates uncollectible accounts based on uncollectibility of A/R, computes DESIRED END BALANCE in the allowance account. |
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If an account becomes uncollectible, what is the journal entry made? (Write-off) |
Dr. Allowance Cr. A/R |
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What is the journal entry for a written-off account that is collected later? |
Dr. A/R, Cr. Allowance Dr. Cash, Cr. A/R |
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What is the journal entry for the direct write-off method? |
Dr. BDE Cr. A/R |
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Who are the most important users for standard setters when writing GAAP? |
Capital providers. |
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The direct write-off approach is acceptable for? |
Tax |
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An asset that will be converted to cash within 89 days is best described as: |
A cash equivalent. |
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_____ is diminished when a company changes from LIFO to FIFO. |
Consistency |
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Are reversing entries required? |
No, they're optional. |
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A gain is very similar to revenue except that it relates to: |
Peripheral business activities. |
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Revenues/expenses are ____ business activities. |
Core |
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Gains/losses are ____ business activities. |
Peripheral |
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Closing entries are used to close: |
Nominal accounts - revenues, expenses, gains/losses, dividends. |
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Independent auditors express an opinion on the: |
Fairness of financial statements in conformity with a standard. |
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What is the impact on the NRV of A/R when we write off an account? |
There is no impact. |
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A post closing trial balance does NOT include: |
Dividends |
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What is one thing added to the bank balance in a bank reconciliation? |
Deposits in transfer. |
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Recognizing losses immediately but deferring gains is an example of: |
Conservatism. |
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Calculating Net A/R: |
End A/R-Total Allowances |