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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.

Who are the users of financial information?

External - investors, creditors, employees, customers, suppliers, govt agencies, etc.

Who currently sets standards for accounting?

FASB

What does the FASB issue?

Accounting standards updates and financial accounting concepts.

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.

To be RELEVANT, information must possess:

Predictive value and/or confirmatory value.

To have FAITHFUL REPRESENTATION, information must possess:

Completeness, neutrality, and freedom from material errors.

What are the fundamental qualitative characteristics of recording financial information?

Relevance and faithful representation.

How can you improve the qualitative characteristics of recording financial information?

By showing: comparability, consistency, verifiability, timeliness, understandability.

What are the constraints of recording financial information?

Cost effectiveness, materiality, and conservatism.

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.

What are the 3 types of adjustments?

Prepayments (insurance), accruals (salaries payable), and estimates (bad debts).

Give examples of accrued liabilities.

Payable expenses, revenue in a receivables account that has not been earned yet.

Closing entries.

Close revenues to I/S


Close expenses to I/S


Close I/S to retained earnings


Close dividends to retained earnings

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.

Describe petty cash.

Used for minor expenditures, replenished periodically.

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.

What are the 3 classifications for receivables?

1. Current vs long term


2. Trade receivable vs nontrade receivable


3. A/R vs N/R

What are trade receivables?

Anything involved in sale of goods/services - inventory.

What are nontrade receivables?

Fixed assets that aren't involved in the sale of goods/services.

What does 2/10, n/30 means?

2% discount if purchased within 10 days, otherwise net/all is due within 30 days.

What type of account is sales returns and allowances?

Contra-revenue.

Describe the income statement approach of bad debts.

Focuses on past credit sales, emphasizes the matching principle.

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.

If an account becomes uncollectible, what is the journal entry made? (Write-off)

Dr. Allowance


Cr. A/R

What is the journal entry for a written-off account that is collected later?

Dr. A/R, Cr. Allowance


Dr. Cash, Cr. A/R

What is the journal entry for the direct write-off method?

Dr. BDE


Cr. A/R

Who are the most important users for standard setters when writing GAAP?

Capital providers.

The direct write-off approach is acceptable for?

Tax

An asset that will be converted to cash within 89 days is best described as:

A cash equivalent.

_____ is diminished when a company changes from LIFO to FIFO.

Consistency

Are reversing entries required?

No, they're optional.

A gain is very similar to revenue except that it relates to:

Peripheral business activities.

Revenues/expenses are ____ business activities.

Core

Gains/losses are ____ business activities.

Peripheral

Closing entries are used to close:

Nominal accounts - revenues, expenses, gains/losses, dividends.

Independent auditors express an opinion on the:

Fairness of financial statements in conformity with a standard.

What is the impact on the NRV of A/R when we write off an account?

There is no impact.

A post closing trial balance does NOT include:

Dividends

What is one thing added to the bank balance in a bank reconciliation?

Deposits in transfer.

Recognizing losses immediately but deferring gains is an example of:

Conservatism.

Calculating Net A/R:

End A/R-Total Allowances