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127 Cards in this Set
- Front
- Back
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Why do stockholders have in interest in the company?
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A corporation issues the stock to individuals or other companies, who then become owners or STOCKHOLDERS of the corporation. Also, dividends!
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Service Business
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Provides services
Ex: transportation, entertainment |
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Merchandising Business
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Sell products purchased from other business
Ex: Wal-Mart or Amazon.com |
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Manufacturing Business
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Change basic inputs into products that are then sold
Examples: General Motors Dell Inc. |
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Liability
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a legal obligation to repay the amount borrowed according to the terms of the borrowing agreement
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Account payable
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when a company borrows from a vender or supplier the liability is an account payable
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Capital Stock
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refers to all the types of stock a corporation may issue
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Assets
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the resources owned by a corporation
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Tangible assets
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consist of physical characters
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Long-term tangible assets
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such as machinery, buildings and land are normally reported separately as "property, plant, and equipment"
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Short-term tangible assets
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such as cash and inventory are reported separately
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Intangible assets
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long-lived assets that are useful and without physical qualities such as patents, goodwill, and copyright are reported separately
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Pre-paid expenses
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insurance or rent
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Accounts receivable
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rights to payments from customers who purchased on credit
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Stockholders equity
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the stockholders' rights to the assets of a business
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Financial accounting
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the branch of accounting that is associated with preparing reports for users external to the business
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Managerial Accounting
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used to guide management in making financing, investing, and operations decisions for the company
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2 major objectives
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report the financial condition of a business at a point in time
report changes in the financial condition of a business over a period of time |
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Income Statement
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reports the change in financial condition due to the operations of a business (summery of revenue and expenses)
revenue-expenses=net income |
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Retained Earnings
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reports changes due to changes in retained earnings durning a period
It is the portion of net income retained by the business |
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Balance Sheet
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Reports the financial condition measured by total assets and claims to those assets
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Accounting equation
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Assets= Liabilites + Stockholders Equity
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Statement of Cash Flows
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reports changes due to the changes in cash during a period
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Generally Accepted Accounting Principles (GAAP)
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necessary so that stakeholders can compare among companies and across time
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Financial Accounting Standards Board (FASB)
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Has the primary responsibility for developing accounting prnciples
(publishes and interprets) |
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Securities and Exchange Commission (SEC)
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Has the authority over the accounting and financial disclosures for corporations whose stock is traded and sold to public
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There are eight accounting concepts: 1 Accounting period
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data be recorded and summarized in financial statements for a period of time
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2 adequate disclosure
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contain all relevant data a stakeholder needs to understand the financial condition and performance of a company
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3 business entity
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company is a separate entity form owner
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4 cost concept
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initially records assets in the accounting records at their cost or purchasing price
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5 going concept
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assumes a business will continue operation for an indefinite period of time
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6 matching concept
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expenses are matched with the revenues they generated
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7Objectivity concept
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based on verifiable or objective evidence
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8 Unit of measure
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Recorded in dollars
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ending cash on cash flows statement =
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balance sheet
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the net income on the income statement =
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the net effect of revenues and expenses on retained earnings
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What increases stockholder equity (capital stock)?
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by amounts invested by stockholders (capital stock)
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What increases/ decreases (SE) retained earnings?
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revenues increase retained earnings and expenses and dividends decrease
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How are the balance sheet and statement of cash flows integrated?
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The ending balance of cash on both agree with eachother
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What are the affects of....
investment in cash in return for stock |
Increase cash
increase capital stock Increase financing under cash flows |
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Loan from the bank..
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Increase cash
Increase notes payable Increase financing under cash flows |
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Purchase of land...
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Decrease cash
Increase land asset Decrease investing under cast flows |
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Fees earned in cash..
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Increase cash
Increase retained earnings Increase operating under cash flows Also increase fees earned under income statement |
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Paying off expenses...
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Decrease in cash
Decrease in retained earnings Decrease operating under cash flows |
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Paying dividends
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Decrease cash
Decrease retained earnings Decrease financing under cash flows |
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Classify cash transactions:
Operating |
daily operations with cash
Ex: fees earned, paid off expenses |
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Investing
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Plant, property or equipment
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Financing
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stockholders, creditors and dividends
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How would the sale of $1000 of product A to a customer on account affect the company's account?
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Increase $1000 accounts receivable and Increase retained earnings
Increase income statement under sales by $1000 |
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Accrued expense/ liability
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when a service is provided buy hasn't been paid for yet
ex: employee wages |
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How would wages owed to employees affect account?
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Increase wages payable under liabilities and decrease retained earnings under SE
Decrease wages expense under income statement |
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What is affected once wages are paid?
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Decrease in cash under assets
Decrease in wages payable decrease in operating under cash flows |
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Current liability
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liabilities that will be dues in a short period of time (less than a year) and are to be paid out of current assets
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Long-term liability
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not due for a long time (usually more than a year)
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Service Business
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sells services Ex: dog grooming or tax prepatation
(fees earned)-(operating expenses)= net income |
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Merchandising Business
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sells products and other tangible assets
Sales- cost of merchandise sold= Gross profit Gross profit - operating expense= net income |
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What do service business and merchandising business have in common?
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they both have revenues
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Define: multi-step income statement
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an income statement with several sections, subsections, and subtotals that considers customers returns and discounts, assumes a perpetual inventory system, and measures income/loss from the core operations of the business
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Format for multi-step income statement
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Sales
Less returns and allowances Less sales discount =Net sales Less COGS =Gross profit Operating Expenses (selling+ admin expenses = total operating expenses) Gross Profit - Total operating expenses = Income from operations Add/Subtract other income expenses= New income |
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Calculate COMS
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beginning inventory + net purchases - ending inventory
Net purchases = purchases - purchase discount - purchase discounts allowance and returns |
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explain 2/10, n/30
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2% discount if paid in 10 days, if not paid in 10 days then full amount due in 30 days
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Calculate Gross profit
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Gross profit= net sales- COGS
*net sales= revenue- returns and discounts |
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define: merchandise inventory
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merchandise on hand (not sold) at the end of an accounting period
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COGS/COMS
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the expense or cost of the merchandise that a business has sold for a period of time
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FOB destination
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seller pays freight (include cost in inventory/ increases delivery expense)
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FOB shipping point
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buyer pays freight
(increases merchandising inventory) |
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Purpose of sarbanes-oxley act
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assets are safeguarded and used for business purpose, business info is accurate, employees and managers comply with laws
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Internal control
Control Environment |
overall attitude of managers and employees
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Risk assessment
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managers should identify risk, analyze significance, assess their likelihood of occurring and take action
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control procedures
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provide reasonable assurance that the goals will be achieved
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Monitoring
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used to locate weakness and improve control
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Information and communication
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Information about the controlled environment
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How to calculate maturity value
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Maturity Value= Face value + Interest
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How to calculate interest
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Interest= Face amount x Interest rate x (term in days/360)
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The type of account that allowance for doubtful accounts is classified as...
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contra asset
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Net realizable value
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Net realizable value= estimated selling price- direct cost disposal
once you subtract your bad debt expense from you total accounts receivable, you are left with net realizable value |
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FIFO
LIFO |
first-in, first-out first units purchased are sold first
last-in, last-out last units purchased are assumed to be sold first |
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Fixed assets
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They are long-tem, tangible, owned and used, NOT inventory
Ex: equipment, machinery, buildings, and land |
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loss or gain when selling an asset
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if selling price is more than the book value, a gain is recorded
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Book value
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book value= cost- accumulated depreciation
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Annual depreciation
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(cost-residual value)/ useful life
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Depreciation
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cost of a fixed asset to an expense account during its expected life
record as an expense of useful life |
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Amortization
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is used with intangible assets such as patents and copyrights
decline in usefulness |
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Depletion
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used for natural resources
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Goodwill
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business that is created from favorable factors such as location, product quality, reputation, and managerial skill, verified from a merger transaction. Not amortized
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options a company has when financing
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Issue stock called equity
Issue debt, take out loans |
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Debt financing
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issuing bonds, purchasing on account, issuing notes payable
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Gross pay
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the total earnings of an employee fro a payroll period, including bonuses and overtime pay
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Premium/Discount/Face value
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Market rate=Contract rate (face value)
Market rate>contract rate (discount on bonds payable) Market rate<contract rate (premium) |
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Determine number of shares outstanding
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the stock remaining in the stockholders hands
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options a company has when financing
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Issue stock called equity
Issue debt, take out loans |
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Debt financing
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issuing bonds, purchasing on account, issuing notes payable
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Gross pay
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the total earnings of an employee fro a payroll period, including bonuses and overtime pay
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Premium/Discount/Face value
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Market rate=Contract rate (face value)
Market rate>contract rate (discount on bonds payable) Market rate<contract rate (premium) |
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Determine number of shares outstanding
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the stock remaining in the stockholders hands
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Prerequisites for paying cash dividends
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sufficient retained earnings, sufficient cash, and formal action by the board of directors
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Stock splits
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a corporation reduces the par of stated value of its common stock and issues a proportionate number of additional shares
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working capital
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current assets- current liabilities
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current ratio/ quick ratio
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assets/liabilities
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Independent auditors report
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an independent audit report of their financial statements, CPA conduct audit called port of independent registered public accounting firm
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Price-earning ratio
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measures a companys future earning prospects
Price earning ration= market price per share/ earnings per share |
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Underapplied factory overhead
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if the applied overhead is less than the actual incurred, the factory overhead account will have a positive balance
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Overlapped factory overhead
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if the applied overhead is more than the actual overhead, will have a negative account
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Materials inventory
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raw materials, consist of the cost of the direct and indirect material that have not yet entered the manufacturing process
Example: wood, guitar, strings, guitar bridges, and glue |
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Work-in-progress inventory
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consist of direct materials cost, direct labor cost, and factory overhead cost that have entered process but have not been completed
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Finished goods
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consist of completed jobs that have not been sold
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cost of goods sold
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the cost of sale that a manufacturer records upon the sale (guitars in store)
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Cost behavior
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manner in which a cost changes as a related activity changes. knowing how cost behave allows managers to predict profits as sales and production volumes change. Useful for estimating cost, which affects a variety of decisions such as whether or not to replace a machine
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activity bases
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identify the activities that cause the cost to change
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relevant rage
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specifying the range of activity over which the changes in the cost are of interest
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calculate operating profit
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contribution margin - fixed cost
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break-even sales
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Fixed cost/ unit contribution margin
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cost-volume profit analysis
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examination of the relationship amongst cost, expenses, sales, and operating profit or loss. Useful for managerial decision making
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Differential cost
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the amount of increase or decrease in cost expected from a particular course of action as compared with an alternative
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differential revenue
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the amount of increase or decrease in revenue expected from a particular course of action as compared with an alternative
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differential income (or loss)
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the difference between differential revenue and differential cost
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Sunk cost
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it is a cost that is not affected by subsequent decisions
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continuous budget
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maintaining a 12-month projection
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Flexible budget
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adjusts for a varying rates of activities
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zero based budget
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starts from zero, no previous activities in their units
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master budget
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comprehensive budget plan linking the individual budgets related to sales, cost of goods sold, operating expense, project, capital expenditures and cash.
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Calculate production budget
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expected units to be sold(from sales budget)+ desired unites in ending inventory-estimated unites in the beginning inventory=total units to be produced
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Theoretical standard/ideal standards
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standards that can be achieved only under perfect operating conditions
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direct materials price variance
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difference between the actual price per unit and the standard price
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Direct materials quantity variance
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difference between the actual quantity used and the standard quantity used
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direct labor rate variance
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actual rate per hour and the standard rate per hour
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direct labor time variance
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the actual hours worked and the standard hours worked
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