Accounting 310

Front 1

name the essential characteristics of accounting: (3)

Back 1

1) identification; measurement; and communication of financial information
2) economic entities to
3) interested parties

Front 2

financial reporting should be useful to

Back 2

present and potential investors and creditors

Front 3

financial statements help investors and creditors to read the amounts, timing, and uncertainty of

Back 3

prospective cash receipts

Front 4

financial statements clearly portray ______, ________, and __________

Back 4

assets, liabilities and equity

Front 5

name the 5 financial statements

Back 5

Balance Sheet
Income Statement
Statement of Stockholder Equity
Statement of Cash Flows
Note Disclosure

Front 6

the set of standards that are generally accepted and universally practiced

Back 6

Generally Accepted Accounting Principles GAAP

Front 7

SEC

Back 7

Securities and Exchange Commission

Front 8

AICPA

Back 8

American Institute of Certified Public Accountants

Front 9

FASB

Back 9

Financial Accounting Standards Board

Front 10

Name the two Acts that the SEC issued

Back 10

Securities Act of 1933

Securities Act of 1934

Front 11

CAP

Back 11

Committee on Accounting Procedures

Front 12

what committee was in effect from 1939 to 1959; issued 51 accounting research bulletins but is no longer in existence?

Back 12

Committee on Accounting Procedures

Front 13

what committee came after the CAP and has been in existence since 1959? it has issued 31 opinions

Back 13

Accounting Principle Board

Front 14

what organization took over after APB?

Back 14

FASB

Front 15

- selects members of the FASB
- funds their activities
- exercises general oversight

Back 15

Financial Accounting Foundation

Front 16

mission to establish and improve standards of financial accounting and reporting

Back 16

Financial Accounting Standards Board

Front 17

consult on major policy issues

Back 17

Financial accounting standards Advisory board

Front 18

name the 5 steps of the due process

Back 18

1) agenda
2) discussion memorandum
3) public hearing
4) exposure draft
5) FASB Standard

Front 19

name (3) types of pronouncements made by the FASB

Back 19

1) standards, interpretations, and staff positions
2) financial accounting concepts
3) emerging issues task force statements

Front 20

name the two sets of standards accepted for international use:

Back 20

U.S. GAAP (FASB)

IFRS International Financial Reporting Standards (IASB)

Front 21

name two reasons for a need for a conceptual framework

Back 21

to develop a coherent set of standards and rules

to solve new and emerging practical problems

Front 22

SFAC #1

Back 22

Objectives of Financial Reporting

Front 23

SFAC #2

Back 23

Qualitative Characteristics of Accounting Information

Front 24

SFAC #3 & 6

Back 24

Elements of FInancial Statements

Front 25

SFAC # 5

Back 25

Recognition and Measurement in Financial Statements

Front 26

SFAC #7

Back 26

Using Cash Flow Information and present Value in Accounting measurements

Front 27

you record transactions when you earn revenue and when expenses are incurred

Back 27

Accrual basis

Front 28

Name the three objectives of Financial Reporting

Back 28

1) useful in investment and credit decisions
2) useful in assessing future cash flows
3) about enterprise resources, claims to resources, and changes in them

Front 29

Name the Qualitative characteristics (SFAC #2)

Back 29

relevance
reliability
comparability
consistency

Front 30

name the elements of financial reporting

Back 30

Assets Liabilities and Equity

Investments by Owners, Distribution to Owners, Comprehensive Income, Revenue and Expenses, Gains and Losses

Front 31

Name the three sections of the Third Level: Recognition and Measurement

Back 31

Assumptions
Principles
Constraints

Front 32

Name the four parts of Assumptions

Back 32

Economic Entity
Going Concern
Monetary Unit
Periodicity

Front 33

Name the four parts of Principles

Back 33

Measurement
Revenue Recognition
Expense Recognition
Full Disclosure

Front 34

Name the four parts of Constraints

Back 34

Cost-benefit
Materiality
Industry Practice
Conservatism

Front 35

a company may present highly relevant and reliable information, however it was useless to those who do not ________ it .

Back 35

understand (understandability)

Front 36

name the three parts of relevance

Back 36

predictive value
feedback value
timeliness

Front 37

name the four parts of reliability

Back 37

verifiability
representational faithfulness
neutrality

Front 38

information that is measured and reported in a similar manner for different companies is considered:

Back 38

Comparability

Front 39

when a company applies the same accounting treatment to similar events from period to period

Back 39

Consistency

Front 40

under this assumption, a company keeps its activity separate from its owners and their businesses

Back 40

economic entity

Front 41

under this assumption, a company has to last long enough to fulfill objectives and commitments

Back 41

going concern

Front 42

under this assumption, money is the common denominator

Back 42

monetary unit

Front 43

under this assumption, a company can divide its economic activities into time periods

Back 43

periodicity

Front 44

the most commonly used measurements are based on _______ cost and ________ _________.

Back 44

historical cost and fair value

Front 45

provides a reliable benchmark for measuring historical trends

Back 45

historical cost

Front 46

generally occurs when realized or realizable and when earned

Back 46

revenue recognition

Front 47

let the expenses follow the revenues

Back 47

expense recognition

Front 48

providing information that is of sufficient importance to influence the judgement and decisions of an informed user

Back 48

full disclosure

Front 49

the cost of providing the information must be weighed against the benefits that can be derived from using it

Back 49

cost benefit

Front 50

an item that is material if its inclusion or omission would influence or change the judgement of a reasonable person

Back 50

materiality

Front 51

the peculiar nature of some industries and business concerns sometimes requires departure from basic accounting theory; if no one in the industry is doing it, then there's a reason and its okay

Back 51

industry practice

Front 52

when in doubt, choose the solution that will be least likely to overstate assets and income

Back 52

conservatism

Front 53

customer satisfaction indexes, backlog information, and reject rates on goods purchased are considered:

Back 53

non-financial measurements

Front 54

assets have a normal _______ balance

Back 54

debit

Front 55

expenses have a normal ________ balance

Back 55

debit

Front 56

liabilities have a normal _______ balance

Back 56

credit

Front 57

equity accounts have a normal __________ balance

Back 57

credit

Front 58

Revenues have a normal ________ balance

Back 58

credit

Front 59

what are three exceptions to the revenue recognition principle?

Back 59

during production
at the end of the period
upon receipt of cash

Front 60

name the steps in the accounting process

Back 60

identification and measurement of transactions
Journalization
posting
trial balance preparation
adjustments
worksheet
adjusted trial balance
statement preparation
closing
post closing trial balance
reversing entries

Front 61

helps users predict the ultimate outcome of past, present and future events

Back 61

predictive value

Front 62

helps users confirm or correct prior expectations

Back 62

feedback value

Front 63

it is available to decision makers before it loses its capability to influence their decisions

Back 63

timeliness

Front 64

when independent measures, using the same methods, obtain similar results

Back 64

verifiability

Front 65

numbers and descriptions match what really existed or happened

Back 65

representational faithfulness

Front 66

a company cannot select information to favor one set of interest parties over another

Back 66

neutrality

Front 67

probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

Back 67

assets

Front 68

probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events

Back 68

liabilities

Front 69

residual interest in the assets of an entity that remains after deducting its liabilities; ownership interest in a business

Back 69

equity

Front 70

increases in net assets of a particular enterprise resulting from transfers to it from other entities of something of value to obtain or increase ownership interests in it

Back 70

investments by owner

Front 71

decreases in net assets of a particular enterprise resulting from transferring assets, rendering services or incurring liabilities by the enterprise to owners

Back 71

distributions to owners

Front 72

change in equity of an entity during a period from transactions and other events and circumstances from non-owner sources

Back 72

comprehensive income

Front 73

inflows or other enhancements of assets of an entity or settlement of its liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major or central operations

Back 73

expenses

Front 74

increases in equity from peripheral or incidental transactions of an entity from all other transactions and other events and circumstances affecting the entity during a period except those that result from revenues or investments by owners

Back 74

gains

Front 75

decreases in equity from peripheral or incidental transactions of an entity from all other transactions and other events and circumstances affecting the entity during a period except those that result from revenues or investments by owners

Back 75

losses

Front 76

assets, liabilities, and equity are affected by the other 7 elements:

investments by owners; distributions to owners; comprehensive income; revenues; expenses; gains; losses

Back 76

articulation

Front 77

the annual reports of Best Buy are audited by certified Public Accountants

Back 77

Verifiability

Front 78

Black and Decker and Cannondale Corporation both use the FIFO cost flow assumption

Back 78

comparability

Front 79

Starbucks Corporation has used straight-line depreciation since it began operations

Back 79

consistency

Front 80

motorola issues its quarterly reports immediately after each quarter ends

Back 80

timeliness

Front 81

arises from peripheral or incidental transactions

Back 81

gains and losses

Front 82

obligation to transfer resources arising from a past transaction

Back 82

liabilities

Front 83

increases in ownership interest

Back 83

investment by owner or comprehensive income

Front 84

Declares and pays cash dividends to owners.

Back 84

Distribution to owners

Front 85

Increases in net assets in a period from nonowner sources.

Back 85

Comprehensive Income

Front 86

Items characterized by service potential or future economic benefit.

Back 86

assets

Front 87

quals increase in assets less liabilities during the year, after adding distributions to owners and subtracting investments by owners.

Back 87

comprehensive income

Front 88

Arises from income statement activities that constitute the entity's ongoing major or central operations.

Back 88

Revenues or expenses

Front 89

Residual interest in the assets of the enterprise after deducting its liabilities.

Back 89

Equity

Front 90

Increases assets during a period through sale of product.

Back 90

Revenues

Front 91

Decreases assets during the period by purchasing the company's own stock.

Back 91

Distribution to owners

Front 92

Includes all changes in equity during the period, except those resulting from investments by owners and distributions to owners.

Back 92

Comprehensive Income

Front 93

allocates expenses to revenues in the proper period

Back 93

Expense recognition principle

Front 94

Indicates that fair value changes subsequent to purchase are not recorded in the accounts. (Do not use revenue recognition principle.)

Back 94

Historical cost principle

Front 95

Ensures that all relevant financial information is reported.

Back 95

Full disclosure Principle

Front 96

Rationale why plant assets are not reported at liquidation value. (Do not use historical cost principle.)

Back 96

Going Concern Assumption

Front 97

Anticipates all losses, but reports no gains.

Back 97

Conservatism

Front 98

Indicates that personal and business record keeping should be separately maintained.

Back 98

Economic Entity assumption

Front 99

Separates financial information into time periods for reporting purposes.

Back 99

periodicity assumption

Front 100

Permits the use of fair value valuation in certain specific situations. (Do not use fair value principle.)

Back 100

Industry Practices

Front 101

equires that information significant enough to affect the decision of reasonably informed users should be disclosed. (Do not use full disclosure principle.)

Back 101

materiality

Front 102

Assumes that the dollar is the “measuring stick” used to report on financial performance.

Back 102

Monetary Unit Assumption

Front 103

expenses paid in cash and recorded as assets BEFORE they are used or consumed

Back 103

Prepaid Expenses

Front 104

revenues received in cash and recorded as liabilities BEFORE they are earned

Back 104

Unearned Revenues

Front 105

to make a prepaid expense: adjusting entry:

what is the debit and credit

Back 105

debit an expense account


credit an Asset account

Front 106

to make an unearned revenue adjusting entry:


what is the debit and credit

Back 106

debit a liability account

credit a revenue account

Front 107

accumulated depreciation is a __________ account

Back 107

contra-asset

Front 108

revenues received in cash before a company earns them

Back 108

unearned revenue

Front 109

for an accrued revenue:

what is the debit and credit to adjust the entry

Back 109

debit asset

credit revenue

Front 110

for accrued expense :

what is the debit and credit to adjust the entry

Back 110

debit expenses

credit liability

Front 111

what is the formula for interest

Back 111

FACE VALUE X ANNUAL INTEREST RATE X TIME IN TERMS OF ONE YEAR

Front 112

what is the first step in the closing process

Back 112

close the revenues to income summary


debit service revenue and credit income summary

Front 113

what is the second step in the closing process

Back 113

close all expenses to income summary


debit income summary
credit all expenses

Front 114

what is the third step in the closing process

Back 114

close retained earnings to income summary


debit income summary and credit retained earnings

Front 115

what is the fourth step in the closing process

Back 115

close dividends to retained earnings


debit retained earnings
credit dividends

Front 116

what is the normal balance for dividends?

Back 116

debit

Front 117

what is the normal balance for expenses?

Back 117

debit

Front 118

an LLC is taxed as a ________________ or __________________

Back 118

sole proprietorship or partnership

Front 119

Revenue - Expenses =

Back 119

Net Income

Front 120

The statement of cash flows includes what three sections:

Back 120

operating, investing and financing

Front 121

everything on the Balance Sheet is on the

Back 121

Statement of Cash Flows

Front 122

there is a direct relationship between the accounting equation and the

Back 122

balance sheet

Front 123

True or False:

The International Accounting Standards Board issues International Financial Reporting Standards.

Back 123

True

Front 124

How does accounting help the capital allocation process attract investment capital

Back 124

provides timely, relevant information

Front 125

what is a major objective of financial reporting

Back 125

provide information that is useful to assess the amounts, timing, and uncertainty of perspective cash receipts

Front 126

Which organization was responsible for issuing Accounting Research Bulletins?

Back 126

Committee on Accounting Principles

Front 127

Authoritative standards for iGAAP include:

Back 127

international Financial Reporting Standards and International Accounting Standards only

Front 128

Which of the following statements regarding the IASB and FASB conceptual frameworks is not correct?

Back 128

The FASB and IASB agree that the sole objective of financial reporting is to provide users with information that is useful for decision-making

Front 129

which accounting assumption or principle is being violated if a company reports its corporate headquarter building at its fair value on the balance sheet?

Back 129

historical cost

Front 130

the allowance for doubtful accounts, which appears as a deduction from accounts receivable on a balance sheet and which is based on an estimate of bad debts, is an application of the

Back 130

matching principle

Front 131

stable-dollar assumption

Back 131

monetary unit assumption

Front 132

earning process completed and realized or realizable

Back 132

revenue recognition principle

Front 133

presentation of error-free information with representational faithfulness

Back 133

reliability characteristic

Front 134

yearly financial reports

Back 134

periodicity assumption

Front 135

accruals and deferrals in adjusting and closing process

Back 135

matching principle

Front 136

useful standard measuring unit for business transactions

Back 136

monetary unit assumption

Front 137

the ownership structure determines the

Back 137

types of accounts that go on the part of the equity section

Front 138

under a proprietorship or partnership, what goes under the equity section?

Back 138

capital account
drawing account

Front 139

under a corporation, what goes under the equity section?

Back 139

common stock
additional paid-in capital
dividends declared
retained earnings

Front 140

under the statement of cash flows, what goes under the operating section?

Back 140

cash inflows and outflows from operations

Front 141

under the statement of cash flows, what goes under investing section?

Back 141

cash inflows and outflows from non-current assets

Front 142

under the statement of cash flows, what goes under the financing section?

Back 142

cash inflows and outflows from non-current liabilities and equity

Front 143

change in cash =

Back 143

- A/R + A/P + CS + Rev - Ex

Front 144

the ownership structure determines the

Back 144

types of accounts that go on the part of the equity section

Front 145

under a proprietorship or partnership, what goes under the equity section?

Back 145

capital account
drawing account

Front 146

under a corporation, what goes under the equity section?

Back 146

common stock
additional paid-in capital
dividends declared
retained earnings

Front 147

under the statement of cash flows, what goes under the operating section?

Back 147

cash inflows and outflows from operations

Front 148

under the statement of cash flows, what goes under investing section?

Back 148

cash inflows and outflows from non-current assets

Front 149

under the statement of cash flows, what goes under the financing section?

Back 149

cash inflows and outflows from non-current liabilities and equity

Front 150

change in cash =

Back 150

- A/R + A/P + CS + Rev - Ex

Front 151

the ownership structure determines the

Back 151

types of accounts that go on the part of the equity section

Front 152

under a proprietorship or partnership, what goes under the equity section?

Back 152

capital account
drawing account

Front 153

under a corporation, what goes under the equity section?

Back 153

common stock
additional paid-in capital
dividends declared
retained earnings

Front 154

under the statement of cash flows, what goes under the operating section?

Back 154

cash inflows and outflows from operations

Front 155

under the statement of cash flows, what goes under investing section?

Back 155

cash inflows and outflows from non-current assets

Front 156

under the statement of cash flows, what goes under the financing section?

Back 156

cash inflows and outflows from non-current liabilities and equity

Front 157

change in cash =

Back 157

- A/R + A/P + CS + Rev - Ex

Front 158

the ownership structure determines the

Back 158

types of accounts that go on the part of the equity section

Front 159

under a proprietorship or partnership, what goes under the equity section?

Back 159

capital account
drawing account

Front 160

the ownership structure determines the

Back 160

types of accounts that go on the part of the equity section

Front 161

under a corporation, what goes under the equity section?

Back 161

common stock
additional paid-in capital
dividends declared
retained earnings

Front 162

under a proprietorship or partnership, what goes under the equity section?

Back 162

capital account
drawing account

Front 163

under the statement of cash flows, what goes under the operating section?

Back 163

cash inflows and outflows from operations

Front 164

under a corporation, what goes under the equity section?

Back 164

common stock
additional paid-in capital
dividends declared
retained earnings

Front 165

under the statement of cash flows, what goes under investing section?

Back 165

cash inflows and outflows from non-current assets

Front 166

under the statement of cash flows, what goes under the operating section?

Back 166

cash inflows and outflows from operations

Front 167

under the statement of cash flows, what goes under the financing section?

Back 167

cash inflows and outflows from non-current liabilities and equity

Front 168

under the statement of cash flows, what goes under investing section?

Back 168

cash inflows and outflows from non-current assets

Front 169

change in cash =

Back 169

- A/R + A/P + CS + Rev - Ex

Front 170

under the statement of cash flows, what goes under the financing section?

Back 170

cash inflows and outflows from non-current liabilities and equity

Front 171

change in cash =

Back 171

- A/R + A/P + CS + Rev - Ex

Front 172

the ownership structure determines the

Back 172

types of accounts that go on the part of the equity section

Front 173

under a proprietorship or partnership, what goes under the equity section?

Back 173

capital account
drawing account

Front 174

under a corporation, what goes under the equity section?

Back 174

common stock
additional paid-in capital
dividends declared
retained earnings

Front 175

under the statement of cash flows, what goes under the operating section?

Back 175

cash inflows and outflows from operations

Front 176

under the statement of cash flows, what goes under investing section?

Back 176

cash inflows and outflows from non-current assets

Front 177

under the statement of cash flows, what goes under the financing section?

Back 177

cash inflows and outflows from non-current liabilities and equity

Front 178

change in cash =

Back 178

- A/R + A/P + CS + Rev - Ex

Front 179

name four purposes of closing entries

Back 179

to reduce the balance of the income statement accounts to zero
to transfer net income or net loss to owner's equity
balance sheet accounts are NOT closed
dividends are closed directly to the Retained Earnings account

Front 180

accounts are increased by debits and liabilities are decreased by credits

Back 180

false

Front 181

the common stock account is increased by credits

Back 181

true

Front 182

an account will have a credit balance if the total debit amounts exceed the total credit accounts

Back 182

false

Front 183

the ledger is the entire group of accounts maintained by a company

Back 183

true

Front 184

the basic steps in the recording process are 1) to analyze each transaction 2) to enter the transaction in a journal 3) to transfer the journal entry to the appropriate ledger accounts

Back 184

true

Front 185

transferring journal entries to the ledger accounts i called posting and should be performed in chronological order

Back 185

true

Front 186

assets = liabilities + common stock + retained earnings - dividends + revenues - expenses is a correct form of the expanded basic accounting equation

Back 186

true

Front 187

in posting, one should enter J2 in the Post. Ref. Column on page two of the journal

Back 187

false

Front 188

when the columns of the trial balance equal each other, it proves no errors occurred in recording and posting

Back 188

false

Front 189

the double entry system is possible because all business transactions may be expressed in equal debit and credit entries

Back 189

true

Front 190

transactions are initially recorded in the

Back 190

general journal

Front 191

the right side of an account is referred to as the

Back 191

credit side

Front 192

a purchase of office equipment for cash requires a credit to

Back 192

cash

Front 193

the equality of the accounting equation can be proven by preparing a

Back 193

trial balance

Front 194

which of the following accounts would be increased with a debit

Back 194

dividends

Front 195

an individual accounting record of increases and decreases in a specific asset, liability, or stockholders' equity item

Back 195

account

Front 196

accounts are kept for the five subdivisions of stockholders equity which are:

Back 196

common stock
retained earnings
dividends
revenues
expenses

Front 197

what are the three steps in the recording process:

Back 197

1) analyze each transaction
2) enter the transaction info
3) transfer the journal info to the ledger account

Front 198

the most basic form of journal

Back 198

general journal

Front 199

entering transaction data in the journal

Back 199

journalizing

Front 200

when three or more accounts are required in one journal entry

Back 200

compound entry

Front 201

this has three columns and the balance in the account is determined after each transaction

Back 201

standard form of a ledger account

Front 202

the procedure of transferring journal entries to the ledger accounts

Back 202

posting

Front 203

a listing of the accounts and the account numbers which identify their location in the ledger

Back 203

chart of accounts

Front 204

a list of the accounts and their balances at a given time

Back 204

trial balance

Front 205

since companies find it desirable and necessary to report the results of their activities frequently, the time period assumption assumes that the economic life of a business can be divided into artificial time periods

Back 205

true

Front 206

the revenue recognition principle dictates that companies recognize revenue in the period in which it was received rather than when it was earned

Back 206

false

Front 207

monthly and quarterly timer periods are commonly referred to as fiscal periods

Back 207

false

Front 208

payments of expense that will benefit more than one accounting period are referred to as prepaid expenses

Back 208

true

Front 209

cost less accumulated depreciation is a measurement of the current value of an asset such as equipment or a building

Back 209

false

Front 210

depreciation is the process of allocating the cost of an asset to expense over its useful life in a rational and systematic manner

Back 210

true

Front 211

the adjusting entry for unearned revenues results in a debit to an asset account and a credit to a revenue account

Back 211

false

Front 212

a contra asset account is an account whose balance is deducted from a related asset in the financial statements

Back 212

true

Front 213

when accrual-basis accounting is applied, adjusting entries are not necessary

Back 213

false

Front 214

adjustments for accrued expenses are necessary to record the obligations that exist at the balance sheet date and to recognize the expenses that are applicable to the current accounting period

Back 214

true

Front 215

the recording of wages earned but not yet paid is an example of an adjustment that

Back 215

recognizes an accrued expense

Front 216

a list of the accounts and their balances after all adjustments have been made is known as

Back 216

adjusted trial balance

Front 217

prior to the recording of adjusting entries, revenues exceeded expenses by 80,000. adjusting entries for accrued wages of 10,000 and depreciation expense of 10,000 were made. net income for the year would be

Back 217

60,000

Front 218

the adjustment for depreciation is an example of

Back 218

apportioning costs between two or more periods

Front 219

most businesses choose fiscal years which correspond to the

Back 219

calendar year

Front 220

adjusting entries are required every time

Back 220

financial statements are prepared

Front 221

the process of allocating the cost of an asset to expense over its useful life in a rational and systematic manner

Back 221

depreciation

Front 222

in recording depreciation, ______________ is debited and __________________ is credited

Back 222

depreciation expense is debited

accumulated depreciation is credited

Front 223

the difference between the cost of the asset and its related accumulated depreciation is referred to as the

Back 223

book value

Front 224

the adjusting entry of an unearned revenue is

Back 224

debit a liability account: unearned rent revenue

credit a revenue account : rent revenue

Front 225

revenues earned but not yet recorded at the statement date

Back 225

accrued revenues

Front 226

the adjusting entry for an accrued revenue is

Back 226

to debit an asset account: accounts receivable and

credit a revenue account :
dental fees earned

Front 227

expenses incurred but not yet paid or recorded at the statement date

Back 227

accrued expenses

Front 228

the adjusting entry for an accrued expense:

Back 228

debit an expense account:
salaries expense

credit a liability account:
salaries payable

Front 229

an important purpose of closing entries is to set permanent account balances to zero in order to begin the next period

Back 229

false

Front 230

the preparation of reversing entries is a required step in the accounting cycle

Back 230

false

Front 231

a worksheet can be used as a basis for posting the adjustments to the ledger

Back 231

false

Front 232

the content of the owner's equity section of a proprietorship is the same as the content of the owners' equity section of a corporation

Back 232

false

Front 233

adjustments are journalized and posted only at the end of an accounting period, whereas correcting entries are journalized and posted whenever an error is discovered

Back 233

true

Front 234

current assets are resources that can be converted into cash, but are not expected to be converted within one year

Back 234

false

Front 235

long-term liabilities such as bank notes payable, mortgages payable, and bonds payable are expected to be paid from existing current assets

Back 235

false

Front 236

the balance of accumulated depreciation will appear in the credit side of the worksheet's balance sheet column

Back 236

true

Front 237

the relationship between current assets and current liabilities is important in evaluating a company's liquidity

Back 237

true

Front 238

intangible assets are not listed on the balance sheet because they do not have physical substance

Back 238

false

Front 239

the worksheet is a type of

Back 239

working paper

Front 240

in preparing closing entries, which of the following columns of the worksheet are the most helpful

Back 240

the income statement columns

Front 241

the proper sequence for the accounting cycle is:

Back 241

analyze, journalize, post, adjust, prepare statements, close

Front 242

after all the closing entries have been posted, the balance of the income summary will be

Back 242

zero

Front 243

the post-closing trial balance will

Back 243

contain only balance sheet accounts

Front 244

a multiple-column form that may be used in the adjustment process and in preparing financial statements

Back 244

worksheet

Front 245

errors that occur in recording transactions should be corrected as soon as they are discovered by preparing

Back 245

correcting entries

Front 246

assets that a company expects to convert to cash or use up within one year; listed in the order of their liquidity

Back 246

current assets

Front 247

the average time that it takes to purchase inventory, sell it on account, and then collect cash from customers

Back 247

operating cycle

Front 248

generally investments in stocks and bonds of other companies that are normally held for many years

Back 248

long-term investments

Front 249

assets with relatively long useful lives that a company is currently using in operating the business

Back 249

property, plant and equipment

Front 250

do not have physical substance yet are often very valuable

Back 250

intangible assets

Front 251

obligations that the company is to pay within the coming year

Back 251

current liabilities

Front 252

obligations that a company expects to pay after one year

Back 252

long-term liabilities

Front 253

a balance sheet is most likely presented in ______ _______ with the assets shown above the liabilities and owners equity

Back 253

report form

Front 254

a balance sheet can also be expressed with the assets section placed on the left and liabilities and owner's equity section on the right

Back 254

account form

Front 255

what is the purpose of a reversing entry

Back 255

to simplify the recording of a subsequent transaction related to an adjusting entry

Front 256

a prepaid expense can beset be described as an amount

Back 256

paid and nor currently matched with revenues

Front 257

a journal entry to record a payment on account will include a

Back 257

debit to accounts payable

Front 258

a journal entry to record the sale of inventory on account will include a

Back 258

debit to accounts receivable

Front 259

measuring net income for a merchandiser is conceptually the same as for a service enterprise

Back 259

true

Front 260

the cost of goods sold is determined only at the end of the accounting period under a perpetual inventory system

Back 260

false

Front 261

under the perpetual inventory system, the purchase of merchandise is recorded with a debt to the Purchases account

Back 261

false

Front 262

sales discounts is a contra revenue account and has a debit balance

Back 262

true

Front 263

a customer may receive a sales discount for goods that are damaged or defective

Back 263

false

Front 264

in a single step income statement, gross profit and operating income are shown on the income statement

Back 264

false

Front 265

in the balance sheet, merchandise inventory is reported as a current asset immediately below accounts receivable

Back 265

true

Front 266

income from operations is determined by subtracting administrative expenses from gross profit

Back 266

false

Front 267

administrative expenses relate to general operating activities such as personnel management

Back 267

true

Front 268

in preparing a worksheet for a merchandiser, all income statement column debits represent expenses

Back 268

false

Front 269

sales discounts (3)

Back 269

is a contra revenue account
has a normal debit balance
appears on the income statement

Front 270

when a company uses the perpetual method of accounting for inventories the

Back 270

Merchandise Inventory account is debited when inventory is purchased and Cost of Goods sold is debited when inventory is sold

Front 271

the recording of a sale requires a

Back 271

credit to sales and a debit to an asset account

Front 272

which of the following would not be considered an operating expense?

Back 272

cost of goods sold

Front 273

which of the following is reported on both a multiple-step and a single-step income statement

Back 273

net sales

Front 274

expenses are divided into two categories which are;

Back 274

cost of goods sold

operating expenses

Front 275

in a _______ ______ ______, detailed records of the cost of each inventory item are maintained and the cost of each item sold is determined from the records when the sale occurs

Back 275

perpetual inventory system

Front 276

in a ______ ______ ______, detailed inventory records are not maintained and the cost of goods sold is determined only at the end of an accounting period

Back 276

periodic inventory system

Front 277

when the credit terms of a purchase on account permits the purchaser to claim a cash discount for the prompt payment of a balance due

Back 277

purchase discount

Front 278

goods are placed free on board the carrier by the seller, and the buyer must pay the freight costs

Back 278

FOB shipping points

Front 279

the goods are placed free on board at the buyer's place of business and the seller pays the freight

Back 279

FOB destination

Front 280

when the purchaser pays the freight,

what is debited and what is credited

Back 280

merchandise inventory is debited and

cash is credited

Front 281

when the seller pays the freight,

what is debited and what is credited

Back 281

delivery expense or freight out is debited and

cash is credited

Front 282

when a customer is dissatisfied with merchandise and is allowed to return the goods to the seller for credit or for a cash refund

Back 282

sales return

Front 283

a customer is dissatisfied with merchandise and the seller is willing to grant an allowance from the selling price

Back 283

sales allowance

Front 284

to give the customer a sales return or allowance, the seller normally prepares a business document known as a_________ ______, to inform the customer that a credit has been made to the customer's account receivable

Back 284

credit memorandum

Front 285

the report that measures the success of company operations for a given period of time

Back 285

income statement

Front 286

name three ways that investors and creditors use the income statement information for:

Back 286

1) evaluate the past performance of the company
2) provide a basis for predicting future performance
3) help assess the risk or uncertainty of achieving future cash flows

Front 287

why are there limitations to the income statement

Back 287

because net income is an estimate and reflects a number of assumptions

Front 288

name 3 of the basic limitations to the income statement

Back 288

1) companies omit items from the income statement that they cannot measure reliably
2) income numbers are affected by the accounting methods employed
3) income measurement involves judgement

Front 289

the planned timing of revenues, expenses, gains and losses to smooth out bumps in earnings

Back 289

earnings management

Front 290

explain the "cookie jar" reserves

Back 290

companies establish theses reserves by using unrealistic assumptions to estimate liabilities for such items as loan losses, restructuring charges, and warranty returns. the company then reduces these reserves in the future to increase reported income in the future

Front 291

focuses on the income-related activities that have occurred during the period

Back 291

transaction approach

Front 292

the income statement summarizes the transactions of net income, which includes:

Back 292

revenue, expenses, gain and loss

Front 293

inflows or other enhancements of assets of an entity or settlements of its liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing major or central operations

Back 293

revenues

Front 294

outflows or other using-up of assets or incurrences of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major or central operations

Back 294

expenses

Front 295

increases in equity (net assets) from peripheral or incidental transactions of an entity except those that result from revenues or investments by owners

Back 295

gains

Front 296

decreases in equity *net assets) from peripheral or incidental transactions of an entity except those that result from expenses or distributions to owners

Back 296

losses

Front 297

consists of just two groupings: revenues and expenses

Back 297

single-step income statement

Front 298

what is the primary advantage of the single-step format

Back 298

the simple presentation and the absence of any implication that one type of revenue or expense item has priority over another

Front 299

why do companies use a multiple-step income statement?

Back 299

to recognize these additional relationships

Front 300

a report of the revenues and expenses of the company's principal operations

Back 300

operating section

Front 301

a subsection presenting sales, discounts, allowances, returns, and other related information. its purpose is to arrive at the net amount of sales revenue

Back 301

sales or revenue section

Front 302

a subsection that shows the cost of goods that were sold to produce the sales

Back 302

cost of goods sold section

Front 303

a subsection that lists expenses resulting from the company's efforts to make sales

Back 303

selling expenses

Front 304

a subsection reporting expenses of general administration

Back 304

administrative or general expenses

Front 305

a report of revenues and expenses resulting from secondary or auxiliary activities of the company. in addition, special gains and losses that are infrequent or unusual, but not both, are normally reported in this section.

Back 305

non-operating section

Front 306

a list of the revenues earned or gains incurred, generally net of related expenses, from non-operating transactions

Back 306

other revenues and gains

Front 307

a list of the expenses or losses incurred, generally net of any related incomes, from non-operating transactions

Back 307

other expenses and losses

Front 308

a short section reporting federal and state taxes levied on income from continuing operations

Back 308

income tax

Front 309

material gains or losses resulting form the disposition of a segment of the business

Back 309

discontinued operations

Front 310

unusual and infrequent material gains and losses

Back 310

extraordinary items

Front 311

manufacturing concerns and merchandising companies in the wholesale trade commonly use this type of organization

Back 311

natural expense classification

Front 312

what is included under the functional expense classification?

Back 312

administrative, occupancy, publicity, buying and selling expenses

Front 313

what does the disclosure of net sales help to explain?

Back 313

it discloses irregular or incidental revenues elsewhere in the income statement and therefore, analysts can more easily understand and assess trends

Front 314

what does the reporting of gross profit provide for readers?

Back 314

provides a useful number for evaluating performance and predicting future earnings; readers can study the trends in gross profits to determine how successfully a company uses its resources;

Front 315

what does disclosing income from operations help to disclose?

Back 315

highlights the difference between regular and irregular or incidental activities. helps users recognize that incidental or irregular activities are unlikely to continue at the same level

Front 316

although the GAAP is pretty flexible, what are the two important areas that FASB has developed specific guidelines

Back 316

what to include in income

how to report certain unusual or irregular items

Front 317

what is a current operating performance approach?

Back 317

the most useful income measure reflects only regular and recurring revenue and expense elements

Front 318

irregular items reflect a company's future earning power

Back 318

false

Front 319

what does the modified all-inclusive concept require?

Back 319

indicates that companies record most items, including irregular ones, as part of net income

Front 320

list the 6 irregular items

Back 320

1) discontinued operations
2) extraordinary items
3) unusual gains and losses
4) changes in accounting principles
5) changes in estimates
6) corrections of errors

Front 321

list two things that could happen under a discontinued operation

Back 321

2) a company eliminates the results of operations and cash flows of a component from its ongoing operations
2) there is no significant continuing involvement in that component after the disposal transaction

Front 322

what phrase do companies use when gains or losses on discontinued operations occur

Back 322

income from continuing operations

Front 323

nonrecurring material items that differ significantly from a company's typical business activities

Back 323

extraordinary items

Front 324

name the two criteria that make a material extraordinary

Back 324

unusual in nature

infrequency of occurrence

Front 325

the underlying event or transaction should possess a high degree of abnormality and be of a type clearly unrelated to, or only incidentally related to, the ordinary and typical activities of the company, taking into account the environment in which it operates

Back 325

unusual nature

Front 326

the underlying event or transaction should be of a type that the company does not reasonably expect to recur in the foreseeable future, taking into account the environment in which the company operates

Back 326

infrequency of occurrence

Front 327

a company classifies gains or losses as extraordinary if (3)

Back 327

1) they resulted directly from a major casualty
2) an expropriation
3) prohibition under a newly enacted law or regulation

Front 328

relates to a major reorganization of company affairs, such as costs associated with employee layoffs, plant closing costs, and write-offs of assets

Back 328

restructuring charge

Front 329

where to companies tend to report unusual items?

Back 329

in a separate section just above "income from operations before income taxes and extraordinary items"

Front 330

why did the board specifically prohibit a net-of-tax treatment for such items

Back 330

to ensure that users of financial statements can easily differentiate extraordinary items- reported net of tax- from material items that are unusual or infrequent, but not both

Front 331

how does a company recognize a change in accounting principle?

Back 331

by making a retrospective adjustment to the financial statements

Front 332

when do companies account for such changes in estimates?

Back 332

in the period of change if they affect only that period, orin the period change and future periods in the change affects both

Front 333

companies do not handle changes in estimate retrospectively

T/F

Back 333

True

Front 334

what are the most common errors that are corrected?

Back 334

improper reporting or revenue, accounting for stock options, allowances for receivables, inventories, restructuring, and loss contingencies

Front 335

corrections of errors are treated as

Back 335

prior period adjustments

Front 336

where do companies classify discontinued operations of a component

Back 336

as a separate item in the income statement

Front 337

where do companies show the unusual, material, nonrecurring items that significantly differ from the typical or customary business activities ?

Back 337

in a separate "Extraordinary Items" section below "discontinued operations"

Front 338

disposal of a component of a business for which the company can clearly distinguish operations and cash flows from the rest of the company's operations

Back 338

discontinued operations

Front 339

material, and both unusual and infrequent

Back 339

extraordinary items

Front 340

material; character typical of the customary business activities; unusual or infrequent but NOT BOTH

Back 340

unusual gains or losses, not considered extraordinary

Front 341

change from one generally accepted principle to another

Back 341

changes in principle

Front 342

normal, recurring corrections and adjustments

Back 342

changes in estimates

Front 343

mistake, misuse of facts

Back 343

corrections of errors

Front 344

companies report irregular items on the income statement or statement of retained earnings net of tax

Back 344

intra-period tax allocation

Front 345

companies use intraperiod tax allocation on the income statement for the following items:

Back 345

1) income from continuing operations
2) discontinued operations
3) extraordinary operations

Front 346

net income minus preferred dividends, divided by the weighted average of common shares outstanding

Back 346

earnings per share

Front 347

companies must disclose earnings per share on the ...

Back 347

face of the income statement

Front 348

net income increases

Back 348

retained earnings

Front 349

a net loss decreases

Back 349

retained earnings

Front 350

in some cases, companies transfer the amount of retained earnings restricted to an account titled Appropriated Retained Earnings. They may be report two separate amounts

Back 350

retained earnings free (unrestricted)

retained earnings appropriated (restricted)

Front 351

why are changes in accounting principles and correction of errors excluded from the calculation of net income?

Back 351

because their effects relate to prior periods

Front 352

why shouldn't fair values be reported when measuring assets and liabilities?

Back 352

because fair values are continually changing;

FASB agrees and has identified some transactions that shouldnt be recorded directly to stockholders' equity

Front 353

companies include the items that can't be included on the income statement in _________ ________

Back 353

comprehensive income

Front 354

includes all changes in equity during a period except those resulting from investments by owners and distributions to owners

Back 354

comprehensive income

Front 355

non-owner changes in equity that bypass the income statement

Back 355

other comprehensive income

Front 356

revenues and gains;
expenses and losses reported in net income
gains and losses that bypass net income but affect stockholder's equity

Back 356

comprehensive income

Front 357

name the three ways that FASB has identified for companies to display the components of other comprehensive income:

Back 357

1) a second income statement
2) a combined statement of comprehensive income
3) as a part of the statement of stockholders' equity

Front 358

name one disadvantage of the combined statement of comprehensive income

Back 358

net income is a subtotal on the statement

Front 359

on the third alternative of how to express comprehensive income,

how do companies prepare the statement of stockholders' equity?

Back 359

in columnar form

Front 360

of the three choices to display comprehensive income, which is the one most companies use?

Back 360

statement of stockholders' equity

Front 361

what is balance sheet sometimes referred to as

Back 361

statement of financial position

Front 362

what does the balance sheet help to predict?

Back 362

the amounts, timing and uncertainty of future cash flows

Front 363

describes the amount of time that is expected to elapse until an asset is realized or otherwise converted into cash or until a liability has to be paid

Back 363

liquidity

Front 364

what kind of liquidity ratios are creditors interested in?

Back 364

ratio of cash to short-term liabilities

Front 365

the greater the liquidity, the lower the

Back 365

risk of its failure

Front 366

refers to the ability of a company to pay its debts as they mature

Back 366

solvency

Front 367

companies with higher debt are relatively more

Back 367

risky

Front 368

what two things affect a company's financial flexibility?

Back 368

liquidity and solvency

Front 369

measures the ability of an enterprise to take effective actions to alter the amounts and timing of cash flows so it can respond to unexpected needs and opportunities

Back 369

financial flexibility

Front 370

the greater an enterprise's financial flexibility,

Back 370

the lower its risk of failure

Front 371

name three of the major limitations of the balance sheet

Back 371

1) historical cost
2) judgements and estimates
3) omits many items that are of financial value

Front 372

what does it mean when balance sheets accounts are classified?

Back 372

they group together similar items to arrive at significant subtotals

Front 373

does FASB support the reporting of just summary accounts alone or specific subsections?

Back 373

specific subsections for readers to see sufficient detail

Front 374

name three ways that companies separate different characteristics

Back 374

1) type or expected function
2) different implications for the company's financial flexibility
3) different general liquidity characteristics

Front 375

probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

Back 375

assets

Front 376

probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events

Back 376

liabilities

Front 377

residual interest in the assets of an entity that remains after deducting its liabilities. in a business enterprise, the equity is the ownership interest

Back 377

equity

Front 378

cash and other assets a company expects to convert into cash, sell, or consume either in one year or in the operating cycle, whichever is longer

Back 378

current assets

Front 379

the average time between when a company acquires materials and supplies and when it receives cash for sales of the product

Back 379

operating cycle

Front 380

how are current assets presented in the balance sheet?

Back 380

in order of liquidity

Front 381

when does the company plan to classify the asset as current?

Back 381

if a company expects to convert an asset into cash or to use it to pay a current liability within a year or the operating cycle, whichever is longer

Front 382

short-term highly liquid investments that will mature within three months or less

Back 382

cash equivalents

Front 383

debt securities that a company has the positive intent and ability to hold to maturity

Back 383

held-to-maturity

Front 384

debt and equity securities bought and held primarily for sale in the near term to generate income on short-term price differences

Back 384

trading

Front 385

debt and equity securities not classified as held-to-maturity or trading securities

Back 385

available-for-sale

Front 386

when does a company include prepaid expenses in current assets ?

Back 386

if it will receive benefits within one year or the operating cycle, whichever is longer

Front 387

when a customer is dissatisfied with merchandise and is allowed to return the goods to the seller for credit or for a cash refund

Back 387

sales return

Front 388

when a customer is dissatisfied with merchandise and the seller is willing to grant an allowance from the selling price

Back 388

sales allowance

Front 389

sales returns and allowances is a _____ account and the normal balance is a ______

Back 389

contra asset account

debit

Front 390

the offer of a cash discount to a customer for the prompt payment of the balance due

Back 390

sales discount

Front 391

sales discount is a ______ account and the normal balance is a _________

Back 391

contra asset account

debit

Front 392

net sales less cost of goods sold

Back 392

gross profit