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17 Cards in this Set
- Front
- Back
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Who are external users of financial statements?
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Banks
Suppliers Investors Perspective Investors Customers Government |
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What are the four keys to GAAP financial statements (generally accepted accounting principles)?
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Relevancy
Reliability Comparability Consistency |
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What 2002 act was passed to prevent accounting fraud by enforcing an independent auditing system and punishing executives severely?
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Sarbanes-Oxley Act of 2002
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How can you tell if financing comes from OE or debt?
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Which ever has a great dollar value or you can compute the debt-to-equity ratio
Debt-to equity ratio: Total liabilities/Total OE (if greater than 1, then you are mainly financed by debt or if less than 1, then you are mainly financed by equity) |
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How is a classified balance sheet set up?
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It is in order of liquidity
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Advantages of a partnership?
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-Pass-through taxation
-Ease of formation -Simplified bookkeeping -Favorable taxation -Increased ability to raise funds (relative sole proprietorship) |
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Disadvantages of a partnership?
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-Unlimited liability
-Co-ownership of property -Mutual agency (all bear responsibility for actions of others) -Partner disagreements |
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What are advantages of LLCs?
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-Limited Liability
-Ease of formation -Simplified bookkeeping -Favorable taxation (owner's pay taxes with their own tax returns) -Flexibility of operations |
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What are disadvantages of LLCs?
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-Limited corporate characteristics
(you must have owner's as managers, you cannot transfer ownership as easily) -Limited life (end with death or anything that forces a member to leave company) -Lack of legal precedents (no many cases involving LLCs) |
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Fixed ratio method for partnerships
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What proportion of income goes to each partner
e.g. $10,000 net income a 8:2 ratio $8,000 for one owner and $2,000 for other owner |
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Interest on Capital balances
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You have a percentage of income based on capital account and the remaining balance of net income is distributed according to fixed ratio method
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Salaries method
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A salary is paid to owner's and the remain amount is distributed according to the fixed ratio
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What are three limitations of the income statement?
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-It is now not net cash
-The value of a company during a period -The measurement of income involves counting (this does not take depreciation into account) |
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Why do unearned revenue and prepaid accounts need to be adjusted?
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They are overstated at the end of a period.
(You received or paid cash and probably have earned revenue or incurred expenses by the end) |
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What is a book value for equipment?
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Ending balance in equipment minus accumulated depreciation
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Which accounts are temporary?
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Revenue, expense and owner's drawing accounts are temporary
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How are accounts closed for a period?
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-Revenues are debited and income summary is credited with their total amount
-Expenses are credited and income summary is debited with their total amount (income summary now = net income) For net income Income summary is now debited to its full balance and the capital account is credited For a net loss The income summary is credited for full amount and the capital account(s) are debited -FINALLY, the drawing account is always credited and capital account is debited |
