Accounting Exam #2

Front 1

Relevant Information

Back 1

Can influence a decision; it is timely and has predictive and/or feedback value

Front 2

Reliable Information

Back 2

Accurate, unbiased, and verifiable

Front 3

Consistent Information

Back 3

can be compared over time because similar accounting methods have been applied

Front 4

Comparable Information

Back 4

allows comparisons accross businesses because similar accounting methods have been applied

Front 5

Cost-Benefit Constraint

Back 5

Suggest that the benefits of accounting for and reporting information should outweigh the costs

Front 6

Tangible Assets

Back 6

Physical assets such as property plant and equipment

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Intangible Assets

Back 7

Non-physical assets such as trademarks patents or copyrights

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Par Value

Back 8

is the legal amount per shard established by the board of directors; minimum amount a stockholder must contribute; no relationship to market value of stock

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Paid-in Capital

Back 9

the amount of contributed capital less the par value of the stock

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Accumulated other comprehensive income

Back 10

include the net unrealized gains or losses on securities, net minimum pension liability adjustment, and net foregin currency translation adjustment, which are directly credited or debited to the stockholders' equity account

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Nonrecurring Items

Back 11

Reported in Income statements:
1. Discontinued operations
2. Extraordinary items
3. Cumulative effect of changes in accounting methods

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Cash Flows from Operating Activites

Back 12

reports cash flows associated with earning income

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Cash Flows from Investing Activities

Back 13

Cash flows in this section are associated with purchase and sale of:
1. Productive Assets
2. Investment in other companies

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Cash Flows from Financing Activities

Back 14

related to finanacing the business through debt issuances and repayments, stock issuances and repurchases and dividend payments

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Net Profit Margin

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Net Income/Net Sales:
measures how much of every sales dollar is profit

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Asset turnover (efficiency)

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Net Sales/Average Total Assets
measures how many sales dollars the company generates with each dollar of assets

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Financial Leverage

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Average Total Assets/Average Stockholders' Equity:
measures how many dollars of assets are employed for each dollar of stockholder investment
Increase by:
1. Increased borrowing
2. Repurchasing outstanding stock

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Market Efficiency

Back 18

A quick, unbiased reaction to financial information; reaction to an analyst report or recommendation

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5 reasons to accept credit cards

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1. Increase customer traffic
2. Avoiding the cost of providing credit driect to customers (bad debts, record keeping)
3. Lowering losses due to bad checks
4. Avoiding losses from fraudulent credit card sales
5. Faster receipt of its money

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2/10, n/30

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2 = discount percentage
10 = # of days in discount period
n = Net (total sales minus returns)
30 = maximum credit period

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Allowance Method

Back 21

bases bad debt expense on an estimate of uncollectible accounts - 2 steps:
1. making adjusting entry to record estimated bad debts
2. writing off accounts to be uncollectable

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Percentage of credit sales method (debt estimation)

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bases bad debt expense on the historical percentage of credit sales that result in bad debts

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Aging of Accounts Receivable Method (debt estimation)

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estimates uncollectible accounts based on the age of each account receivable

Front 24

Bank Reconciliation

Back 24

the process of cerifying the accuracy of both the bank statement and the cash accounts of a business

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Cost of Goods Sold Equation

Back 25

Beg. Inventory + purchases - ending inventory = COGS

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FIFO

Back 26

Used by most companies to make them lok good: maximizes net income and assets

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LIFO

Back 27

Used to end up paying less taxes