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146 Cards in this Set
- Front
- Back
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In case of bankruptcy in what order do people get dibs on the liquidation of assets?
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1) Creditors
2) Preferred Stock 3) Common Stock (Residual Equity; Leftovers) |
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What is a "Bond"?
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The company borrowed money from the public to be paid back with interest.
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What is "Stock"?
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1) Represents owners in the company.
2) Capital Gain (Appreciated in value/Dividend Income) |
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What are the four (4) basic financial statements (FS)?
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1) Income Statement (IS)
2) Statement of Owners Equity (SOE) 3) Balance Sheet (BS) 4) Statement of Cash Flows (SCF) |
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What is "Materiality"?
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Significant information (events that make a difference) must be recorded.
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What are "Internal Controls"?
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All the policies and procedures management uses to ensure the reliability of financial reporting in compliance with laws and regulations.
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What is "GAAS"?
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Generally
Accepted Auditing Standards |
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What is a "Financial Review"?
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It is something performed by a CPA that provides and opinion. It is typically less in-depth, quicker and cheaper.
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What is a "Financial Compilation"?
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It is when a business hires an accountant/book-keeper to prepare financial statements. This person does not have to be a CPA and provides no assurance (no opinion).
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What is the "Cost Principle"?
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All transactions are recorded at COST.
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What is "Accounting"?
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It is an information system that...
1) Measure- Assign it a value, assign it a value, record it at cost. 2) Process- Following the 9 steps to organize & process business transactions. 3) Communicate- Use financial statements to inform the users of the information. |
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What are the three (3) business activities?
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1) Financing Activity
2) Investing Activities 3) Operating Activities |
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What are "Financing Activities"?
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Money borrowed that will be paid back plus interest (Principal + Interest)
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What are "Investing Activities"?
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$ Out: Buy Land, Building, Equipment...
$ In: Sell Land, Building, Equipment... |
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What are "Operating Activities"?
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Day to day activities of running the business such as paying your employees, buying food, selling food or paying expenses.
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What are the two goals of a business?
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1) Profitability
2) Liquidity |
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What is the basic accounting equation?
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Assets = Liabilities + Owners Equity
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What is "Accrual Basis Accounting"?
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Revenues are recorded during the period in which they are earned & expenses when they are incurred.
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What is "Cash Basis Accounting"?
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Record the transaction when the cash is received & when cash is disbursed.
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What is an "S-Corp"?
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Typically used for small/family businesses, because "75" cap you are limited in your ability to raise funds.
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What is an "LLC"?
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A "Limited Liability Company" can have a limited life. Provides limited liability to it's owners.
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What is a "GP"?
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A "General Partnership" is where "all" run the business, mgt decisions and all members have unlimited liability. Must have at least one (1) general partner.
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What is an "LP"?
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A "Limited Partner" can't run the business but receive money from it.
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What four (4) transactions can impact "Owners Equity"?
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W- Withdrawl (-) (Debit)
I- Investment (+) (Credit) R- Revenue (+) (Credit) E- Expenses (-) (Debit) |
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What happens to an asset when it is used?
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It becomes an "expense".
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What happens when a company goes up for public offering?
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1) Initial Public Offering (IPO)
2) Underwriters 3) Investing Public (Secondary Market) |
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What is a "Fixed Asset"?
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It is a tangible asset, something that is real such as a building or equipment.
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What is the basic idea of the "Income Statement"?
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+ Revenue
- Expenses = Net Income/ Loss |
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Wages Payable
(Name the financial statement and what the account affects) |
Income Statement
Owners Equity |
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Utility Expense
(Name the financial statement and what the account affects) |
Income Statement
Owners Equity |
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Food Revenue
(Name the financial statement and what the account affects) |
Income Statement
Owners Equity |
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Marketing Expense
(Name the financial statement and what the account affects) |
Income Statement
Owners Equity |
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Catering Revenue
(Name the financial statement and what the account affects) |
Income Statement
Owners Equity |
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Cost of Sales
(Name the financial statement and what the account affects) |
Income Statement
Owners Equity |
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Prepaid Rent
(Name the financial statement and what the account affects) |
Balance Sheet
Current Asset |
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Notes Receivable- 3 Years
(Name the financial statement and what the account affects) |
Balance Sheet
Non-Current Asset |
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Withdrawal
(Name the financial statement and what the account affects) |
Statement of Owners Equity
Owners Equity |
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Accounts Payable
(Name the financial statement and what the account affects) |
Balance Sheet
Current Liabilities |
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Land
(Name the financial statement and what the account affects) |
Balance Sheet
Non-Current Asset |
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Unearned Revenue
(Name the financial statement and what the account affects) |
Balance Sheet
Current Liabilities |
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Accounts Receivable
(Name the financial statement and what the account affects) |
Balance Sheet
Current Asset |
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Prepaid Advertising
(Name the financial statement and what the account affects) |
Balance Sheet
Current Asset |
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Supplies
(Name the financial statement and what the account affects) |
Balance Sheet
Current Asset |
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Building
(Name the financial statement and what the account affects) |
Balance Sheet
Non-Current Asset |
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Notes Payable- 4 Months
(Name the financial statement and what the account affects) |
Balance Sheet
Current Liabilities |
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Cash
(Name the financial statement and what the account affects) |
Balance Sheet
Current Asset |
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Capital (Investor)
(Name the financial statement and what the account affects) |
Statement of Owners Equity
Owners Equity |
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Wages Payable
(Name the financial statement and what the account affects) |
Balance Sheet
Current Liability |
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What is the final step in the accounting sequence?
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Prepare a Post-Closing Trial Balance
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What does the "Statement of Cash Flow" (SCF) show?
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Where did cash came from.
Where did cash get spent. |
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What is a "Debit"?
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Left Side.
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What is a "Credit"?
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Right Side.
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How do "Debits" & "Credits" affect Assets?
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Debits- Increase Assets
Credits- Decrease Assets |
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How do "Debits" & "Credits" affect Liabilities?
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Debits- Decrease Liabilities
Credits- Increase Liabilities |
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How do "Debits" & "Credits" affect Owners Equity?
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Debits- Decrease Owners Equity
Credits- Increase Owners Equity (Withdrawal- Debit/Investment- Credit/Revenue-Credit/Expense-Debit) |
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Cash
(Name the financial statement and what the account affects) |
Balance Sheet
Current Asset |
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Capital (Investor)
(Name the financial statement and what the account affects) |
Statement of Owners Equity
Owners Equity |
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Wages Payable
(Name the financial statement and what the account affects) |
Balance Sheet
Current Liability |
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What is the final step in the accounting sequence?
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Prepare a Post-Closing Trial Balance
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What does the "Statement of Cash Flow" (SCF) show?
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Where did cash came from.
Where did cash get spent. |
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What is a "Debit"?
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Left Side.
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What is a "Credit"?
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Right Side.
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How do "Debits" & "Credits" affect Assets?
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Debits- Increase Assets
Credits- Decrease Assets |
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How do "Debits" & "Credits" affect Liabilities?
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Debits- Decrease Liabilities
Credits- Increase Liabilities |
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How do "Debits" & "Credits" affect Owners Equity?
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Debits- Decrease Owners Equity
Credits- Increase Owners Equity (Withdrawal- Debit/Investment- Credit/Revenue-Credit/Expense-Debit) |
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What is the order of accounts in the "Chart of Accounts" (COA)?
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1) Assets
2) Liabilities 3) Owners Equity |
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What is an "AJE"?
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Adjusting Journal Entries
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What can an "AJE" NEVER include?
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Cash
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What must an "AJE" ALWAYS include?
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Must always include one (1) "Balance Sheet" account and one (1) "Income Statement" account.
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Adjusting Journal Entry:
"Prepaid" |
DR: "Rent" Expense
CR: Prepaid "Rent" |
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Adjusting Journal Entry:
"Supplies" |
DR: Supplies Expense (Cost of Sales)
CR: Supplies (Food/Beverage Inventory) |
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Adjusting Journal Entry:
"Wages" |
DR: Wage Expense
CR: Wages Payable |
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Adjusting Journal Entry:
"Unearned Revenue" |
DR: Unearned Revenue
CR: Revenue |
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Adjusting Journal Entry:
"Interest Income" |
DR: Interest Receivable
CR: Interest Income |
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Adjusting Journal Entry:
"Interest Expense" |
DR: Interest Expense
CR: Interest Payable |
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Adjusting Journal Entry:
"Accrued Expenses/Accrued Revenues" |
DR: "Utility" Expense
CR: Accrued Expenses Payable |
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Adjusting Journal Entry:
"Fixed Assets (Depreciation Expense)" |
DR: Depreciation Expense
CR: Accumulated Depreciation |
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Adjusting Journal Entry:
"Intangible Assets (Amortization Expense)" |
DR: Amortization Expense
CR: Accumulated Amortization |
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Adjusting Journal Entry:
"Un-collectible Accounts (Bad Debt Expense)" |
DR: Bad Debt Expense
CR: Allowance For Bad Debt |
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"Tangible Assets" are subject to...
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Depreciation
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"Intangible Assets" are subject to...
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Amortization
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"Natural Resources" are subject to...
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Depletion
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What are the two methods for depreciation?
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1) Straight Line Method
2) Other Methods (Accelerated Methods) |
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What is the "Straight Line Method" of depreciation?
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The same amount is used up each time.
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"Accumulated Depreciation" is an example of a...
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Contra-Asset
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A "Post-Closing Trial Balance" contains only...
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Real/Permanent Accounts
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What are the four (4) parts to a "Multi-Step Income Statement"?
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1) Operating Expenses
2) |
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What are five (5) measures of profitability?
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1) Gross Profit Ratio
2) Cost of Sales 3) Labor Cost Ratio 4) Operation Margin 5) Total Profit Margin |
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Gross Profit Ratio
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(Gross Profit) / (Revenue/Sales)
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Cost of Sales
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(Cost of Sales) / (Revenue/Sales)
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Labor Cost Ratio
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(Labor Cost) / (Revenues)
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Operating Margin
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(Operating Income) / (Revenue/Sales)
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Total Profit Margin
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(Net Income) / (Revenue)
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Ratios should be compared to...
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Previous Period/ Budget/ Industry Standards/ Competitors
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What are "Cash & Cash Equivalents"?
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Things that can be converted to cash in ninety (90) days or less (Current Assets)
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What are "Marketable Securities"?
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Things that can be converted to cash between ninety (90) days and one (1) year. (Current-Assets)
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What are "Long-Term Investments"?
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Things that can not be converted to cash within one (1) year. (Non-Current Assets)
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What is "Conservatism"?
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When faced with uncertainties about an accounting procedure choose the alternative that will least likely overstate assets or income.
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What is "Consistency"?
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Once adopting an accounting procedure it must be used from one period to another unless a change is absolutely necessary. (the users must be informed of any changes)
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What is "Cost-Benefit"?
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Benefit gained from providing the information should be greater then the cost of providing the information.
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What is "Full Disclosure"?
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Financial statements must provide information on all the facts that are important to the interpretation of the financial statements.
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What is "Materiality?
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Significant information (events that make a difference) must be recorded.
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What is "Relevance"?
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The information that can make a difference in the outcome of a decision. The information must provide feedback and help predict future conditions, and be timely.
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What is "Reliability"?
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The user must be able to depend on the information. The information must be credible and verifiable by an independent party.
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What is "Objective Evidence"?
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Accounting records should be supported by evidence (documents) such as canceled checks, invoices and bank statements.
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What is the "Revenue Principle"?
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Revenue is recorded only when it is earned (the product is delivered or services are rendered)
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What does "Classification" mean?
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The process of assigning transactions to the appropriate account.
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What does "Recognition" mean?
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The determination of when a business transaction should be recorded.
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What is "Valuation"?
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The process of assigning a monetary value to a business.
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What is the "Going Concern" principal?
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The assumption that the business will continue indefinitely. Liquidity is not a prospect.
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What is the "Matching Principle"?
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All expenses must be recorded in the same period as the revenue which they help to generate.
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What is the "Time Period/Periodicity Assumption"?
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Users require timely information for decisions. Prepare financial statements more then once a year. Interim financial statements (monthly, quarterly)
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What is the "Revenue Principle"?
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Revenue is recorded only when it is earned (The product is delivered or the serve is rendered)
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What is "Comparability"?
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The information must be able to be compared over time and between entities.
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What is an "Asset"?
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An item controlled by an entity that has a future benefit as a result of a past transaction.
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What "Accounts Receivable"?
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It represents amount due to the company based on services already rendered and goods already sold.
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What is a "Patent"?
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An exclusive right granted by the federal government for a period of twenty (20) years to make a particular product or use a special process. (AMORTIZE OVER THE ASSET'S USEFUL LIFE)
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What is a "Copyright"?
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An exclusive right granted by the federal government to reproduce and sell literary, music and other artistic material for a period of the author's life plus 70 years. (AMORTIZE OVER THE ASSET'S USEFUL LIFE WHICH IS SHORTER THEN IT'S LEGAL LIFE)
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What is a "Trademark"?
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A brand name, registered symbol or name that can only be used by its owner to identify a product or service, review annually for IMPAIRMENT.
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what is a "Franchise License"?
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A right to an exclusive territory or market, or to exclusive use of a formula, technique, process or design. Can be amortized over the asset's useful life but if an indefinite life is determined, review anally for impairment.
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What is "Goodwill"?
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The excess of the purchase price over the fair value of net assets (equity) acquired the purchase of a business; goodwill is not amortized but reviewed annually for impairment.
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What are ALL intangible assets subject to?
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"Annual Impairment Test"
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What is "Common Stock"?
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Share of ownership of the corporation. Two (2) types: "Common" and "Preferred".
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What is "Par Value" (Stated Value)?
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An arbitrary value given to each share of stock; used to determine the "Legal Capital" of a corporation.
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What are "Authorized Shares"?
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The maximum number of shares a corporation can use without changing it's charter with the state.
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What are "Issued Shares"?
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The share of stock sold or otherwise transferred to stockholders.
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What are "Outstanding Shares"?
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Share that have been issued and are still in circulation.
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What is "Additional-Paid-In-Capital" or "APIC"?
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Consist of payments received in excess of the par value of the stock.
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what are "Retained Earnings"?
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Reflects earnings and losses accumulated in the business since its inception less dividends paid out.
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what is "Treasury Stock"?
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The companies own stock that it has repurchased but has not retired.
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Treasured Stock is a...
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Contra-Equity
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What does "Liquidity" mean?
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Having enough money on hand to pay bills when they are due, repay debt and to take are of unexpected needs for cash.
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What are three (3) measures of "Liquidity"?
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1) Working Capital
2) Current Ratio 3) Debt/Equity Ratio |
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How do you calculate "Working Capital"?
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(Current Assets) - (Current Liabilities)
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How do you calculate "Current Ratio"?
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(Current Assets) / (Current Liabilities)
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How do you calculate "Debt/Equity Ratio"?
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(Total Liabilities) / (Owner's Equity)
(A ratio of 1 or 100% means the company is financed half by creditors and half by the owners) |
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What does "Total Profit Margin Ratio" measure?
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It is a measure of how much net income is produced by each dollar of sales.
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What does "Operating Margin" measure?
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It is a measure of how much operating income is produced by each dollar of sales.
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What are the two (2) methods for estimations of "Bad Debt"?
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1) Percentage of Sales
2) Accounts Receivable Aging Method |
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What does "C.A.R.L." stand for?
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C- Common Stock (+)
A- APIC (+) R- Retained Earnings (+/-) L- Less Treasury Stock (-) |
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What act set-forth the minimum wage, overtime and record-keeping requirements and child-labor restrictions?
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The Fair Labor Standards Act (FLSA)
Enacted in 1938 |
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What is form "W-4"?
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Employee's Withholding Allowance Certificate for federal taxes.
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What is form "IT-2104"?
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Withholding Allowance Certificate for N.Y. state taxes
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What are the ?Employee Payroll Taxes"?
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Federal Income Tax, Social Security Taxes, State/ Local Taxes.
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What are some examples of "Other Payroll Deductions"?
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healthcare benefits, union dues, United Way contributions, garnishments (alimony, child support), 401K, pension plan.
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What is "Form 1099-MISC"?
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A form to report payments of $600 or more to persons not treated as employees (independent contractor) services performed for your business.
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