Accounting Final

Front 1

Advantages of Sole Proprietorship:

Back 1

Tax advantages, easy to open

Front 2

Advantages to Partnership

Back 2

Tax advantages, easy to establish, combine skills and resources (Money)

Front 3

Advantages to Corporations

Back 3

easy to transfer ownership, no personal liability

Front 4

Disadvantage to coporation

Back 4

extra taxes

Front 5

internal users of financial information

Back 5

marketing managers, production supervisors, finance directors, and company officers

Front 6

external users of financial information

Back 6

investors, creditors, taxing authorities, customers, labor unions (ex. Major League Baseball Players Assn.) and regulatory agencies (Ex. Federal Trade Commision)

Front 7

Three types of business activities

Back 7

Financing, Investing and Operating

Front 8

Financing activities

Back 8

selling stock, borrowing money, payment of dividends

Front 9

Investing activities

Back 9

occur after a company has raised money through financing activities

Hint 9

include purchasing resources and assets

Front 10

Operating Activities

Back 10

occur when a company has raised money through financing activities and then acquired assets and resources through investing activities

Hint 10

include revenues collected, purchasing of inventory, accounts receivable, expenses (rent, utilities, salaries), accounts payable, etc.

Front 11

Income Statment

Back 11

Purpose is to report the success or failure of the company's operations for a period of time

Hint 11

Includes: all revenue (excluding unearned revenues) and all expenses, and net income or net loss

Front 12

Retained Earnings Statement

Back 12

Records the Net Income RETAINED in the company

Hint 12

Includes previous retained earnings, net income and less dividends, which will equal to the current retained earnings

Front 13

Balance Sheet

Back 13

reports assets and claims to those assets at a specific point in time.

Hint 13

Includes all assets, liabilities and stockholder's equity

Front 14

Basic Accounting Equation

Back 14

Assets=Liabilities+Stockholder's Equity

Hint 14

Assets=Liabilities+Common Stock+Retained Earnings-Dividends+Revenues-Expenses

Front 15

working capital=

Back 15

current assets-current liabilities

Hint 15

When working capital is positive (meaning assets exceed liabilities) it is much more likely that the company will pay its liabilities

Front 16

Current Ratio

Back 16

Current assets
_____________

Current Liabilities

Hint 16

more dependable indicator of liquidity than working capital. The higher the number is away from one, the better the company is doing. (Usually the number is slightly over one)

Front 17

Earnings Per Share

Back 17

Net Income-Preferred Stocck Dividends
_________________________
Average Common Shares Outstanding

Hint 17

measures the net income on each share of common stock. should be a positive number

Front 18

Solvency

Back 18

a company's ability to pay interest as it comes due and to repay the balance of a debt due at its maturity

Hint 18

Solvency ratios measure the ability of the enterprise to survive over a long period of time

Front 19

debt to total assets ratio

Back 19

measures percentage of assets financed by creditors rather than stockholders

Hint 19

total liabilities
____________
total assets

Front 20

Characteristics of useful information

Back 20

relevancy, reliability, comparability,and consistency

Front 21

Relevance of Information

Back 21

does it make a difference in business decisions?

Front 22

Reliability of Information

Back 22

information must be verifiable, and a faithful repreentation of what it purports to be, it must be factual

Front 23

Comparability of Information

Back 23

results when different companies use the same accounting principles, each company must disclose the accounting methods used

Front 24

Consistency of Information

Back 24

means that a company uses the same accounting principles and methods from year to year

Front 25

Time Period Assumption

Back 25

states that the life of a business can be divided into artificial time periods and that useful reports covering those periods can be prepared for the business

Front 26

Economic Entity Assumption

Back 26

States that every economic entity can be separately identified and accounted for

Front 27

Monetary unit Assumption

Back 27

Requires that only those things that can be expressed in money are included in the accounting records

Front 28

Revenue recognition principle

Back 28

States that revenues be recorded only in the time period in which they are earned

Front 29

Matching Principle

Back 29

The principle that dictates that companies match efforts (expenses) with accomplishments (revenues)

Front 30

Cost Principle

Back 30

States that companies should record assets at their cost

Front 31

going concern assumption

Back 31

Assumption that the enterprise will continue in operation for the foreseeable future

Front 32

full disclosure principle

Back 32

states that companies disclose circumstances and events that make a difference to financial statement users

Front 33

temporary accounts

Back 33

accounts that only apply to the current accounting period

Hint 33

include revenues, expenses and dividends

Front 34

permanent accounts

Back 34

accounts that are included on the balance sheet because all of these accounts will carry over to the next accounting period

Front 35

entry to close net income to retained earnings

Back 35

debit income summary

Hint 35

credit retained earnings

Front 36

entry to close out dividends to retained earnings

Back 36

debit retained earnings

Hint 36

credit dividends