Accounting Test 1

Front 1

Accounting

Back 1

A system ANALYZING, RECORDING and SUMMARIZING the results of a business's activities and then reporting the decisions to makers. "Often called the Language of Business"

Front 2

Organizational Forms Include

Back 2

Sole Proprietorship, Partnership and Corporation

Front 3

Sole Proprietorship

Back 3

A business owned (and usually operated) by ONE individual. The owner takes PERSONAL RESPONSIBILITY for all debts of the business.

Front 4

Partnership

Back 4

A business in which all profits, taxes, and legal liability are the responsibility of TWO OR MORE owners instead of just one

Front 5

Corporation

Back 5

A separate entity from both a legal and accounting perspective. Owners of corporations (stockholders) are not personally responsible for debts of the corporation.

Front 6

Creditors and Investors

Back 6

Creditors- Anyone to whom money is owed (e.g. banks and suppliers)
Investors- Stockholders, Customers, and Governments.

Front 7

Assets

Back 7

Economic resources presently controlled by the company that have measurable value and are expected to PROVIDE FUTURE BENEFITS to the company.

Front 8

Liabilities

Back 8

Measurable amounts that companies owe to creditors

Front 9

Stockholder's Equity

Back 9

Owner's claim to the business resources

Front 10

Dividends

Back 10

Distributions of a company's earnings to its stockholders as a return on their investment. They accumulate in retained earnings (Stockholders Equity) until a decision is made to distribute them.

Front 11

Financial Statements include...

Back 11

Income Statement
Statement of Retained Earnings
Balance Sheet
Statement of Cash Flows

Front 12

Income Statement

Back 12

Reports the amount of Revenue minus expenses for a period of time

Revenue - Expenses = Net Income

Front 13

Statement of Retained Earnings

Back 13

Reports the way the Net Income and the distribution of dividends affected the financial position of the company during the period.

Beginning Retained Earnings
+ Net Income
- Dividends
__________
=Ending retained earnings

Front 14

Balance Sheet

Back 14

Reports the amount of a business's assets, liabilities, and stockholder's equity at a specific point in time.

Front 15

Statement of Cash Flows

Back 15

Reports the OPERATING, INVESTING, and FINANCING activities that caused increases and decreases in cash during the period.

Front 16

External Financial Reporting

Back 16

Provide useful (relevant and faithfully represented) information to external users for decision making

Front 17

Generally Accepted Accounting Principals (GAAP)

Back 17

Rules of Accounting created by the Financial Accounting Standards Board for use in the United States

Front 18

International Financial Reporting Standards (IFRS)

Back 18

Rules of Accounting created by the International Accounting Standards Board for international use.

Front 19

Code of Professional Conduct

Back 19

Ensuring that Accounting decisions are made in a professional and ethical manner, the American Institute of Certified Public Accountants (AICPA) requires this

Front 20

Sarbanes-Oxley Act (SOX)

Back 20

A set of laws established to strengthen corporate reporting in the United States

Front 21

Cost Principle

Back 21

Assets and Liabilities should be initially recorded at their original cost to the company

Front 22

Transactions

Back 22

An event or activity that has a direct and measurable financial effect on the assets, liabilities or stockholder's equity of a business

Front 23

Duality of Effects

Back 23

Every transaction has at least two effects on the basic accounting equation

Front 24

Chart of Accounts

Back 24

A list that designates a name and reference number that the company will use when accounting for each item it exchanges

(To ensure account titles are conistently, every company establishes a chart of accounts)

Front 25

Conservatism

Back 25

Using THE LEAST OPTIMISTIC MEASURES when uncertainty exists about the value of an asset or liability

Front 26

Operating Activities

Back 26

Include buying goods and services from suppliers and employees and selling good and services to customers then collecting cash for them. They are the primary source of revenues and expenses.

Front 27

Time Period Assumption

Back 27

The long life of a company is divided into shorter periods, such as months, quarters, and years

Front 28

Cash Basis Accounting

Back 28

Records revenues when cash is received and expenses when cash is paid.

Front 29

Revenue Principle

Back 29

The requirement under accural basis accounting to record revenues when they are earned, not necessarily when cash is received for them

Front 30

Matching Principle (Expense Recognition)

Back 30

Record expenses in the same period as the associated revenues

Front 31

Unearned Revenue

Back 31

A liability representing a company's obligation to provide goods or services to customers in the future

Front 32

The Accounting Cycle (1-10)

Back 32

1. Identify business transaction
2. Analyze effect of transaction on accounting equation
3. Prep journal entry for transaction
4. Post journal entries to general ledger (t-accounts)
5. Prepare a trial balance (unadjusted)
6. Prep and post adjusting entires
7. Prepare a trial balance (adjusted)
8. Prep financial statements
9. Prepare and Post closing entries
10. Prepare Post-Closing Trial Balance

Front 33

Deferral Adjustments

Back 33

Used to decrease balance sheet accounts and increase corresponding income statement accounts

Front 34

Accural Adjustments

Back 34

Used to record revenue or expenses incurred that have not yet been recorded (accounts payable or receivable)