Accounting Test 1

Front 1

Profitability

Back 1

the ability to earn enough income to attract and keep investment capital

Front 2

Liquidity

Back 2

have enough cash available to pay debts when they're due

Front 3

Operating Activities

Back 3

includes all cash inflows and outflows related to: normal business operations/making income

Front 4

Investing Activities

Back 4

cash flows related to the purchase or sale of productive resources/assets/investment that'll help the business achieve its goals and objectives

Front 5

Financing Activities

Back 5

cash flows related to: external sources of funding (capital) for the business/financing of debt and equity transactions

Front 6

Assets

Back 6

economic resources owned by a business or expected to benefit the business in the future

Front 7

Liabilities

Back 7

Any obligations of a business

Front 8

Equity

Back 8

the residual interest in the business; claims by the owners to the assets of the business after all obligations have been satisfied (net assets)

Front 9

Revenues

Back 9

Increase in equity as a result of operations of a business (sales)

Front 10

Expenses

Back 10

decreases in equity (resources used up to help earn revenues)

Front 11

Balance Sheet

Back 11

Communicates the financial position of a business on a certain date

Front 12

Income Statement

Back 12

summarizes the revenues earned and expenses incurred by a business over a period of time

Front 13

Statement of Stockholder's Equity

Back 13

Illustrates change in owner's equity (retained earnings) over a period of time

Front 14

Statement of Cash Flows

Back 14

illustrates the cash inflows and outflows of of a business over a period of time

Front 15

Management

Back 15

Those responsible for operating the business, meeting profitability and liquidity goals

Front 16

Direct financial interest

Back 16

depend on accounting info to report on how the business has performed, as an indicator of how it'll do in the future. includes creditors and investors

Front 17

Indirect financial interest

Back 17

depends on accounting info to help makes decisions on public issues (tax authorities, regulatory agencies, financial advisors, lawyers, customers, suppliers, etc)

Front 18

Financial Accounting

Back 18

used by external decision makers, communicates financial infor, highly summarized, must adhere to GAAP

Front 19

Managerial Accounting

Back 19

used by internal decision makers, more detailed info, doesn't have to follow GAAP

Front 20

GAAP

Back 20

generally accepted accounting principles, developed to provide guidelines for financial accounting practices

Front 21

FASB

Back 21

Financial accounting standards board (establishes gaap)

Front 22

SEC

Back 22

Securities and exchange commission

Front 23

PCAOB

Back 23

public company accounting oversight board (auditing standards)

Front 24

AICPA

Back 24

american institute of certified public accountants: professional association standards

Front 25

IASC

Back 25

international accounting standards board: developing international accounting standards

Front 26

Historical cost

Back 26

amount paid on transaction date is used to initially record the elements

Front 27

revenue recognition

Back 27

record revenue only when its measurable, realizable or realized, and has been earned.

Front 28

matching principle

Back 28

records expenses when the expense is incurred to generate revenues

Front 29

full disclosure

Back 29

must provide users with info that could impact a decision

Front 30

separate entity

Back 30

activities of a business a separate and distinct from its owners

Front 31

periodicity

Back 31

financial life of a compnay can be reported in shorter time periods

Front 32

continuity

Back 32

entity will not be going out of business in the near future

Front 33

relevant

Back 33

info provided would impact a decision

Front 34

reliable

Back 34

can be independently verified to be accurate

Front 35

comparable

Back 35

similar accounting methods have been applied across different companies

Front 36

consistent

Back 36

w/in a company, similar accounting methods have been applied over time

Front 37

cost/benefit

Back 37

benefits to providing the info to the users should outweigh the costs to provide it

Front 38

materiality

Back 38

determination that relatively small amounts wont affect or impact a decision

Front 39

industry practices

Back 39

acceptable industry specific practices that deviate from normal GAAP principles

Front 40

conservatism

Back 40

when alternative accounting valuations can be used, the amount that is least likely to overstate assets/revenues or understate liabilities/expenses should be used

Front 41

Interest Equation

Back 41

p*r*t

Front 42

Other gains

Back 42

increases in assets or decreases in liabilities from transactions not included in general operating activities

Front 43

Other losses

Back 43

decreases in assets or increases in liabilities from transactions not included in general operating activities

Front 44

income taxes

Back 44

last expense listed before computing net income. sole proprietorships and partnerships don't pay serarate taxes or list this as an expense (bc included on personal income tax return)

Front 45

Earnings per share

Back 45

required to be included on income statement of corporations, used to benchmark the profitability and performance of a corporation. (not for sole prop and partnerships)

Front 46

Four criteria used to establish if revenue should be recorded

Back 46

1. delivery has occured/services have been rendered
2. evidence of arrangement for customer payment
3. price is fixed & determinable
4. collection can b reasonably assured

Front 47

Percentage of Completion

Back 47

recognized on long term contracts for % completed during the period

Front 48

Matching Principle

Back 48

costs incurred to generate revenues in a given period must be recorded in that period (regardless of when cash's paid)

Front 49

Accrual Accounting

Back 49

revenues and expenses are recognized when transaction causes them to occur. required under gaap

Front 50

Cash basis accounting

Back 50

revenues recognized when receive cash, expenses when paid. Doesn't necessarily accurately reflect assets or liabilities as of a certain date (NOT GAAP)

Front 51

Accounting equation

Back 51

Assets=Liabilities + owner's equity

Front 52

General journal

Back 52

chronological listing (date order) of each transaction, and what accounts are debited and credited

Front 53

1st step in the accounting cycle

Back 53

analyze the transaction: determine the affects of the transaction and what accounts are affected

Front 54

2nd step in accounting cycle

Back 54

apply rules of double entry (debits and credits)

Front 55

3rd step in accounting cycle

Back 55

record entry in general journal

Front 56

4th step in accounting cycle

Back 56

post entry to general ledger

Front 57

5th step in accounting cycle

Back 57

at end of each month, subtotal each account (footing the accounts) and prepare a trial balance to make sure debits=credits

Front 58

6th step in accounting cycle

Back 58

prepare adjusting entries to ensure proper revenue recognition and matching

Front 59

7th step in accounting cycle

Back 59

prepare an adjusted trial balance to ensure all debits=credits

Front 60

8th step in accounting cycle

Back 60

prepare financial statements: income statement, statement of retained earnings, balance sheet, statement of cash flows

Front 61

9th step

Back 61

at year-end, prepare closing entries to close all income statement accounts into retained earnings

Front 62

Accruals

Back 62

recognition of revenue or expense that has arisen but hasn't been recorded yet

Front 63

Deferrals

Back 63

recognizes revenues or expenses that were previously deferred that now need to be recognized

Front 64

Corporate Governance

Back 64

procedures a compnay establishes to ensure that its managed in the best interest of its stockholders (or owners). info must be useful and reliable in order for users to make sound business decisions

Front 65

Board of Directors

Back 65

elected each year and is responsible to ensure processes are in place to maintain integrity of financial info

Front 66

Auditors

Back 66

outside cpa's that are hired to examine the financial statement, internal controls, etc, (on a test basis) to determine if the information presented fairly reps the financial situation of a company

Front 67

Auditing Standards

Back 67

established by PCAOB

Front 68

Audit Opinion

Back 68

Auditor's statement regarding the fairness of info presented in financial statements

Front 69

Unqualified Opinion

Back 69

clean audit opinion, says info's presented fairly in all material respects

Front 70

Financial Analysts

Back 70

analyze info about companies to make recommendations

Front 71

Securities and Exchange Commission

Back 71

oversees publicly traded companies

Front 72

Institutional Investors

Back 72

managers of funds (pension, mutual funds, endowments, etc) that invest on behalf of others

Front 73

Working Capital

Back 73

excess of a company's current assets over (minus) its currect liabilities. Measures short term liquidity of company. (Ca-Cl)

Front 74

Gains

Back 74

increases in equity of a company from peripheral or incidental transactions (not part of central and ongoing operations and not withdrawls by owners)

Front 75

Losses

Back 75

decreases in equity of a company from peripheral or incidental transactions (Not part of central/ongoing opps and not withdrawls

Front 76

Discontinued Operations

Back 76

occurs when a component of a business is discontinued or sold, reported after income from continuing ops

Front 77

Extraordinary items

Back 77

event occurs thats unusual and infrequent that causes a gain or loss. reported after income from continuing ops

Front 78

common size income statement

Back 78

shows all income statement lines as a percentage of net sales. analysts use this calculation when evaluating a company from yr to yr

Front 79

Statement of Owners Equity

Back 79

BB + Net Income - Withdrawls = Ending Balance