Accounting Test 2

Front 1

When are adjustment entries made?

Back 1

At the end of each accounting period prior to FS prep

Front 2

Why are adjusting entries made?

Back 2

To ensure revenues are recorded in the period when they are earned, expenses are matched with revenues in the same time period, and that assets are reported at the amounts representing the economic benefits that remain at the end of the current period and liabilities are reported as amounts owed at the end of the current period

Front 3

What types of accounts are involved in every adjusting entry?

Back 3

One balance sheet account and one income statement account

Front 4

Name the two major categories of adjustments?

Back 4

Deferrals and Accruals

Front 5

_____ reduce the amounts that were previously had (like things we prepaid or were considered unearned) on the balance sheet and increase the corresponding accounts (like expense or revenue) on the income statement

Back 5

Deferral Adjustments

Front 6

_____ are neeeded when a transaction has occurred but has not yet been recorded in the accounting system

Back 6

Accrual Adjustments

Front 7

What is the revenue recognition principle?

Back 7

Revenues are recorded when earned

Front 8

What is the expense recognition (Matching) principle?

Back 8

Expenses are recorded in the same period as the revenues to which they relate

Front 9

What are the four sub categories of adjustment journal entries?

Back 9

prepaid expenses, unearned revenues, accrued expenses, accrued revenues

Front 10

Adjustment entries never involve ____

Back 10

cash

Front 11

When are closing entries madE?

Back 11

At the end of the year after financial statements are prepared

Front 12

Why are closing entries made?

Back 12

To transfer net income or loss and dividends to retained earnings and to establish zero balances in all income statement and dividend accounts

Front 13

Only _____ accounts are closed

Back 13

Temporary

Front 14

Revenue, Expense, and dividends are _____ accounts

Back 14

teemporary

Front 15

_____ accounts are not closed

Back 15

Permanent

Front 16

Assets, Contra-assets, liabilities, contributed capital, and retained earnings are _____ accounts

Back 16

permanent

Front 17

Process of allocating the cost of buildings, vehicles, and eqiuipment to the accounting periods in which they are used

Back 17

Depreciation

Front 18

An account that is an offset to or reduction of another account

Back 18

Contra-Account

Front 19

The contra-assset account that is created to keep track of all the depreciation recorded afainst the long-lived asset; like a negative asset account

Back 19

Accumulated Depreciation

Front 20

The amount in an account less any amounts in related contra-accounts

Back 20

Carrying Value or book Value

Front 21

Prepared after all adjustments have been posted. List of all accounts and their adjusted balances to check the equality of recorded debits and credits

Back 21

Adjusted Trial balance

Front 22

Prepared as the last step of the accounting cycle as a final check that total debits still equal total credits and that all temporary accounts have been closed. Only permanent accounts will still have balences in this because all temporary accounts have been closed

Back 22

Post-Closing trial balance

Front 23

Who are the financial statement users?

Back 23

Managers, Directors, Creditors, Investors, and Government

Front 24

What are the three things that have to exist in order for accounting fraud to occur?

Back 24

Incentive to commit fraud, opportunity to commit fraud, and ability to rationalize fraud

Front 25

A set of regulations passed by Congress in 2002 in an attempt to improve financial reporting and restore invenstor confidence

Back 25

Sarbanes-Oxley ACT (SOX)

Front 26

What is the main thrust of SOX?

Back 26

to improve internal control over companies financial reporting

Front 27

Under SOX, those who willfully misrepresent financial results face fines up to ____ and maximum jail sentences of up to ____

Back 27

$5 million and 20 years

Front 28

Under Sox's Main thrust, ____ must review how well their company's internal controls worked during the year and issue a report that indicates whether the controls over financial reporting operated effectively, .

Back 28

Managers

Front 29

Under Sox's Main thrust, the company's _______ is required to estabilsh an audit committee made of indiependent directors to oversee financial matters of the company

Back 29

Board of directors

Front 30

Under Sox's Main thrust, One of the primary functions of the board of directors is to...

Back 30

hire external auditors and ensure they are able to effectively perform

Front 31

The ____ of large public companies are now required to test the effectiveness of the company's internal controls and issue a report that indicates whether they agree with the conclusions of the internal control report issued by management. They must also examine the company's financial statements and report whether they were prepared using GAAP

Back 31

External Auditors

Front 32

Companies must create ______ that allow employees to secretly submit concerns about questionable accounting or auditing practicing

Back 32

Tip lines

Front 33

Companies are required to adopt a _____ for their senior financial officers

Back 33

Code of ethics

Front 34

What are the three main points of SOX?

Back 34

Counteract incentives for committing fraud, reduce opportunities for fraud, encourage honesty in employees

Front 35

Companies prepare financial statemetns at least once a year at the end of their reporting period often referred to as their _____.

Back 35

Fiscal year-end

Front 36

______ can end on any day of the year that makes sense for the company, but should be consistent from year to year

Back 36

Fiscal year end

Front 37

Report numbers for two or more time periods to make it easy for users to compare account balances from one period to the next

Back 37

Comparative financial statements

Front 38

_____ is to ensure that the financial statements are prepared properly, the SEC requires all publicly traded companies to have their internal controls and financial statements audited by external auditors

Back 38

Independent external audit

Front 39

External audits are conducted by ______ who are independent of the company

Back 39

Certified Public Accountants (CPAs)

Front 40

An ______ audit opinion represents a passing grade

Back 40

qualified

Front 41

If the financial statements fail to follow GAAP or if the auditors were not able to complete the tests needed to determine whether GAAP was followed, the auditors will issue a _____ audit opinion

Back 41

unqualified

Front 42

An annual report is organized into what two main sections?

Back 42

Letter to investors from the company's CEO and the financial section

Front 43

Quarterly report filed by public companies with the SEC that contains unaudited financial information

Back 43

Form 10-Q

Front 44

Accounting rules established by the international Accounting Standards Board (IASB)

Back 44

International Financial Reporting Standards (IFRS)

Front 45

What does the Debt-to-assets ratio tell you? The higher the ratio....

Back 45

The percentage of assets financed by debt....the greater the financial risk

Front 46

What does the asset turnover ratio tell you? THe higher the ratio....

Back 46

How well assets are used to generate revenue...the greater the efficiency

Front 47

What does the net profit margin ratio tell you? The higher the ratio....

Back 47

How much profit is earned from each dollar of revenue....the better the performance