Acct 2101 Test 1

Front 1

Accounting is a system that ________, ________, and ___________ information that is __________, ________, ___________ to help users make better decisions.

Back 1

identifies; records; communicates; relevant; reliable; comparable

Front 2

Objectivity Principle

Back 2

Accounting information is supported by independent, unbiased evidence that is verifiable.

Front 3

Cost Principle

Back 3

Accounting info is based on actual cost.

Front 4

Going-Concern Principle

Back 4

Reflects assumption that the business will continue operating instead of being closed or sold.

Front 5

Monetary Unit Principle

Back 5

Express transactions and events in monetary, or money, units.

Front 6

Revenue Recognition Principle

Back 6

1. Recognize revenue when it is earned
2. Proceeds need not be in cash
3. Measure revenue by cash received plus cash value of items received

Front 7

Business Entity Principle

Back 7

A business is accounted for separately from other business entities, including its owner.

Front 8

Net Income/Net Loss

Back 8

Revenues - Expenses

Front 9

Income Statement--Purpose

Back 9

Describes a company's revenues and expenses alone with the resulting net income or loss over a period of time due to earnings activities.

Front 10

Financial Statement Heading

Back 10

1. Company's Name
2. The Statement Title
3. The Date or Time Period

(income statement, statement of retained earnings, and statement of cash flows are prepared for a period of time; the balance sheet is prepared as of a point in time)

Front 11

Income Statement--Format

Back 11

-Revenues reported first
-Expenses reported after revenues
-Net income/loss is reported at the bottom of the statement

Front 12

Statement of Retained Earnings--Purpose

Back 12

Explains changes in retained earnings from net income (or loss) and from any dividends over a period of time.

Front 13

Statement of Retained Earnings--Format

Back 13

Beginning retained earnings
+ events that increase it (net income)
-events that decrease it (dividends and net loss)
=ending retained earnings

Beg. Ret. Earnings + Net Income - Dividends = End Ret. Earnings

Front 14

Balance Sheet--Purpose

Back 14

Describes a company's financial position (types and amounts of assets, liabilities, and equity) at a point in time.

Front 15

Balance Sheet--Format

Back 15

-Assets are listed on the left side
-Liabilities are listed on the upper right side
-Equity is listed on the bottom right side under Liabilities; Ret. Earnings is used to compute equity

Front 16

Statement of Cash Flows--Purpose

Back 16

Identifies cash inflows (receipts) and cash outflows (payments) over a period of time.

Front 17

Statement of Cash Flows--Format

Back 17

There are three sections:
1. Cash flows from operating activities
2. Cash flows from investing activities
3. Cash flows from financing activities

-Outflows are in parentheses to denote subtraction

Front 18

Equation to find Ending Equity

Back 18

Beg. Equity + Net Income + Stock Issuances - Dividends = Ending Equity

Front 19

Steps to Post a Journal Entry to a Ledger Account

Back 19

1. Identify the debit acct in the ledger
2. Enter the date
3. Enter the amount and description
4. Enter the journal reference
5. Compute the balance
6. Enter the ledger acct number in the PR column of the journal
7. Repeat 1-6 for credit entries and amounts

Front 20

Steps in the Analyzing and Recording Process

Back 20

1. Analyze each transaction and event from source documents
2. Record relevant transactions and events in a journal
3. Post journal information to ledger accounts
4. Prepare and analyze the trial balance

Front 21

Steps to Prepare a Trial Balance

Back 21

1. List each acct title and its amount in the trial balance
2. Compute the total of debit balances and the total of credit balances
3. Verify total debit balances equal total credit balances

Front 22

If the trial balance does not balance, the error(s) must be found and corrected by tracing steps backwards with these steps until the error is found:

Back 22

1. Re-add up the columns of the trial balance
2. Ensure that postings from the ledger are accurate
3. Recompute balances in ledger
4. Ensure postings from journal to ledger are accurate
5. Ensure accuracy of journal entries

Front 23

The trial balance can be used to prepare the financial statements in this order:

Back 23

1. Income Statement
2. Statement of Retained Earnings
3. Balance Sheet
4. Statement of Cash Flows

Front 24

Accrual Basis Accounting

Back 24

Revenues are recognized when earned and expenses are recognized when incurred.

Front 25

Matching Principle

Back 25

Expense Recognition: Record Expenses that were incurred to generate the Revenues recorded in the accounting period.

Front 26

Deferred adjusting entries

Back 26

-Cash is paid before expense is recognized (prepaid (deferred) expenses)

-Cash is received before revenue is recognized (unearned (deferred) revenues)

Front 27

Accrued adjusting entries

Back 27

-Cash is paid after expense is recognized (accrued expense)

-Cash is received after revenue is recognized (accrued revenue)

Front 28

Prepaid (Deferred) Expenses

Back 28

Resources paid for prior to receiving the actual benefits.

Adjusting Entry:
Dr. Expense
Cr. Asset

Front 29

Depreciation--Deferred Expense

Back 29

Straight-Line Depreciation Expense = (asset cost - salvage value)/useful life

Adjusting Entry:
Dr. Depreciation Expense
Cr. Accumulated Depreciation

**On balance sheet plant asset is shown net of accumulated dep.**

Front 30

Unearned (Deferred) Revenues

Back 30

Cash received in advance of providing products or services.

Adjusting Entry:
Dr. Liability
Cr. Revenue

Front 31

Accrued Expenses

Back 31

Expenses incurred in a period that are both unpaid and unrecorded.

Adjusting Entry:
Dr. Expense
Cr. Liability

Front 32

Accrued Revenues

Back 32

Revenues earned in a period that rae both unrecorded and not yet received.

Adjusting Entry:
Dr. Asset
Cr. Revenue

Front 33

Prepaid Expenses--Effects on financial statements before adjusting

Back 33

Balance Sheet:
-Asset overstated
-Equity overstated

Income Statement:
-Expense understated

Front 34

Unearned Revenues--Effects on financial statements before adjusting

Back 34

Balance Sheet:
-Liability overstated
-Equity understated

Income Statement:
-Revenue understated

Front 35

Accrued Expenses--Effects on financial statements before adjusting

Back 35

Balance Sheet:
-Liability understated
-Equity overstated

Income Statement:
-Expense Understated

Front 36

Accrued Revenues--Effects on financial statements before adjusting

Back 36

Balance Sheet:
-Asset understated
-Equity understated

Income Statement:
-Revenue understated

Front 37

We use the adjusted trial balance to prepare financial statements in the following order:

Back 37

1. Income Statement
2. Statement of Retained Earnings
3. Balance Sheet
4. Statement of Cash Flows

Front 38

Recording Closing Entries:

Back 38

1. Close revenue accts to Income Summary
2. Close expense accts to Income Summary
3. Close Income Summary to Retained Earnings
4. Close Dividends acct to Retained Earnings

Front 39

Post-Closing Trial Balance

Back 39

-Trial balance prepared after the closing entries have been posted
-The purpose is to ensure that all nominal or temporary accts have been closed
-The only accts on the trial balance should be assets, liabilities, and equity accts

Front 40

Steps in the Accounting Cycle

Back 40

1. Analyze transactions
2. Journalize
3. Post
4. Prepare unadjusted trial balance
5. Adjust
6. Prepare adjusted trial balance
7. Prepare statements
8. Close
9. Prepare post-closing trial balance

Front 41

Classified Balance Sheet

Back 41

Organizes assets and liabilities into important subgroups

Typical Asset categories:
-Current assets
-Noncurrent assets
-Long-term investments
-Plant assets
-Intangible assets

Typical Liabilities and Equity categories:
-Current liabilities
-Noncurrent liabilities
-Equity

Current items are those expected to come due (either collected or owed) within one year or the company's operating cycle, whichever is longer.

Front 42

Classified Balance Sheet--Current Assets

Back 42

1. Cash
2. Short-term Investments
3. Accts Receivable
4. Short-term Notes Receivable
5. Inventory for Sale
6. Prepaid Expenses

--listed in the order of how quickly they will be converted to cash

Front 43

Classified Balance Sheet--Long-term Investments

Back 43

Includes notes receivable and investments in stocks and bonds when they are expected to be held for the longer of one year or the operating cycle

Front 44

Classified Balance Sheet--Plant Assets

Back 44

Plant assets are tangible assets that are both long lived and used to produce or sell products and services.

I.E. equipment, machinery, buildings, etc

Front 45

Classified Balance Sheet--Intangible Assets

Back 45

Long-term resources that benefit business operations; usually lack physical form and have uncertain benefits. Their value comes from the privileges or rights granted to or held by the owner.

I.E. patents, trademarks, copyrights, etc

Front 46

Classified Balance Sheet--Current Liabilities

Back 46

1. Accts Payable
2. Notes Payable
3. Wages Payable
4. Taxes Payable
5. Interest Payable
6. Unearned Revenue

Front 47

Classified Balance Sheet--Long-term Liabilities

Back 47

Obligations not due within one year or the operating cycle, whichever is longer.

I.E. notes payable, mortgages payable, bonds payable, and lease obligations