Acct. 211 Final

Front 1

What are the four financial statements?

Back 1

Income Statement
Statement of retained earnings
Balance sheet
Statement of cash flows

Front 2

Proprietorship

Back 2

single owner, personally liable

Front 3

partnership

Back 3

two or more owners, partners are personally liable

Front 4

LLC

Back 4

members, members are not personally liable

Front 5

Corporations

Back 5

Stockholders, stockholders are not personally liable

Front 6

Entity Assumption

Back 6

A buisness is a separte economic unit

Front 7

Continuity Assumption

Back 7

entity will continue to exist indefinitely

Front 8

Historical cost principle

Back 8

assets recorded at purchase price

Front 9

Stable-monetary-unit assumption

Back 9

accountants assume that the dollars purchasing power is stable over time

Front 10

Assets
Liablities
Owners Equity

Back 10

-economic resources, product future benefit
-outsider claims, debts payable to others(creditors)
-Insider claims, represents ownership by stockholders

Front 11

Accounting transactions (double entry)

Back 11

accounting has two parts giving and receiving, each transaction affects at least two accounts

Front 12

The journal

Back 12

chronological record of transactions. 3 steps:
1. specify each acct. affected, and classify each acct. by type.
2. determine whether the acct. is increased or decreased
3. record. debit is in left margin and credit is in right margin

Front 13

Trial balance

Back 13

A list of all account balances. Assets first, then liablities, then stockholders equity. Shows debits equal credits. Prepared at the end of the month

Front 14

Accural accounting

Back 14

records impact of transactions. records revenue when earned and expenses when incurred.

Front 15

Cash basis accounting

Back 15

records only cash transactions. cash reciepts are treated as revenues. cash payments are handled as expenses

Front 16

Revenue principle
Matching principle

Back 16

-record after revenue is earned, amount to record is the cash value.
-identifys expenses incurred, measure the expenses, match aganist revenues earned

Front 17

Deferrals

Back 17

adjustment for an item that the business paid or received cash in advance

Front 18

Depreciation

Back 18

allocates cost of plant asset to expense over the assets useful life

Front 19

Accurals

Back 19

opposite of deferrals.

Front 20

Closing books

Back 20

temporary accounts are closed to zero and closed into retained earnings. revenues, expenses, and dividends

Front 21

Internal controls

Back 21

primary way fraud and errors are prevented, detected or corrected.

Front 22

Objectives of internal control

Back 22

safegaurd assets, encourage employees to follow policy, promote operational efficency, ensure accurate reliable records, comply with legal requirements.

Front 23

Internal control procedures

Back 23

smart hiring practices, separation of duties
comparison and compliance monitoring
adequate records
limited access
proper approvals

Front 24

Short term investments

Back 24

also called marketalbe securities. Easily converted to cash(next liquid after cash). Held for one year or less.

Front 25

Trading Securities

Back 25

Held for a short time and then sold
If market price of investment increases, a gain results
If market price of investment decreases, a loss results
Can be debt or equity securities of another company
Earn interest or dividend revenue

Front 26

Recievables

Back 26

Third most liquid.
Aquired by selling goods or services, and lending money

Front 27

Allowance for uncollectible accounts

Back 27

contra account to account receivalbe
shows amount of receivalbes expected to not be collected.

Front 28

Percent of sales method (estimate uncollectiables)

Back 28

Estimated % of Uncollectiables x revenue = uncollectiable accounts expense

Front 29

Write off

Back 29

JE: Dr. allow for BD, Cr. AR
No impact on income stmt

Front 30

Interest

Back 30

= Price x Rate x Time
80k x 6% x 3/12 = 1200

Dr. Interest Reciev
Cr. Interest Revenue

Front 31

Gross Profit

Back 31

= cost of good sold - sales revenue

Front 32

Inventory

Back 32

Dr. Inventory
Cr. AP (purchase inv on acct.)
Dr. AR
Cr. Sales (sold inv on acct.)
Dr. COGS
Cr. Inventory (recorded cost of good sold)

Front 33

Net purchases

Back 33

Purchase price
+ Freight in
- Purch returns & allowances
- Purch discounts

Front 34

Net Sales

Back 34

Sales
- sales returns
- sales alllowances
- sale discounts

Front 35

FIFO
LIFO

Back 35

- ending inventory consists of most recent purchase costs
-oldest costs in ending inventory. cost of goods sold

Front 36

Inventory turnover

Back 36

cost of goods sold/ average inventory

Front 37

Cost of goods sold

Back 37

Beg. Inventory
+ purchases
=cost of goods available
-ending inventory
=cost of goods sold

Front 38

Capital Expenditures

Back 38

Increase capacity or extend useful life. cost is added to an asset account.

Front 39

Depreciation

Back 39

allocation of plant assets cost to expense over its life. Land is not depreciated.
=asset cost - residual value

Front 40

Intangible Assets

Back 40

no physical form
amoritized not depricated

Front 41

Net book value

Back 41

= Bldg (example) - accumulated deprication

Front 42

Accured Liablities

Back 42

results from expenses incurred but not yet paid.
i.e. sales and wages payable, interest payable, income tax payable

Front 43

unearned revenue

Back 43

is a liability.
business recieves cash before earning revenue.
Dr. Cash
Cr. Unearned rev (received advanced payment
Dr. unearned rev
Cr. revenue (record earned portion of unearned rev)

Front 44

Bonds

Back 44

Carrying value= bp - dsct on bp
= bp + premium on bp
Int. Exp = cv x mr
Amrt of dsct = a - b
Dsct = d -c

Front 45

Paid in capital
Retained earnings

Back 45

-amount stockholders have contributed
-amount earned by profitable operations

Front 46

Common Stock

Back 46

4 basic rights
shareholders benefit most if corp succeeds

Front 47

Preffered Stock

Back 47

shareholders earn a fixed dividend, and few corp issues.
receive dividends and assets first

Front 48

Treasury Stock

Back 48

debit balance, contra SE
recorded at cost not par value

Front 49

SE

Back 49

issuing stock grows assets and equity
purchasing treasury stock shrinks assets and equity

Front 50

Div on preffered stock

Back 50

paid dividends before common stockholders.
cumulative

Front 51

Stock dividends

Back 51

proportional dsitribution of stock to shareholders
increase stock account and decrease retained earnings

Front 52

Stock splits

Back 52

no accts affected, no JE
decreases market price of shares
increase in shares with a proportioinate reduction in par value

Front 53

Purposes of cash flow statements

Back 53

-predicts future cash flows
-evaluates management decisions
-determines ability to pay dividends and interest
-shows relations of net income to cash flows

Front 54

Operating
Investing
Financing

Back 54

-creat revenue, expenses, gains and losses
-relate to long-term assets
-obtain cash form investors and creditors

Front 55

Indirect

Back 55

reconciles net income to cash provided by operating activities (GAP)

Front 56

Direct

Back 56

reports all cash reciepts and cash payments from operating activities (IFRS)

Front 57

Working capital ratio

Back 57

=current assets - current liabilities

Front 58

Acid- test ratio

Back 58

cash+short term investments+net current receivables/ current liabilities

Front 59

Accounts receivable turnover

Back 59

net sales/ average net accounts receivable

Front 60

debt ratio

Back 60

total liabilities/ total assets

Front 61

times-interest-earned

Back 61

income from operations/interest expense

Front 62

earnings per share

Back 62

net income-preferred dividends/average number of common shares outstanding