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405 Cards in this Set
- Front
- Back
- 3rd side (hint)
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Financial accounting questions for external decision-makers |
Should I invest in the business? Is the business profitable? Should we lend money to the business? Can the business pay us back? |
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Managerial accounting questions for Internal decision-makers |
How much money should the business budget for production? Should the business expand to a new location? How do actual cost compared to budget costs? |
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Managerial accounting questions for Internal decision-makers |
How much money should the business budget for production? Should the business expand to a new location? How do actual cost compared to budget costs? |
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An alternative to the partnership |
What type of business is a limited – liability company |
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One |
How many owners in a sole proprietorship
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What is the life of a sole proprietorship |
Terminates at owners choice or death |
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Personal liability of a sole proprietorship |
Owner is personally liable |
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Taxation of a sole proprietorship |
Not separate taxable entity. The owner pays taxes on the proprietorships earnings |
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What type of business is a sole proprietorship |
Small business |
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Life of a partnership |
Terminates at the partners choice or death |
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One |
How many owners in a sole proprietorship |
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Taxation for a partnership |
Partnership is not taxed. Instead of partners pay tax on their share of the earnings |
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What type of business is a partnership |
Professional organizations a physician, attorney, and accounts |
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Taxation of Limited-liability company |
is not taxed. Instead members pay tax on their share of earnings |
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Life of a corporation |
Indefinite |
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Personal liability of the owners for the businesses debts in a corporation |
Stockholders are not personally liable |
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corporation |
Separate taxable entity. _________ pays tax |
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What type of business is a corporation |
Large multinational businesses |
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Number of owners in a limited – liability company |
One or more (called members or partners) |
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Indefinite |
Life of a limited – liability company |
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Personal liability of the owners for the businesses debts in a Limited –liability company |
Members are not personally liable |
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Limited-liability company Taxation |
is not taxed. Instead members pay tax on their share of earnings |
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What type of business is a limited – liability company |
An alternative to the partnership |
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Income statement |
Provides information about profitability for a particular period for the company |
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Statement of retained earnings |
Inform users about how much of the earnings were kept and reinvested in the company |
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Balance sheet information provided and purpose |
Provides valuable information to financial statement users about economic resources the company has (assets) as well as debts the company owes (liabilities). Allows decision-makers to determine their opinion about the financial position of the company |
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Statement of cash flow's information provided and purpose |
Reports on a business cash receipts and cash payments for a period of time |
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Equipment, furniture, and fixtures
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The cost of equipment, furniture and fixtures (such as light fixtures and shelving). A business has a separate asset account for each type
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Asset accounts
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Cash, Accounts Receivable, notes receivable, prepaid expense, equipment, furniture, fixtures, Building, and land
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Liability accounts
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Accounts payable, notes payable, accrued liability, unearned revenue
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Equity accounts
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Common stock, dividends, revenues, and expenses
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Assets, expenses, and dividends
increase with decrease with And normal balance is |
Increase with debit
decrease with credit normal balance is debit |
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Liabilities, revenue, and common stock
Increase with decreased with normal balance is with |
Increase with credit
decrease with debit normal balance is credit |
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Flow of accounting data
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Transactions occur, source documents are prepared, transactions are in analyzed transactions are journalized and posted
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What is the first step of the accounting cycle
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The first step in the accounting cycle is to start with the beginning account balances
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Are any steps optional in the accounting cycle
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Completing the worksheet is optional
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What steps are completed throughout the period in the accounting cycle
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Journalizing the transactions and posting to the accounts
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What is the last step in the accounting cycle
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Prepare the post closing trial balance
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What are the equity accounts included on the post closing trial balance
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Common Stock and retained earnings
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What are the retained earnings accounts
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Dividends, revenues and expenses
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What are the contributed capital accounts
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common stock
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What are the equity accounts
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Contributed capital and retained earnings
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Flow of accounting data
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Transactions occur, source documents are prepared, transactions are in analyzed, transactions are journalized and posted
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What is an alternative to the t–account
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The four column account
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A summary of the ledger listings all the accounts with their balances
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Trial balance
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What is the difference between the trial balance and the balance sheet
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The trial balance is used only for internal use and the balance sheet is used for internal and external use
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What verifies the equality of debits and credits
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Trial balance
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What accounts are in the income statement
And which are the debit and the which are the credit |
Revenues which are credited and expenses which are debited
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What accounts are involved in the statement of retained earnings
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Beginning balance of retained earnings, net income or net loss, dividends
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What accounts are included in the balance sheet
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Assets, liabilities, stockholder equity
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What basis is used generally by larger businesses
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Accrual basis
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What principal says that expenses are matched at the end of the period. Against revenues for that period. For example rent expenses for January should be matched against January's revenues, even if it was paid in December
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Matching principle
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The initial trial balance that comes from the general ledger is referred to as AN
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Unadjusted trial balance
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Because of _____,_____,and______ some adjustments are needed
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Time period Concept, revenue recognition principle, and matching principle
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Each adjusting journal entry will adjust a _____ ______ account and an ____ ______ account
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Balance sheet account and income statement account
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Two categories of adjusting journal entries
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Prepaid's/deferred and accruals
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Plant assets are like
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Prepaid expenses
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The process of systematically recording the periodic usage of plant assets to generate revenues is called
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Depreciation
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What never depreciates
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Land
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What accounts are used for depreciation
And which is debited and which is credited |
Depreciation expense (debit) and accumulated depreciation (credit)
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After journalizing and posting all adjusting journal entries at the end of the fiscal period, a new ___ is prepared
If this ______, Financial statements can be prepared |
Adjusted trial balance
Balances |
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Financial statements are prepared directly from
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Adjusted trial balance
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True or false
the Adjusted trial balance includes accounts that did not appear on the original unadjusted trial balance |
True
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What are the three columns of the worksheet
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unadjusted trial balance
Adjustments Adjusted trial balance |
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Each account on the adjusted trial balance has _____ and only ______ home on one of the financial statements
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One
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True or false
No account is ever used twice on a financial statement |
True
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The asset and liability section are subdivided into what groups in the classified balance sheet
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Current and long–term groups
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Is equity normally subdivided in a classified balance sheet
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No
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When net is debited on a worksheet is it a net loss or gain
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Net gain
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What accounts do you close
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Revenue accounts, expense accounts, dividends account
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What accounts do you close
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Revenue accounts, expense accounts, dividends account
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What accounts do you not close
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Asset accounts, liability accounts, common stock, and retain earnings account
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What accounts are left after closing entries are posted
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Balance sheet accounts
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How many steps in the accounting cycle
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Ten
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Operating cycle of a merchandiser
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purchase inventory, sell the inventory, collect cash from customers
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Seller of goods, Can be wholesaler or retailer, Inventory is a very important asset, Managing A/R is critical to success
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Merchandising Operations
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is usually the only type of inventory
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Merchandise Inventory
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is usually purchased on credit, so Accounts Payable may also be higher than a Service Company
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Merchandise Inventory
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Inventory is physically counted, Inexpensive inventory, Small shops without opscan capability
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Periodic
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Every inflow and outflow is tracked in real time, Merchandising and purchase systems are integrated with the accounting system
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Perpetual
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When items are scanned in the receiving dock or at the cash register, the inventory is automatically updated on a continuous basis
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Perpetual
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With FOB shipping point, the freight cost is paid by the _____ and is part of the inventory cost.
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buyer
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_____ that accompany credit purchases often indicate “credit terms,” which offer the buyer discount if they pay early.
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Invoices
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The amount of the discount is determined by the ______ indicated on the invoice.
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“credit terms”
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The merchandise inventory account will reflect the ____ _____ of all the transactions for the period
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net results
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In a perpetual system, two entries must be made for every sale
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Record the sale and Record the reduction of inventory (cost of goods sold)
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Sales Returns Requires an entry to _____ ___ ___ ____ and to _____ _____.
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Sales Returns and Allowances and to Merchandise Inventory
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Sales Allowances Requires an entry to _____ ____ _____ ______
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Sales Returns and Allowances
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In a granted sales allowance for damaged goods journal entry there is no ____ to receive or record.
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inventory
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Sales discounts is a ________.
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contra account to Sales
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The freight ___ is part of the inventory cost.
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in
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The freight ___ is a selling expense.
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out
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Indicates the amount available to cover operating expenses
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gross profit
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Inventory must be _____ at the end of the period
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adjusted
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Close revenues to ______
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Income Summary
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Close expenses and contra–revenues to _______
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Income Summary
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Close Income Summary to _____
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Retained Earnings
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Close Dividends to _____
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Retained Earnings
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Includes several important subtotals before the Net Income line.
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Multi–Step Income Statement
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Revenues and Expenses are separated into two reported sub–groupings
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Single–Step Income Statement
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We break our _________ into Selling Expenses & Admin Expenses.
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Operating Expenses
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is determined by subtracting Other Revenues and Expenses from Operating Income.
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Net Income
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Most companies will use a _____ income statement
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multi–step
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Measures the profitability of each sales dollar.
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Gross Profit Percentage
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in Gross Profit Percentage When the number is trending downward, it can indicate a _____.
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significant problem
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A change in the accounting methods, must be reported to ______ and ______ in the Notes to the Financial Statements
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the investors and creditors
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A company should report enough information to allow users to make knowledgeable decisions about the company. Information should be relevant and have faithful representation
This is the ______ principle |
Disclosure Principle
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Many large companies report their financial numbers in
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millions.
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Anything below $1,000,000 is considered to be
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immaterial.
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A company must follow strictly proper accounting only for ______ ______. What concept is this?
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significant items; Materiality Concept
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Information is significant when it would cause someone to _____ a ______. What Concept is this?
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change a decision; Materiality Concept
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Anticipate no gains
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Conservatism
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Provide for probable losses
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Conservatism
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Conservatively report assets and liabilities
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Conservatism
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When in doubt record an expense instead of an asset
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Conservatism
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Choose options that undervalue the business
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Conservatism
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What is the goal of Conservatism
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Never overstate assets or net income.
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A company should report the ___________ in the financial statements when two or more possible options are presented. When deal with Conservatism
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least favorable figures
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What are the four basic GAAP–acceptable approaches to assigning cost to inventory?
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Specific Identification, First–in, first–out (FIFO), Last–in, last–out (LIFO), Weighted–Average
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Used when the specific cost for each unit of inventory can be tracked.
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Perpetual Specific Identification
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As each unit is sold, its specific cost is transferred from inventory to __________. When using Perpetual Specific Identification
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Cost of Goods Sold
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Used for inventories that include: Automobiles, Unique Artwork, Jewels, Real Estate
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Perpetual Specific Identification
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As inventory is sold, the cost of the oldest item in inventory is assigned to each unit as it is sold.
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Perpetual FIFO
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Ending inventory closely reflects current replacement cost
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Perpetual FIFO
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Compared to _____, ______ will result in lower COGS and higher Net Income when costs are constantly increasing.
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LIFO, FIFO
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As inventory is sold, the cost of the newest item in inventory is assigned to each unit as it is sold.
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Perpetual LIFO
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Cost of Goods Sold closely reflects current replacement cost.
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Perpetual LIFO
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Compared to ____,____ will result in higher COGS and lower Net Income when costs are constantly increasing.
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FIFO, LIFO
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After each purchase, the average cost of the inventory on hand is computed.
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Perpetual Weighted–Average
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Sold inventory is costed using the average cost at the time of the sale.
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Perpetual Weighted–Average
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With Perpetual Weighted–Average, Average cost ____ the sale and _____ the sale should be the same.
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BEFORE; AFTER
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What is a period of rising and declining inventory costs effect on specific identification in the income statement account cost of goods sold and net income along with the balance sheet account ending Merchandise Inventory
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varies
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What is a period of rising inventory costs effect on FIFO in the income statement account cost of goods sold and net income?
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cost of goods sold lowest and net income highest
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What is a period of rising inventory costs effect on LIFO in the income statement account cost of goods sold and net income?
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cost of goods sold highest and net income lowest
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What is a period of rising and declining inventory costs effect on weighted–average in the income statement account cost of goods sold and net income along with the balance sheet account ending Merchandise Inventory
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middle
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What is a period of declining inventory costs effect on FIFO in the income statement account cost of goods sold and net income?
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cost of goods sold highest and net income lowest
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What is a period of declining inventory costs effect on LIFO in the income statement account cost of goods sold and net income?
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cost of goods sold lowest and net income highest
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Big Inc. is holding inventory that cost $2 million. However, due to technological developments, the market value of that inventory is only $1.2 million.The inventory should be written down to _____? What rule is this?
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$1.2 million; Lower–of–Cost–or–Market Or LCM rule
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The ____ requires that inventory should be reported in the financial statements at the lower of the inventory’s original cost or its market value.
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LCM rule
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An error in inventory can lead to errors in ________.
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other accounts
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Because the __________ is used in other computations, when ending inventory is incorrect, other numbers will also be incorrect
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ending inventory number
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A common fraud is for a company to intentionally _________ , because it leads to higher Net Income.
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overstate ending inventory
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Sometimes ending inventory is ________.
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understated
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Measures how rapidly inventory is sold.
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Inventory turnover
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________ should be evaluated against industry averages.
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Inventory turnover
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A high turnover rate indicates _____ of selling.
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ease
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A low turnover rate indicates ______ of selling.
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difficulty
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Measures average number of days inventory is held by the company.
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Days’ Sales in Inventory
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Different types of inventory will move _____.
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faster
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For inventory with an expiration date, this measure is very important.
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Days’ Sales in Inventory
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Inventory is not tracked in the accounting system continuously.
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Periodic Inventory Accounting
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Beginning inventory balance is carried until the end of the period.
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Periodic Inventory Accounting
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Purchases are accumulated during the period.
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Periodic Inventory Accounting
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Ending inventory balance replaces the beginning inventory balance.
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Periodic Inventory Accounting
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Bank Collections, Interest Revenue, and EFT Receipts
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Cash receipts not already on the books
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Services Charges, NSF Checks, and EFT Payments
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Cash payments not already on the books
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Prepare a journal entry for each item on the _____side of the reconciliation
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Book
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Deposits–in–Transit (DIT)
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Cash you have collected from customers, but which has not yet been deposited
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Outstanding Checks (O/S Checks)
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Include ALL uncleared checks, even from previous periods
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is an organizational plan
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Internal Control
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Safeguard assets
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Internal Control
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Encourage employees to follow company policies
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Internal Control
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Promote operational efficiency
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Internal Control
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Ensure accurate, reliable accounting records
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Internal Control
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Components of Internal Control CRIME
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Control procedures, Risk assessment, Information system, Monitoring of controls, Environment
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Under the _____________, Internal control reports are required for publicly traded companies.
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Sarbanes–Oxley Act of 2002
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Under the _______, The Public Company Accounting Oversight Board was created.
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Sarbanes–Oxley Act of 2002
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Under the _________, Stiff penalties were established for financial statement fraud
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Sarbanes–Oxley Act of 2002
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Competent reliable and ethical personnel
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Internal Control Procedure
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Assignment of responsibilities Separation of Duties
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Internal Control Procedure
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Audits
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Internal Control Procedure
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Documents
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Internal Control Procedure
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Electronic devices
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Internal Control Procedure
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Firewalls, Encryption, Passwords, and Digital Signatures
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Example of E–Commerce
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E– Commerce
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Internal Control Procedure
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Fireproof vaults, Alarms, Job rotation
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Example of Other Controls
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Other controls are part of
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Internal Control Procedure
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A mail room employee opens all mail and records the checks on a ______.
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remittance advice
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The Treasurer is responsible for depositing the checks, documented with a _________
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deposit receipt.
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The _______ goes the Accounting Department where is it recorded
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remittance advice
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The _______ office matches the remittance advice and the deposit receipt.
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Controller’s
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Bills are only approved for payment by the _______ when all the documents related to the transaction are matched together
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accounting department
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A _______ authorizes a check to be sent to the vendor.
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payment voucher
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Used as an in–office source of cash for small immediate purchases.
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Petty Cash
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Often the responsibility of a designated employee.
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Petty Cash
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No cash is removed unless a corresponding receipt is placed in the "______".
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“box.”
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Office donuts, Cleaning supplies, Sympathy flowers, Entertaining clients, Public transportation, Tips for service providers
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Uses for Petty Cash
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A ____ is written for an authorized amount to fund the Petty Cash Fund.
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check
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After the check is cashed, the cash is physically placed in the ________.
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Petty Cash Fund
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How to Replenishing Petty Cash
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A check is written for the amount needed to replenish the fund.
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When Replenishing a petty cash The ______ are used to prepare an entry to record the related expenses.
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receipts (tickets)
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When cash is missing, the “_________” is used to record the unaccounted for amount.
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Cash Short & Over
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During the 1960’s, Frank Abagnale passed $2.8 million of forged checks in over 26 different countries by exploiting _________.
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weak controls over bank accounts
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Bank Account as a Control Device
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Signature Card, Deposit Ticket, Check, Bank Statement, Electronic Funds Transfers, Bank Reconciliation
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A mathematical explanation of the difference between two numbers.
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bank reconciliation
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With a _________, there is often a difference between the bank statement balance and the general ledger cash balance.
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bank reconciliation
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Deposits in Transits, Outstanding Checks, Bank Collections, Electronic Funds Transfers, Service Charges, Interest, Nonsufficient Funds Checks
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bank reconciliation
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The cost of the merchandise inventory that the business has sold to customers.
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Cost of Goods Sold
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An amount granted to the purchaser as an incentive to keep goods that are not "as ordered".
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Purchase Allowance
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A type of merchandiser that buys merchandise either from a manufacturer or a wholesaler and then sells those goods to customers.
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Retailer
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A situation in which the buyer takes ownership (title) at the delivery destination point.
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FOB Destination
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A type of merchandiser that buys goods from manufacturers and then sells them to retailers.
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Wholesaler
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A discount that businesses offer to purchasers as an incentive for early payment.
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Purchase Discount
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A situation in which the buyer takes title to the goods after the goods leave the seller’s place of business.
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FOB Shipping Point
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The terms of purchase or sale as stated on the invoice.
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Credit Terms
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The amount a company has made on sales of merchandise inventory after returns and allowances and discounts have been taken out.
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Net Sales Revenue
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A seller's request for cash from the purchaser.
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Invoice
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Sales discount and cost of goods sold ___ closed to the income summary
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are
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Oregon has determined that the current replacement cost (current market value) of the August 31, ending merchandise inventory is $13,600. According to the __________ rule, Oregon Resources should report inventory on the August 31 balance sheet at $13,600.
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lower–of–cost–or–market
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Two or more people working together to overcome internal controls.
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Collusion
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Part of internal control that ensures resources are not wasted.
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Operational efficiency
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Requires companies to review internal control and take responsibility for the accuracy and completeness of their financial reports.
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Sarbanes–Oxley Act
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Should be pre–numbered to prevent theft and inefficiency.
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Documents
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Limits access to a local network.
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Firewalls
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Example: The person who opens the bank statement should not also be the person who is reconciling cash.
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Separation of duties
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Identification of uncertainties that may arise due to a company's products, services or operations.
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Risk assessment
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Examination of a company's financial statements and accounting system by a trained accounting professional.
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Audits
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Without a sufficient one of these, information cannot properly be gathered and summarized.
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Information system
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The organizational plan and all related measures that safeguard assets, encourage employees to follow company policies, promote operational efficiency, and ensure accurate and reliable accounting data.
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Internal control
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Component of internal control that helps ensure business goals are achieved.
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Control procedures
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Rearranges data by a mathematical process.
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Encryption
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To establish one, a company's CEO and top managers must behave honorably to set a good example for employees.
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Environment
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Outstanding checks, $670.
|
A subtraction from the bank balance
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Deposits in transit, $1,500.
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An addition to the bank balance
|
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NSF check from customer, #548 for $175.
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A subtraction from the book balance
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Bank collection of note receivable of $800, and interest of $80.
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An addition to the book balance
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Interest earned on bank balance, $20.
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An addition to the book balance
|
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Service charge, $10.
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A subtraction from the book balance
|
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The business credited Cash for $200. The correct amount was $2,000.
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A subtraction from the book balance
|
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The bank incorrectly decreased the business's by $350 for a check written by another business
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An addition to the bank balance
|
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A Service Company takes service revenue – operating expenses = net incomeA merchandising company takes gross profit – operating expenses = net income
|
How a service company gets net income verses how a merchandising company gets net income
|
|
|
|
a current asset account
|
Merchandise inventory account is a _____ account on the balance sheet
|
|
|
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Sales invoice
purchase invoice |
For the seller the invoice is called _____
For the purchaser the invoice is called _____ |
|
|
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Sales revenue, sales returns and allowances, sells discount, cost of good sold, delivery expense
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Accounts that must be closed
|
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Merchandise inventory
|
New account that is not closed
|
|
|
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Weighted average cost per unit
|
______is determined by dividing the cost of goods available for sale by the number of units available
|
|
|
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Mail room–––– check–––treasurer––– deposit ticket––– bank–––controller
|
Mail room–––– check–––______––– deposit ticket––_____–––controller
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|
|
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Mail room–––– remittance advice–––accounting department ––– total amount posted to cash––controller
|
Mail room–––– remittance advice–––______––– total amount posted to cash––_____
|
|
|
|
Cash payment by check
|
Purchase order, merchandise inventory, invoice, receiving report, check
|
|
|
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Payment packet
|
Purchase order, invoice, receiving report
|
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|
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Plant assets related expense
|
Depreciation
|
|
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Natural resources related expense
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Depletion
|
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|
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Intangible assets related expense
|
Amortization
|
|
|
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Remote likelihood of future of event; how to report the contingency
|
Do not disclose
|
|
|
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Likelihood of future event is reasonably possible
|
Describe the situation in a note to the financial statements
|
|
|
|
Likelihood of future event is reasonably possible
|
Describe the situation in a note to the financial statements
|
|
|
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Likelihood of a future event is probable and the amount of the expense cannot be estimated
|
Describe the situation in a note to the financial statements
|
|
|
|
Likelihood of future event is reasonably possible
|
Describe the situation in a note to the financial statements
|
|
|
|
Likelihood of a future event is probable and the amount of the expense cannot be estimated
|
Describe the situation in a note to the financial statements
|
|
|
|
Likelihood of future event is probable in the amount of the expense can be estimated
|
Record an expense and a liability based on estimate amounts
|
|
|
|
Liabilities are best described as
|
Debts and obligations owed to others.
|
|
|
|
–They occur as a result of a past transaction or event.–They create a present obligation for future payments.
–They are an unavoidable obligation. |
Three primary characteristics of Liabilities are
|
|
|
|
Bank Borrowings, Unpaid Bills, Accrued Obligations, Contingent Obligations are all
|
Liabilities
|
|
|
|
Will Be paid from current assets within one year or the company’s operating cycle, whichever is longer.
|
Current Liabilities
|
|
|
|
Due after one year or the company’s operating cycle, whichever is longer
|
Long–Term Liabilities
|
|
|
|
Two Major Categories of liabilities
|
Current Liabilities and Long–Term Liabilities
|
|
|
|
Accounts Payable, Current Portion of Long–Term Notes Payable, Sales taxes Payable, Unearned Revenue, Short–Term Notes Payable
|
Current Liabilities
|
|
|
|
Employees are typically not paid as they work, employees are typically paid periodically, after accumulating a quantity of work. Any time employees have worked, but not yet been paid, there is a liability that must be recorded.
|
Accounting for Payroll
|
|
|
|
When employees are paid, they donot receive the ____ ____that they have earned.
|
gross pay
|
|
|
|
Employers withhold amounts that are due to other parties and the employee only receives what is “left over,” the __ ___.
|
net amount
|
|
|
|
Federal Income Tax and State and Local Income Taxes
|
Withheld for Employee IncomeTax
|
|
|
|
Amounts Withheld depend on the __________.
|
employee’s earnings and the tax rates
|
|
|
|
Employers owe the income tax amounts withheld from employees’ __ __ to the appropriate government agency.
|
gross pay
|
|
|
|
Withheld for Employee Social Security and Medicare
|
OASDI Taxes and Medicare Taxes
|
|
|
|
What amounts are due to the federal government following withholding.
|
OASDI Taxes and Medicare Taxes
|
|
|
|
Amounts Withheld depend on the ____ request.
|
employee’s
|
|
|
|
Employers must forward the ___ ____ withheld from employees’ gross pay to the designated agency.
|
voluntary deductions
|
|
|
|
Union Dues, Savings Accounts, Pension Contributions, Insurance Premiums, and Charities
|
Optional Withholding Deductions
|
|
|
|
Typically, the payroll checks will be drawn against a ____ payroll checking account that is only used for payroll.
|
separate
|
|
|
|
Employers are also required to pay taxes separate from the taxes withheld from employee ______.
|
paychecks
|
|
|
|
Employers must “match” the ___ amounts withheld from employee paychecks. State & Federal Unemployment Compensation Taxes
|
FICA
|
|
|
|
Unemployment Checks are paid out of the ___ ___ ___. Companies pay into the fund monthly (5.6% to the state and 0.60% to the federal government). The rate varies with each company’s ______ history.
|
Unemployment Insurance Fund
employment |
|
|
|
Payroll Is usually automated, rather than prepared by hand.
|
This is a ____ control |
Efficiency Controls
|
|
|
Employees sign for checks or present ID’s. Hiring and firing is separated from payroll preparation. Time clocks and direct deposit are also used.
These are ____ controls |
Disbursement Controls
|
|
|
|
Bonus Accruals, Vacation, Sick Leave Accruals, Pension expense Accrual, and Warranties expense
|
liabilities that are estimated
|
|
|
|
Many liabilities are estimated atyear–end, even though actual amounts will not be known until ____________. This is in accordance with the _______ Principle.
|
some time after year–end
Matching |
|
|
|
A _____ liability is a POTENTIAL liability that depends on a future event.
|
contingent
|
|
|
|
The type of disclosure of a contingent liability depends on two issues:
|
1.How likely is the future event?2.Can the amount of the liability be reasonably estimated?
|
|
|
|
Co–signing note, Lawsuits, Guarantees, Environmental Clean–up Costs, Forward Contracts, Contingent Payments in an Acquisition
These are ____ liabilities |
Contingent Liabilities
|
|
|
|
This ratio is used to evaluate abusiness’s ability to pay interest expense.A high ratio indicates that thecompany is better able to pay its interest
|
Times–Interest–Earned Ratio
|
|
|
|
(net income + income tax expense + interest expense) / interest expense
|
Times–Interest–Earned Ratio
|
|
|
|
A ________ is a right to receive cash in the future from a current transaction.
|
receivable
|
|
|
|
Accounts Receivable, Notes receivable, Other receivables
|
types of recievables
|
|
|
|
Also referred to as a trade receivable
|
Accounts receivable
|
|
|
|
Results from sales of goods or performance of services on account
|
Accounts receivable
|
|
|
|
Collection period normally = 30 to 60 days
|
Accounts receivable
|
|
|
|
Also called a promissory note
|
Notes Receivable
|
|
|
|
Written promise that a customer will pay principal and interest
|
Notes receivable
|
|
|
|
Collection period longer than A/R
|
Notes Receivable
|
|
|
|
Category includes dividends, taxes, and interest receivables; also can be current or long–term
|
Other Receivables
|
|
|
|
Selling“on account” will create an
|
accounts recievable
|
|
|
|
A ____ _____ will reflect the total of all the individual subsidiary accounts.
|
“control account”
|
|
|
|
Recorded the same as Cash sales. A fee is usually charged by the cardcompany. Thenet cash received is reduced by the fee.
|
Credit Card and DebitCard Sales
|
|
|
|
2 Methods are allowed when recording Credit Card and Debit Card Sales
|
Net Method and Gross Method
|
|
|
|
In ____ Method Record the card company fee at the time of the sale.
|
Net Method
|
|
|
|
In ___ Method only the net amount of cash is recorded.
|
Net Method
|
|
|
|
In ____ method record the full sale on the sale date.
|
Gross Method
|
|
|
|
In ___ method Record the credit card fee as a separate entry when the cash is deposited by the third party.
|
Gross Method
|
|
|
|
Under The ____ method , the bad debt expense is recorded as soon as a receivable is deemed uncollectible.
|
Direct Method
|
|
|
|
To Recover Previously Written Off A/R
|
Reverse the earlier write–off and Record the receipt of the payment
|
|
|
|
Which Method of writing off uncollectibles is Based on the Matching Principle
|
Allowance Method
|
|
|
|
Which Method of writing off uncollectibles estimate future uncollectible accounts now, instead of waiting until they actually go bad.
|
Allowance Method
|
|
|
|
Which Method of writing off uncollectibles exploits knowledge that the older A/R accounts are, the less likely that they will be collected.
|
Allowance Method
|
|
|
|
With the allowance method at the end of each period, recordthe Bad Debts Expense and put the credit in ___ __ ___ ___.
|
Allowance for Bad Debts
|
|
|
|
The Allowance for Bad Debts account is a _____ account
|
Contra–Asset
|
|
|
|
With the allowance method as actual accounts become uncollectible, charge them against the _____ account
|
Allowance
|
|
|
|
The Contra–Asset account in the allowance method will be shown as reduction of ________.
|
Accounts Receivable
|
|
|
|
The bad account is charged against the ____ Account.
|
Allowance
|
|
|
|
to recover previously Written Off A/R using the allowance method
|
Reverse the earlier write–off and Record the receipt of the payment
|
|
|
|
Three methods to Estimate the Allowance Account?
|
Percent–of–Sales, Percent–of–Receivables and Aging–of Receivables
|
|
|
|
net sales * bad debt= bad debt expense
|
percent of sales method
|
|
|
|
Step 1: determine the target balance for allowance of bad debts
target balance= ending a/r * bad debt % Step 2: determine bad debts expense by evaluating the allowance account bad debt expense = target balance – existing credit balance of allowance for bad debt |
Percent–of–Receivable
|
|
|
|
Step 1: determine the target balance for allowance for bad debts based on account age
target balance= (each age group * bad debt %) Step 2: determine bad debts expense by evaluating the allowance account bad debt expense = target balance – existing credit balance of allowance for bad debt |
Aging–of Receivables
|
|
|
|
Record the ___on the date the loan is made.
|
note
|
|
|
|
Periodically accrue ____ revenue and record _____ receipts.
|
interest
|
|
|
|
Record ______of note principal.
|
collection
|
|
|
|
Notes are evidenced by a signed document called a _____ _____ and must include certain components.
|
Promissory Note
|
|
|
|
______ is recorded based on the amount of time that has passed._____ rates are always annual. Time is always a fraction of a year.
|
Interest
|
|
|
|
princpal * interest rate * time
|
amount of interest
|
|
|
|
When the maker of the note does not pay, it is _____.Often the______ note AND the unpaid interest are transferred to an A/R. Later, the A/R can be written off.
|
dishonored
|
|
|
|
If a unit has many notes receivable, such as a financing division, it can also setup a Loan Loss Reserve similar to ___ ____ ____ ____.
|
Allowance for Bad Debts
|
|
|
|
cash + short–term investments + net current recievables / total current liabilites
|
acid–test ratio
|
|
|
|
net credit sales / average net a/r
|
a/r turnover ratio
|
|
|
|
365 days / A/R turnover ratio
|
days' sales in recievables
|
|
|
|
_____ ___ ____ assets used in the operation of the business.
|
Long–lived, tangible
|
|
|
|
Land, Buildings, Equipment, Furniture, and Automobiles
|
Plant Assets
|
|
|
|
The actual cost of a plant asset is its purchase price plus all the costs necessary to get the asset ready for its intended use.
|
Cost Principle
|
|
|
|
is not depreciable.
|
Land
|
|
|
|
Purchase price, Brokerage Commissions, Survey And legal fees, Delinquent Property taxes, Title Transfer fees, Cost of clearing the land, and Cost of removing old buildings is included in ____ cost
|
All included in Cost of Land
|
|
|
|
Fencing, Paving, Sprinkler Systems, Lighting, Signs
|
not included in Cost of Land
|
|
|
|
When a Building is constructed, the costs include
|
site excavation, building permits, contractor charges, materials and labor
|
|
|
|
When a Building is purchased, the costs include
|
purchase price, renovation costs, brokerage fees
|
|
|
|
purchase price, purchase commission, transportation charges, installation and testing cost, insurance while in transit, sales taxes
|
The Cost included in Machinery and Equipment and Furniture and Fixtures
|
|
|
|
Purchasing Several assets for a single price.
|
Lump–Sum Purchases
|
|
|
|
Sometimes called a “basket purchase”
|
Lump–Sum Purchases
|
|
|
|
Each asset must be recorded separately and Allocate total cost to each asset based on relative market value.
|
Lump–Sum Purchases
|
|
|
|
Land market value + building market value
|
total market value
|
|
|
|
land market value / total market value
building market value / total market value |
perchentage of total value
|
|
|
|
_____ ____ are recorded as assets when purchased.
|
Plant assets
|
|
|
|
_______ is the process of allocating an asset’s cost to expense over its useful life.
|
Depreciation
|
|
|
|
Remember,to record depreciation, we ____ Depreciation Expense and ____ Accumulated Depreciation (a contra–asset).
|
debit
credit |
|
|
|
The estimated expected use from an asset
|
Estimated useful life
|
|
|
|
Total amount of cost to be allocated
|
Capitalized Cost
|
|
|
|
The Estimated value of the asset at the end of its useful life.
|
Estimated Residual value
|
|
|
|
The Depreciation computation requires three main factors
|
Estimated useful life, Capitalized Cost,
|
Estimated residual value
|
|
|
three common depreciation methods
|
Straight–Line, Units–of–Production, Declining–Balance
|
|
|
|
cost– residual value/ estimated useful life in years
|
annual straight line depreciation
|
|
|
|
The most widely used and most easily understood method and Results in the same amount of depreciation in each year of the asset’s service life
|
Straight–Line Method
|
|
|
|
this Depreciation method is a function of how much an asset is USED,rather than its age and is Less predictable than other methods
|
Units–of–Production Method
|
|
|
|
Step 1:
(cost – residual value) / useful life in units= deprecation per unit Step 2: depreciation per unit * current year usage= deprecation |
Units–of–Production Method
|
|
|
|
An accelerated method. there is More depreciation early in an asset’slife and total depreciation the same over theasset’s full life.
|
Double–Declining Balance Method
|
|
|
|
Multiply an asset’s declining book value by twice the straight–line depreciation rate.
|
Double–Declining Balance Method
|
|
|
|
(cost – accumalated deprecation) * (2/useful life)
|
Double–Declining Balance Method
|
|
|
|
When an asset is disposed, sold, or retired, it must be ______ from the books. All related Accumulated Depreciation must also be ______ from the books.
|
removed
|
|
|
|
Gains/Losses on disposal are
|
recorded
|
|
|
|
when Discarding Plant Assets Bring _______ up to date and Remove original cost of asset and accumulated depreciation from the books.
|
depreciation
|
|
|
|
when Discarding Plant Assets______ any cash received.______ the difference between book value and the cash received as a gain or loss.
|
record
|
|
|
|
Iron ore, Oil, Natural Gas, Coal, Timber, Diamonds, Gold, and silver
|
Natural Resources
|
|
|
|
Assets that come from the earth and are consumed.
|
Natural Resources
|
|
|
|
The value of the ________ that a company owns/controls is a long–term asset.
|
“reserves”
|
|
|
|
As the natural resources are extracted, ____ Expense is recorded and A Contra–asset ______Depletion is also recorded
|
Depletion
Accumulated |
|
|
|
(similar to Units–of–Production)
Compute Depletion per Unit (based on estimated reserves) and Compute Depletion for the period (based on actual extraction) |
depletion of natural resources
|
|
|
|
(cost – residual value) / estimated reserves
|
depletion per unit
|
|
|
|
depletion per unit * current year extraction
|
depletion
|
|
|
|
Patents, Copyrights, Trademarks, Franchise Agreements, Licenses, and Goodwill
|
Intangible Assets
|
|
|
|
Assets that have no physical substance.Usually convey rights to the owner. Recorded At cost. Research And development costs are NOT included.
|
Intangible Assets
|
|
|
|
As ___ ____ “expire,” they must be “amortized.”
|
intangible assets
|
|
|
|
Amortization expense is recorded, based on the ___ ___ method, Use the shorter of the useful life or the legal life, and Only for intangible assets with definite life
|
straight–line
|
|
|
|
•There is no _____ account used with the amortization process. The intangible asset is credited directly. Each year the asset’s book value will decrease by the amount of the amortization.
|
contra–asset
|
|
|
|
net sales/ average total assets
|
asset turnover ratio
|
|
|
|
Authorized Stock
|
The maximum number of shares of stock that the corporate charter allows the corporation to issue.
|
|
|
|
Issued Stock
|
Stock that has been issued but may or may not be held by stockholders.
|
|
|
|
Stock Certificate
|
Paper evidence of ownership in a corporation.
|
|
|
|
Capital Stock
|
Represents the individual's ownership of the corporation's capital.
|
|
|
|
Dividend
|
A distribution of a corporation's earnings to stockholders.
|
|
|
|
Preemptive Right
|
Stockholder's right to maintain his or her proportionate ownership in the corporation.
|
|
|
|
Common Stock
|
Represents the basic ownership of a corporation
|
|
|
|
Outstanding Stock
|
Issued stock in the hands of stockholders.
|
|
|
|
Preferred Stock
|
Stock that gives its owners certain advantages over common stockholders, such as the right to receive dividends before the common stockholders a the right to receive assets before the common stockholders if the corporation liquidates.
|
|
|
|
Par Value
|
An amount assigned by a company to a share of its stock
|
|
|
|
No–Par Stock
|
Stock that has no amount (par) assigned to it.
|
|
|
|
Stated Value Stock
|
No par stock that has been assigned an amount similar to par v
|
|
|
|
Stockholders' Equity
|
A corporation's equity that includes paid–in capital and retained earnings.
|
|
|
|
Paid–In Capital
|
Represents amounts received from the stockholders of a corporation in exchange for stock.
|
|
|
|
Retained Earnings
|
Equity earned by profitable operations of a corporation that is not distributed to stockholders
|
|
|
|
Underwriter
|
A firm that handles the issuance of a company's stock to the public, usually assuming some of the risk by agreeing to buy the stock if the firm cannot sell all of the stock to its clients.
|
|
|
|
Issue Price
|
The price the stock initially sells for the first time it is sold.
|
|
|
|
Premium
|
The amount above par at which a stock is issued.
|
|
|
|
Paid–In Capital in Excess of Par
|
Represents amounts received from stockholders in excess of par value.
|
|
|
|
Treasury Stock
|
A corporation's own stock that it has previously issued and later reacquired.
|
|
|
|
Legal capital
|
The portion of stockholders equity that cannot be used for dividends
|
|
|
|
Dividend in arrears
|
A preferred stock dividend is in arrears if the dividend has not been paid for the year and the preferred stock is cumulative
|
|
|
|
Cumulative preferred stock
|
preferred stock whose owners must receive all dividends in arrears plus the current year dividend before the corporation pays dividends to the common stockholder
|
|
|
|
Noncumulative preferred stock
|
preferred stock whose owners do not receive passed dividends
|
|
|
|
Stock dividend
|
A distribution by a corporation of its own stock to its stockholders
|
|
|
|
Small stock dividend
|
a stock dividend of less than 20% to 25% of the issued and outstanding stock
|
|
|
|
Large stock dividend
|
A stock dividend greater than 20% to 25% of the issued and outstanding stock
|
|
|
|
Stock split
|
an increase in the number of issued and outstanding shares of stock coupled with a proportionate reduction in the par value of the stock
|
|
|
|
Memorandum entry
|
an entry in the Journal of that notes a significant in bed but has no debit or credit amount
|
|
|
|
Deficit
|
debit balance in the retained earnings account
|
|
|
|
Appropriation of retained earnings
|
Restriction of a portion of retained earnings that is recorded by a journal entry
|
|
|
|
Prior Period Adjustments
|
a correction to retain earnings for an error of an earlier period
|
|
|
|
Earnings per–share (ESP)
|
Amount of a company's net income (loss) for each share of its outstanding common stock. Net income – preferred dividends / weighted average number of common shares outstanding
|
|
|
|
Price/earnings ratio
|
The ratio of the market price of a share of common stock to the company's earnings per–share. Measures the value that the stock market places on $1 of a company's earnings. Market price per share of common stock/earnings per–share
|
|
|
|
Rate of return on common stockholders equity
|
shows the relationship between net income available to common stockholders and their average common equity investment in the company. Net income – preferred dividends/average common stockholders equity
|
|
