Financial Accounting Ch. 3&4

Front 1

Definition: the time it takes for a company to pay cash to supplier, sell goods and services to customers and Collect cash from customers.

Back 1

The Operating Cycle (Cash-to-Cash Cycle)

Front 2

Definition: The assumption that the long life of a company can be reported in shorter time periods.

Back 2

The Time Period Assumption

Front 3

Increases in assets or settlements of liabilities from ongoing operations.

Back 3

Revenues

Front 4

Any outflow of money for any purpose.

Back 4

Expenditure

Front 5

Decreases in assets or increases in liabilities from ongoing operations. When an amount is incurred to generated revenue during a current period.

Back 5

Expense

Front 6

Any interest or dividends earned on an investment.

Back 6

Investment Income

Front 7

An increase in assets or decrease in liabilities from peripheral transactions.

Back 7

Gains

Front 8

Decreases in assets or increases in liabilities from peripheral transactions.

Back 8

Losses

Front 9

The system where revenues are recorded when cash is received and expenses when cash is paid.

Back 9

Cash Basis Accounting

Front 10

The system where revenues are recorded when earned and expenses when incurred regardless of the timing of cash receipts or payments.

Back 10

Accrual Basis Accounting

Front 11

Under the Revenue Principle, what are the four criteria or conditions that must normally be met for revenue to be recognized?

Back 11

1) Delivery has occurred or services have been rendered.
2) There is persuasive evidence of an arrangement for customer payment.
3)The price is fixed or determinable.
4) Collection is reasonably assured.

Front 12

Does Cash need to be received before a revenue can be recognized.

Back 12

No

Front 13

What principle requires that expenses be recorded when incurred in earning revenue.

Back 13

The Matching Principle

Front 14

What is a Trial Balance?

Back 14

A list of the individual accounts, usually in the financial statement order, with their debit or credit balances. It is used to provide a check on the equality of the debits and credits."

Hint 14

None

Front 15

What are Adjusting Entries?

Back 15

Adjusting Entries are made at the end of the accounting period to record all revenues and expenses that ave not been recorded but belong in the current period. They update the balance sheet and income statement accounts at the end of the accounting period.

Front 16

What are the four different types of adjusting entries?

Back 16

Deferred Revenues - Previously recorded liabilities that need to be adjusted at the end of the period to reflect revenues that have been earned.
Accrued Revenues - Revenues that have been earned by the end of the accounting period but which will be collected in a future accounting period.

Deferred Expenses - Previously recorded assets that need to be adjust at the end of the period to reflect incurred expeenses.

Accrued Expenses - Expenses that have been incurred by the end of the accounting period but which will be paid in a future accounting period.

Hint 16

None

Front 17

Which Financial Statement is represented by the following equation: (Revenues + Gains) - (Expenses + Losses) = Net Income

Back 17

Income Statement

Front 18

Which Financial Statement is represented by the following equation: Assets = Liabilities + Stockholders' Equity

Back 18

Balance Sheet

Front 19

Which Financial Statement is represented by the following equation: Change in cash for the period = Cash from operations +/- Cash from Investing Activities +/- Cash from Financing Activities

Back 19

Statement of Cash Flows

Front 20

Which Financial Statement is represented by the following equation: Ending Stockholders' Equity = (Beginning Contributed Capital + Stock Issuances - Stock Repurchases) + Beginning Retained Earnings + Net Income - Dividends Declared)

Back 20

Statement of Stockholders' Equity

Front 21

Do Adjusting Entries effect Cash?

Back 21

No- at the time of an adjusting entry no cash is being received or paid.

Front 22

How do you determine Earnings Per Share?

Back 22

Net Income / Weighted average number of shares of stock outstanding during that period. Earnings per share measures the average amount of net income for the year atributable to one share of common stock.

Front 23

How do you determine Net Profit Margin?

Back 23

Net Income / Net Sales

Front 24

What is a closing entry?

Back 24

Closing Entries are made at the end of the accounting period to transfer the balances in the temporary income statement accounts to retained earnings. The closing entries reduce the revenue/gain/expense and loss accounts to a zero balance so that accumulation can begin for the next period.

Hint 24

None

Front 25

What are Permanent Accounts?

Back 25

Balance Sheet Accounts; the asset liability and the stockholder's equity accounts (accounts that ARE NOT closed at the end of each period)

Front 26

What are Temporary Accounts?

Back 26

Income Statement Accounts; revenues/gains/expenses and losses (these ARE closed at the end of each period).

Hint 26

None

Front 27

What are Real Accounts?

Back 27

Another name for Permanent Accounts.

Front 28

What are Nominal Accounts?

Back 28

Another name for Temporary Accounts.

Front 29

What is the purpose of the closing process?

Back 29

1)To correctly state retained earnings. 2)To clear out the balances of the temporary accounts for the year just ended so that these subaccounts can be used again during the next period for accumulation and classification purposes.

Hint 29

None