Financial Accounting Exam 1

Front 1

Formula for Balance Sheet:

Back 1

A=L+O Assets = Liabilities + Owner's Equity
A-L=O Assets - Liabilities = Owner's Equity

Front 2

Formula for Income Statement:

Back 2

NI = R - E Net Income = Revenue - Expenses

Front 3

Formula for Statement of Cash Flows:

Back 3

Cash flows from operating activities + cash flows from investing activities + cash flows from financing activities = change in cash

Front 4

Accounting Cycle: ______ make decisions about ________, whose activities are measured by __________ and in turn, this information is communicated to ______.

Back 4

Investors, Companies, Financial Accountants, Investors

Front 5

A type of accounting that deals with the methods accountants use to provide information to an organization's internal users; that is, its own managers

Back 5

Managerial Accounting

Front 6

A type of accounting that measures business activities of a company and communicates those measurements to external parties for decision-making purposes

Back 6

Financial Accounting

Front 7

resources owned by a company, such as cash, land, and inventory

Back 7

assets

Front 8

amount owed to credits, such as rent, accounts payable, and taxes

Back 8

liabilities

Front 9

What's left - the owner's claim. All the resources - what you owe.

Back 9

Stockholders' Equity

Front 10

the amount a company gets for selling their goods/services

Back 10

revenue

Front 11

3 categories of business activities and examples of each:
1. _______ Activities - involves funding from external sources
2. _______ Activities - involves transactions in primary operations of business
3. _______ Activities- involves purchase and sale of long-term resources.

Back 11

1. Financing - banks, stockholder's
2. Operating - selling, renting, taxes, utilities
3. Investing - vehicles, buildings, land

Front 12

A type of business activity is for short-term use - used up < 1 year.

Back 12

operating

Front 13

Accounting is the language of ________.

Back 13

business

Front 14

If Revenue > Expenses, there is a net _______. If Revenue < Expenses, there is a net _____.

Back 14

income, loss

Front 15

Forms of Business Organizations:
1. __________ - Owned by a single person.
2. __________ - Owned by two or more persons.
3. __________ - Legally separate from its owners.

Back 15

Sole Proprietorship, Partnership, Corporation

Front 16

periodic reports published by the company for the purpose of providing information to external users

Back 16

financial statements

Front 17

a financial statement that reports the companies revenues and expenses over an interval of time

Back 17

Income statement

Front 18

The ____ Statement focuses on profitability and shows whether the company was able to generate enough revenue to cover the expense of running the business. Using this, you can calculate net income.

Back 18

Income

Front 19

a financial statement that summarizes the changes in stockholders' equity over an interval of time

Back 19

Statement of Stockholders' Equity

Front 20

Stockholders' Equity consists of what two things?

Back 20

Common Stock & Retained Earnings

Front 21

anytime a corporation issues stock in exchange for cash

Back 21

common stock

Front 22

the cumulative net income over the life of the company less dividends

Back 22

retained earnings

Front 23

You get the net income to transfer to the Statement of Stockholders' Equity from the _______ statement.

Back 23

Income

Front 24

financial statement that presents the financial position of the company on a particular date and is summarized by the basic accounting equation: Assets= Liabilities + Stockholders' Equity

Back 24

Balance Sheet

Front 25

financial statement that measures activities involving cash receipts and cash payments over an interval of time. Can be classified into three categories: ____ cash flows, ____ cash flows, _____ cash flows.

Back 25

Statement of Cash Flows, operating, investing, financing

Front 26

formal standards that financial accounting information is based on

Back 26

GAAP (Generally Accepted Accounting Principles)

Front 27

Current Accounting Standard Setting: The _______ sets standards for the U.S. and is governed by the _________, which is the ultimate authority. Globally, the _________ decides whether or not they'll adopt these standards.

Back 27

Financial Accounting Standards Board (FASB), Securities and Exchange Commission (SEC), International Accounting Standards Board (IASB)

Front 28

trained individuals hired by a professional company as an independent party to express a professional opinion of the accuracy of that company's financial statements

Back 28

auditors

Front 29

Role of auditors: Help ensure that management has in fact appropriately applied ____ in preparing the company's financial statements and to help _____ and ____ in their decisions by adding credibility to the financial statements.

Back 29

GAAP, investors, creditors

Front 30

Financial accounting should provide information that is useful to ___ and ___ in making decisions, helps to predict __ flow, tells about _______ resources, claims to resources, and changes in resources and claims.

Back 30

investors, creditors, cash, economic

Front 31

a code or moral system that provides criteria for evaluating right and wrong behavior

Back 31

ethics

Front 32

an act that provides regulation of auditors and the types of services they furnish to clients, increases accountability of corporate executives, addresses conflicts of interest for securities analysts, and provides for stiff criminal penalties for violators.

Back 32

Sarbanes-Oxley Act (SOX)

Front 33

There are 2 types of accounting: _____ and ______

Back 33

Public, Private

Front 34

Assumption for GAAP:
1. ______ Assumption - identify all economic events with a particular economic entity
2. ______ Assumption - provide information of an enterprise at regular time periods (quarterly, yearly)
3. ______ Assumption - need a uni or scale of measurement
4. ______ Assumption - business entity will continue to operate indefinitely

Back 34

Economic Entity, Periodicity, Monetary Unit, Going Concern

Front 35

Type of business activity? - issue common stock

Back 35

financing

Front 36

Type of business activity? - collect cash from a bank loan

Back 36

financing

Front 37

Type of business activity? - sell products to customers

Back 37

operating

Front 38

Type of business activity? - pay workers' wages

Back 38

operating

Front 39

Type of business activity? - purchase equipment for manufacturing

Back 39

investing

Front 40

Type of business activity? - pay dividends to stockholders

Back 40

financing

Front 41

Type of business activity? - sell factory

Back 41

investing

Front 42

Type of business activity? - purchase office supplies

Back 42

operating

Front 43

Type of business activity? - pay utilities

Back 43

operating

Front 44

Type of business activity? - pay for maintenance on delivery vehicles

Back 44

operating

Front 45

Accounts Receivable is what type of account?

Back 45

asset

Front 46

Land is what type of account?

Back 46

asset

Front 47

Prepaid Rent is what type of account?

Back 47

asset

Front 48

Salaries Expense is what type of account?

Back 48

expense

Front 49

Utilities Expense is what type of account?

Back 49

expense

Front 50

Service Revenue is what type of account?

Back 50

Revenue

Front 51

Accounts Payable is what type of account?

Back 51

Liability

Front 52

Notes Payable is what type of account?

Back 52

Liability

Front 53

Dividends is what type of account?

Back 53

Dividends

Front 54

Common Stock is what type of account?

Back 54

Stockholders' Equity

Front 55

resources owned

Back 55

assets

Front 56

amounts owed

Back 56

liabilities

Front 57

owners' claims

Back 57

stockholders' equity

Front 58

distributions to owners

Back 58

dividends

Front 59

sales of products or services

Back 59

revenues

Front 60

costs of earning revenues

Back 60

expenses

Front 61

Statement of Stockholder's Equity Formula:

Back 61

Common Stock + Retained Earnings (= Beg+ Net income - Dividends) = Stockholders' Equity

Front 62

Roles of Financial Accounting:
1. ______ business activities of the company.
2. ______ those measurements to external parties for decision-making purposes

Back 62

Measure, communicate

Front 63

a type of transaction with a separate economic entity

Back 63

external transaction

Front 64

a type of transaction that does not include a separate economic entity

Back 64

internal transaction

Front 65

a list of all accounts and their balances at a particular date, showing that total debits equal total credits

Back 65

trial balance

Front 66

The trial balance is used for _____ purposes only and provides a check on the equality of the debits and credits.

Back 66

internal

Front 67

A type of accounting that records revenues when earned (the revenue recognition principle) and expenses with related revenues (the matching principle).

Back 67

accrual-basis

Front 68

The _______ principle recognizes revenue when it is earned

Back 68

revenue recognition

Front 69

The Matching Principle states that ___ are reported with the ___ they help to generate.

Back 69

expenses, revenues

Front 70

_______ Accounting recognizes revenue when it is earned, records expenses with related revenues, and is a part of GAAP. _______ accounting recognizes revenue when cash is received, records expenses when cash is pain, and is not a part of GAAP.

Back 70

Accrual-Basis, Cash-Basis

Front 71

The purposes of _____ entries are to record events that have occurred but which have not been recorded, to record revenues in the period earned, to record expenses in the period they are incurred in the generation of those revenues, to correctly state assets and liabilities in the balance sheet.

Back 71

adjusting

Front 72

we paid cash (or had an obligation to pay cash) for the purchase of an asset before we incurred the expense

Back 72

prepaid expenses

Front 73

we received cash and recorded a liability before we earned the revenue

Back 73

unearned revenues

Front 74

we paid cash after we incurred the expense and recording a liability

Back 74

accrued expenses

Front 75

we received cash after we earned the revenue and recorded an asset

Back 75

accrued revenues

Front 76

types of prepayments - adjusting entries

Back 76

prepaid expenses, unearned revenues

Front 77

types of accruals - adjusting entries

Back 77

accrued expenses, accrued revenues

Front 78

costs of assets acquired in one period that will be expensed in a future period

Back 78

prepaid expenses

Front 79

The adjusting entry for an unearned revenue always includes a debit to a _____ account and a credit to a ______ account.

Back 79

liability, revenue

Front 80

When a company has incurred an expense but hasn't yet paid cash or recorded an obligation to pay, it should still record the expense.

Back 80

Accrued Expense

Front 81

When a company has earned revenue but hasn't yet received cash or recorded an amount receivable, it still should record the revenue.

Back 81

Accrued Revenue

Front 82

Post adjusting entries to the ___ accounts in the general ledger to update the account balances. Prepare an _______ balance.

Back 82

T, adjusted trial

Front 83

a list of all accounts and their balances after we have updated account balances for adjusting entries

Back 83

adjusted trial balance

Front 84

Closing entries are how we take ______ out of ________.

Back 84

dividends, retained earnings

Front 85

Closing entries, transfer the balance of a ______, ______, and _______ accounts to the balanced of _______ earnings.

Back 85

revenue, expense, dividend, retained

Front 86

After closing entries, the balance of each revenue, expense, and dividend equals ______.

Back 86

zero

Front 87

Closing entries do no affect the balances of permanent accounts other than __________.

Back 87

retained earnings