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110 Cards in this Set
- Front
- Back
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Intanglible Asset
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Assets that dont have physical substance.
Patents and Copywrites |
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Property plant and Equipment
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Long useful lives.
Currently used in operations. Depreciation - allocating the cost of assets to a number of years. Accumulated depreciation - total amount of depreciation expensed thus far in the asset’s life |
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Corporation
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Ownership in shares of stock
Separate legal entity organized under state corporation law No personal liability Easier to raise funds |
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Accrual basis of accounting
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Accrual-Basis Accounting
Transactions recorded in the periods in which the events occur Revenues are recognized when earned, rather than when cash is received. Expenses are recognized when incurred, rather than when paid |
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When are transactions recorded in Accrual based accounting?
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Transactions are recorded when the events occur
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When are Revenues recognized in Accrual Based accounting?
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Revenues are recognized when they are earned. NOT when cash is recieved.
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When are expenses recognized in Accrual Based Accounting?
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Expenses are recognized when incurred, rather than when paid
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Depreciation
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Allocating the costs of assets to a number of years.
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Accumilated depreciation
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total amount of depreciation expensed thus far in the asset’s life
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Purchase returns and Allowances
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Purchaser may be dissatisfied because goods are damaged or defective, of inferior quality, or do not meet specifications
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Purchase return
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Return goods for credit if the sale was made on credit, or for a cash refund if the purchase was for cash.
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Purchase Allowance
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May choose to keep the merchandise if the seller will grant an allowance (deduction) from the purchase price
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In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting?
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Merchandise Inventory
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Sales Returns and Allowances
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“Flipside” of purchase returns and allowances.
Contra-revenue account (debit). |
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If somebody returns an items, does that reduce your sales?
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Sales not reduced (debited) because:
would obscure importance of sales returns and allowances as a percentage of sales. could distort comparisons between total sales in different accounting periods. |
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IN accounts recievable What are the 2 methods of accounting for uncollectable accounts?
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Direct write off and Allowance method
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Direct Write off
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Theoretically undesirable:
no matching. receivable not stated at net realizable value. not acceptable for financial reporting |
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Allowance Method
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Losses are estimated:
-better matching. -receivable stated at net realizable value. -required by GAAP |
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How do companies use the allowance method?
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Companies estimate uncollectible accounts receivable.
To record estimated uncollectibles, companies debit Bad Debts Expense and credit Allowance for Doubtful Accounts (a contra-asset account) . When companies write off specific uncollectible accounts, they debit Allowance for Doubtful Accounts and credit Accounts Receivable |
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When Companies record estimated uncollectables.
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companies
DEBIT Bad Debts Expense CREDIT Allowance for Doubtful Accounts (a contra-asset account) |
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When companies write off specific uncollectible accounts,
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Companies
DEBIT Allowance for Doubtful Accounts CREDIT Accounts Receivable |
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Allowance for Doubtful accounts
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Uncollectable
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Bank service charge
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The reconciling item in a bank reconciliation that will result in an adjusting entry by the depositor
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The use of prenumbered checks in disbursing cash is an application of the principle of
a. establishment of responsibility. b. segregation of duties. c. physical, mechanical, and electronic controls. d. documentation procedures |
DOCUMENTATION procedures
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Debit Memorandum
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A form used at a bank to inform its customer that the customer's account is being reduced for a fee or other charge.
Bank service charge NSF (not sufficient funds) |
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Cash-Basis Accounting
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Revenues are recognized when cash is received.
Expenses are recognized when cash is paid. Cash-basis accounting is not in accordance with generally accepted accounting principles (GAAP). |
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When are revenues recognized in Cash Basis Accounting?
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Revenues are recognized when cash is received.
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When are expenses recognized in Cash Basis Accounting?
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Expenses are recognized when cash is paid.
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2 primary sources of outside funds are:
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Borrowing money and
Issuing shares of stock for cash |
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Borrowing money
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Amounts owed are called liabilities.
Party to whom amount is owed are creditors. Notes payable and bonds payable are different type of liabilities. |
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Issuing shares of stock for cash.
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Payments to stockholders are called dividends
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Investing Activities
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Purchase of resources a company needs to operate.
Computers, delivery trucks, furniture, buildings, etc. Resources owned by a business are called assets. |
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Coupon rate
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The stated interest rate appearing on the face of the bond. Also referred to as the nominal rate or the stated interest rate
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Contractual interest rate
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The interest rate specified or stated in a note payable or in a bond payable. Often this rate is fixed and will not change during the life of the note or bond
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Documentation Procedures
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Companies should use prenumbered documents
All documents should be accounted for |
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Segregation of duties
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Related duties should be assigned to different individuals.
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Establishment of Responsibility
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Control is most effective when only one person is responsible for a given task
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Permitting only designated personnel to handle cash receipts
is an application of the principle of: a. segregation of duties. b. establishment of responsibility. c. independent check. d. other controls |
Establishment of responsibility
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Reconciliation Adjustments added to the BANK
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+ Deposit in Transit
- OutstandingChecks +/- Bank Errors |
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Reconciliations Adjustments added to the BOOKS
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+Notes collected by bank
-NSF (bounced) checks -Check printing or other service charges +/-Book Errors |
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What are the 4 cost flow assumptions?
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Specific Identification
First-in, first-out (FIFO) Last-in, first-out (LIFO) Average-cost |
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FIFO
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Earliest goods purchased are first to be sold.
Often parallels actual physical flow of merchandise. Generally good business practice to sell oldest units first |
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LIFO
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Latest goods purchased are first to be sold.
Seldom coincides with actual physical flow of merchandise. Exceptions include goods stored in piles, such as coal or hay |
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Independent Internal Verification
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Records periodically verified by an employee who is independent.
Discrepancies reported to management |
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When Supervisors count cash receipts daily; treasurer compares total receipts to bank deposits daily is an example of
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Independent Internal Verification
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NSF check
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a check that was not honored by the bank of the person or company writing the check because that account did not have a sufficient balance. As a result, the check is returned without being honored or paid. (NSF is the acronym for not sufficient funds.
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Three factors that determine market value
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the dollar amounts to be received,
the length of time until the amounts are received, and the market rate of interest |
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Market rate
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Interest rate
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Issuing bonds
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Face Value
below face value (discount), or above face value (premium). Bond prices are quoted as a percentage of face value |
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Discount
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Bond is sold Below Face Value
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Premium
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Bond is sold above face value.
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Perpetual System
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Check accuracy of inventory records.
Determine amount of inventory lost (wasted raw materials, shoplifting, or employee theft |
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Periodic System
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Periodic System
Determine the inventory on hand Determine the cost of goods sold for the period. |
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Stockholder
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Owner
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Adjusted Trial Balance
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Its purpose is to prove the equality of debit balances and credit balances in the ledger
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Which of the following statements is incorrect concerning the adjusted trial balance?
A An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made. BThe adjusted trial balance provides the primary basis for the preparation of financial statements. CThe adjusted trial balance lists the account balances segregated by assets and liabilities. DThe adjusted trial balance is prepared after the adjusting entries have been journalized and posted |
C,The adjusted trial balance lists the account balances segregated by assets and liabilities.
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Shareholders Report Includes
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Financial statements.
Management discussion and analysis. Notes to the financial statements. Independent auditor's report. |
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Cost of Goods Sold Equation
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Beg inv
+Purchases - Ending Inventory |
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Changes in Accounting Principles
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Principle used in the current year is different from one used in the preceding year.
Example - change from FIFO to average cost. Permissible when management can show new principle is preferable. Most changes are reported retroactively. |
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Debit/Credit
Expense |
Debit
You can pay for it right there and there |
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Debit/Credit
Dividends |
Debit
Dividends get payed out |
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Debit/credit
Payables |
Credit
Cuz you pay it later |
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Debit/Credit
Common stock |
Credit
because you debit Dividends |
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Debit/Credit
Dividends |
Debit
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Debit/Credit
Expenses |
Debit
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Debit/Credit
Prepaid Insurance |
Debit
Because you pay for it |
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When Retained Earnings decreases from beginning of the year to the end of the year....
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Net income is leass than dividends.
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What is a permanent account
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Dividends
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When Closing the books for a corporation what is closed to an income summary
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REvenues and expenses
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Allowance of doubtful accounts is necessary because
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when recording uncollectible accounts expense It is not possible to know which specific accounts will not pay .
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What entry will you use to pay off a note and interest at maturirty assuming that has been accrued
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DEBITNotes Payable
DEBITInterest Payable CREDIT CASH |
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When does interest kick in on a note?
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After the first month
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Transactions in a journal are initially recorded in
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Chronological Order
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Chief Accounting Officer
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Controller
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Earnings per share
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Net income less preferred stock dividends
by average common shares outstanding |
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Companies that fail to maintain an adeequate system of internal control
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may be subject to fines and officer imprisonment
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Events that change a companys financial stateements athat are recognized in they occur
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Under accrual Based accounting.
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A stock dividend has what effect (positive or negative)on total stockholders' equity.
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NONE you dumbass.
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What are the 2 primary sources of equity
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Paid in Capital
Retained Earnings |
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What do you add to stockholders equity accounts
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Perferred Stock
Common stock Paid in capital in excess of par Retained Earnings |
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What do you subtract to stockholders equity accounts
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Treasury stocks.
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if expenses are paid in cash
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Assets will decrease!
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Payment of a cash dividend would be classified as an
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Financing activity
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Accounts receivable are vauled and reported on the balance sheet
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At cash realizable value.
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Treasury stock
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A corporations own stock, which has been reacquired and held for future use
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Posting
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After Journalizing
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What happens to dividends when closing the books of a corporation
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It goes straight to retained earnings.
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When closing the books
what are temporarys accounts |
Rev
Exp Div |
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When closing the books
what are permanent accounts |
Assets
Liabilties Stockholders Equity. |
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The date which a cash dividend becomes a binding legal obligation
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Declaration date
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On a classified balance sheet
Companies usually current assets in what order |
Order which they are expected to be converted into cash
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if a company has a cash inflow and outflow then they must be reported
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Seperatly.
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Working Capital
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Current assets - Current liabilities
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Current Assets
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Balance sheeet item that
cash and cash equivalents, accounts receivable, inventory, marketable securities, prepaid expenses, and other assets that could be converted to cash in less than one year. |
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Current Liabilties
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A balance sheet item which equals the sum of all money owed by a company and due within one year
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Current Ratio
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Current Assets/ Current Liabilities
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Inventory Turnover Ratio
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Cost of Goods Sold/ Average Inventory
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Days in Inventory Ratio
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365/ Inventory Ratio Turnover
365/ (Cogs/avg inventory) |
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Receivables Turnover
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Net Credit Sales/ Average Net Receivables
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Average Collection Period Ratio
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365/ Receivables Turnover Ratio
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Debt to total Assets Ratio
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Total Liabilities/ Total Assets
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Cash Debt Coverage Ratio
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Cash Provided by Operations/
Average Total Liabilities |
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Times Interest Earned Ratio
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Net income + Interest Expense + Tax Expense/ Interest Expense
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Earnings Per Share
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Net Income-Preferred Stock Dividends/ Average Common Shares Outstanding
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Price-Earnings Ratio.
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Stock Price per share/ Earnings per share
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Gross profit Rate
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Gross Profit Rate- Gross Profit/ Net Sales
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Profit Margin Ratio
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Net Income/ Net Sales
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Return on Assets Ratio
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Net Income/ Average Total Assets
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Asset Turnover Ratio
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Net Sales/ Average Total Assets
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Payout Ratio
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Cash dividends declared on common stock/ Net Income
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