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32 Cards in this Set
- Front
- Back
FASB conceptual framework
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Objectives of financial reporting: Focus on providing present and potential investors with information useful in making investment decisions
Usefulness of providing information in financial statements: Constraints of cost benefit and materiality of information is NOT disclosed if costs of disclosure exceeds the benefits or if the information is not enough to influence users. |
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Revenue recognition
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Revenue is realized or realizable
Revenue is earned |
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Extraordinary items
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Gains or losses that are both unusual in nature and infrequent in occurrence
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Discontinued operations
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If criteria is met, operating results are reported separately as part of the loss on operations and disposal of a component
These results are separate from continuing operations |
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Notes to financial statements
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Required by GAAP to facilitate users understanding of financial statements
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Calculation of cost of goods sold
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Beginning inventory
+ Net purchases + Freight In - Ending inventory |
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FIFO vs LIFO
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FIFO: better approximate current replacement cost
LIFO: better approximate cost of goods sold; COGS: valued using last items purchased |
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Periodic vs perpetual inventory
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Perpetual requires that inventory be calculated after each purchase and after each sale
Periodic assumes that all items were available throughout the month for costing the value of ending inventory |
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Gross profit method to estimate missing inventory
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Step 1: calculate cost of goods available for sale
Beginning inventory + purchases = Cost of goods available for sale Step 2: Estimate COGS based on gross profit % Sales - Estimated gross profit (sales * Gross profit %) = COGS (sales * (100% - GP %) Step 3: Compute estimated ending inventory + Cost of goods available for sale - Estimated COGS = Estimated ending inventory Step 4: Calculate shortage in inventory + Estimated ending inventory - Actual value of the physical inventory = Estimated shortage in inventory |
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Completed contract method of accounting for long-term construction contracts
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Recognize income when project is completed
Recognize expected losses on a contract in full in the period in which it is discovered |
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Cost of fixed assets
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Any cost incurred to prepare an asset for its ultimate use gets capitalized as part of the asset
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Impairment of assets
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Write asset down to fair value and recognize a loss for impairment when discovered
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Goodwill
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Recorded at the time of business combination
Goodwill is not amortized Must test goodwill for impairment annually, more often with reason to believe that goodwill may be impaired |
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Bank reconciliation
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Balance per bank statement
+ Deposits in transit - Outstanding checks +/- bank errors = Correct balance for cash |
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Accounts receivable: determine value
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DR Beginning Balance
DR Credit Sales CR Sales returns CR Write offs CR Cash collections Estimated future sales and estimated future uncollectables are recorded in separate accounts |
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Method of recording uncollectable accounts expense
GAAP accrual accounting |
Allowance is GAAP
Direct write off is not |
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Allowance for uncollectable accounts T-Account
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CR Beginning Balance
CR Uncollectable account expense DR Write offs |
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Recognition of warranty expense
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Must be estimated and recognized at time of sale in accordance with matching principle
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Bonds: Market price
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Issued at any amount (Par, Premium, Discount)
= PV of future cash flows (principle & periodic interest) discounted at current market effective interest rate |
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Bonds: Net cash received
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Market price of bonds (face amount or price)
plus any interest accrued from the last interest payment date |
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Number of shares of Common Stock outstanding
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Issued shares less treasury shares
Does not include convertible preferred stock UNTIL it is CONVERTED by the stockholder |
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Recording stock issuance
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Record common or preferred stock at par or stated value
Excess paid over par or stated value is recorded as "additional paid-in capital" |
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Number of shares of Common Stock outstanding
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Issued shares less treasury shares
Does not include convertible preferred stock UNTIL it is CONVERTED by the stockholder |
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Leases: capital vs operating
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Capital leases meet one of the following criteria:
-Transfer ownership to lessee -Bargain purchase option -Lease term >= 75% of the economic life of the asset -PV of minimum lease payments >= 90% of FMV Capital: asset and liability are recorded @ PV Operating: lease payments are recorded as rent expense |
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Preferred stock dividends
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For cumulative preferred stock
dividends are not paid in any year will accumulate and must be paid in a later year before any dividends can be paid to common stockholders Unpaid prior dividends are called "dividends in arrears" and must be disclosed in the financial statements. They are not accrued because they are not considered a liability until declared. Preferred stock dividends are normally calculated as the par value of the preferred stock outstanding * dividend % |
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Stock splits
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Change the number of shares outstanding and par value per share
par value per share is reduced in proportion to increase in number of shares total par value outstanding does not change no journal entry required reemember to take into account the NEW number of shares outstanding when calculating the value of any cash dividends |
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Calculation of weighted-average share of stock outstanding
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Stock dividends are treated as if they occurred at the beginning of the year
Weight the number of shares for the period of time outstanding based on 12 months when calculating the weighted-average number of shares outstanding |
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Statement of cash flows
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Primary purpose to provide relevant information about an entity's cash receipts and cash disbursements during a period
In the use of the indirect approach for determining cash flows from operating activities, net income must be adjusted for changes in current assets other than cash and for changes in current liabilities *add back decreases in current assets and increases in current liabilities *deduct increases in current assets and decreases in current liabilities |
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Investments available-for-sale securities
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Debt and equity securities are not classified as trading or held-to-maturity securities
Reported as fair market value May be classified as current or non-current Unrealized holding gains ad losses for a period are excluded from earnings and reported as other comprehensive income (loss) on balance sheet If decline is "other than temporary" then recognized in earnings Realized gains and losses (which include previous unrealized holding gains and losses) are recognized |
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Balance sheet classifications
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Current assets
Non-current assets Current liabilities Owner's equity Contra-asset Contra-equity |
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Income statement classifications
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Revenue
Expense Contra-revenue |
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Worksheet and adjusting entries
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Aids in preparation of AJEs
Obtain adjusted balances to aid in financial statements |