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102 Cards in this Set
- Front
- Back
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What are the financial statements in order of creation?
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Income Statement
Statement of Retained Earnings Balance Sheet Statement of Cash Flows |
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Who is the Financial Accounting System intended to benefit?
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External Decision Makers (Investors, creditors etc.)
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Who is the Managerial Accounting System intended to benefit?
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Internal Decision Makers (Management etc.)
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What goes on the Balance Sheet?
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All resources owned and all amounts owed.
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What order are items listed in on the Balance Sheet?
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Liquidity; from most liquid to least liquid.
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The difference between all resources owned and amounts owed is referred to as what? And on which financial statement is this information found?
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Stockholder's Equity.
On the Balance Sheet |
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What is found on the income statement?
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All revenues and expenses.
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Which of the financial statements is titled for a specific day rather than a period ending on a specific date?
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The balance sheet
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What is on the Statement of Retained Earnings?
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Old Retained Earnings + Net earnings - dividends paid = retained earnings.
This shows reinvestment within a company. |
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What is on the Statement of Cash Flows?
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All sources and uses of cash.
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What is the basic accounting equation?
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Assets= Liabilities + Stockholder's Equity
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List examples of Assets:
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Cash; Short-term investments; Accounts Receivable; Notes Receivable; Inventory, Supplies, Prepaid expenses; Long-term investments; Equipment; Buildings; Land; Intangibles
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List examples of Liabilities:
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Accounts Payable; Accrued Expenses; Notes Payable; Taxes Payable; Unearned revenue; Bonds Payable
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List examples of Stockholder's Equity:
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Contributed Capital; Retained Earnings
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Name the three activity categories on the Statement of Cash Flows:
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Operating, Investing, and Financing activities
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Which side of a T-account is Debit?
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Left
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Which side of a T- account is Credit?
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Right
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Are asset accounts +/- or -/+?
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+/-
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Are liability accounts +/- or -/+?
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-/+
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Are equity accounts +/- or -/+?
(Stockholder's equity etc.) |
-/+
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Is a high financial leverage ratio a bad or good thing?
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Bad
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Net Income is on which two Financial Statements?
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Income Statement and Statement of Retained Earnings
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Which two Financial Statements is retained earnings on?
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Statement of Retained Earnings and the Balance Sheet
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Cash Balance is on which two Financial Statements?
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Statement of Cash Flows and the Balance Sheet
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Which entity has the ultimate authority for establishing accounting rules and procedures?
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The Securities and Exchange Commission (SEC)
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Which two pieces of legislation established the Securities and Exchange Commission (SEC)?
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The Securities Act of 1933 and the Securities and Exchange act of 1934
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Which group formulates GAAP?
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the Financial Accounting Standards Board (FASB)
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What does GAAP stand for?
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Generally Accepted Accounting Principles
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Auditor's main job is to express an opinion as to the ________ of the financial statement presentation.
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fairness
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Name and define the two primary, qualitative characteristics pertinent to objective financial reporting:
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Relevancy: predictive value, feedback value, timeliness
Reliability: verifiability, representational faithfulness and neutrality |
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Name and define the two secondary, qualitative characteristics pertinent to objective financial reporting:
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Comparability: across companies
Consistency: over time |
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Define asset:
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economic resource with probable future benefits.
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Separate entity assumption:
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Activities of the business are separate from activities of owners.
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Continuity assumption:
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The entity will not go out of business in the near future.
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Unit-of-measure assumption:
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Acounting measurements will be in the national monetary unit
(i.e. in the US, accounting will be recorded in the dollar) |
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Historical cost principle:
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The cash equivalent cost given up is the basis for the initial recording of elements.
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Internal events:
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events that have an effect on the accounting entity, but do not involve other parties. Example: Loss due to Fire
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What are the three types of closing journal entries?
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Revenues, expenses, and gains and losses.
These are closed to retained earnings. |
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What is the difference between a revenue and a gain?
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A revenue is a result of ongoing operations. A gain is a result of peripheral transactions.
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What is the only ratio on any of the Financial Statements and which of the statements is it on?
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Earnings Per Share & Income Statement
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When should assets, liabilities, revenues, and expenses be recognized?
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When the transaction that causes them occurs.
I.e., not when the cash actually is paid. |
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What type of account is unearned revenue?
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Liability
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What is the Matching Principle?
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Resources consumed to earn revenues in an accounting period should be recorded in that period, regardless of when cash is paid.
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Revenues and Expenses fall under/ affect what larger account?
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Retained Earnings
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The Income Statement shows _________ - __________ = __________
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Revenues- Expenses= Net Income
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What are the four types of adjusting journal entries?
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Unearned revenues, accrued revenues, prepaid expenses and accrued expenses.
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Describe the Unadjusted Trial Balance:
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A listing of all individual accounts with the debits and credits totaled separately and compared. They should equal each other if the books are in balance.
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Accumulated depreciation is what kind of account?
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Contra-Asset
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How is book value calculated?
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Cost- Accumulated depreciation
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What decreases retained earnings?
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Dividends
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Do income statement accounts carry value from period to period?
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No.
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List the 8 steps in the accounting process:
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1. General Journal
2. General Ledger 3. Trial Balance 4. Adjusting journal entries 5. Adjusted trial balance 6. closing journal entries 7. Post closing trial Balance 8. Financial statements |
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What are the two things that the full-disclosure principles require?
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A complete set of financial statements and notes to the financial statements.
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How often is a Form 10-K required, when is it required, and what does it contain?
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Once a year
w/in 90 days of the fiscal year-end audited financial statements |
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How often is a Form 10-Q required, when is it required, and what does it contain?
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Quarterly
w/in 45 days of the quarter-end unaudited financial statements |
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How often is a Form 8-K required, when is it required, and what does it contain?
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Depends
w/in 15 days of a major event date unaudited financial statements |
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What are the three possible sections of a income statement?
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continuing operations, nonrecurring items, and earnings per share
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What are the two types of nonrecurring items and where do these appear in the financial statements?
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Discontinued operations and extraordinary items.
Income Statement |
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A common size income statement has what additional information?
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a percentage of total revenues for each line item on the income statement.
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What is the same of the legislation that that created the Public Company Accounting Oversight Board and otherwise created tighter regulations on the financial activities of publicly held companies?
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Sarbanes-Oxley Act (SOX)
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What is the purpose of a sales discount?
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Encourage early payment
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Sales returns and allowances are both what type of account?
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Contra-revenue
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Net Sales is calculated how?
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Sales revenue
-credit card discounts -sales discounts -sales returns and allowances |
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In order to achieve internal control of cash, duties are separated into what three parts?
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1. Recording
2. Custody 3. Authorization |
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Cash and equivalents should be deposited how frequently?
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Daily
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List cash control methods:
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Bank reconciliations
Purchase approvals Check signatures Pre-numbered Checks Payment approvals Daily deposits |
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What is the function of a bank reconciliation?
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Explains the difference between cash reported on bank statement and cash balance on company's books.
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For a bank reconciliation, what must be done with depositions in transit when reconciling the bank's balance?
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Added
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In a bank reconciliation, what two things must be subtracted from the books in order to get the correct balance?
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Service Charges and non-sufficient funds checks.
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In a bank reconciliation, what must be subtracted from the bank's sheet in order to get the correct balance?
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Outstanding Checks
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In a bank reconciliation, what must be added to the books in order to get the correct balance?
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Deposits by the Bank
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Which inventory system records merchandise inventory purchases in a separate account during the accounting period?
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Periodic inventory system
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Will FIFO or LIFO give a higher net income in a period of rising prices?
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FIFO
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Will FIFO or LIFO give a lower ending inventory in a period of rising prices?
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LIFO
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Employers match their employees dollar for dollar for what two payments?
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FICA (Social Security) and Medicare
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What are the two steps involved in doing "bond math"?
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1. Find the Present Value of the principle by using the face in half and doubling the period.
2. Find the Present Value (Annuity) using half the face and double the periods. |
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In order to be considered a "capital lease," how many of the four criteria must be met?
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One
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What is the only method of depreciation that ignores the residual value of an asset?
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Double-declining depreciation
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What is the term used for depreciation of natural resources?
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Depletion
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What is the term used for depreciation of intangible assets?
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Amortization
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Why must companies depreciate assets?
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The matching principle.
The expense must be record in the periods that it is incurred. |
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Should a contingent liability be recorded, disclosed in footnotes, or neither if it is reasonably possible and easy to estimate?
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Disclosed
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Should a contingent liability be recorded, disclosed in footnotes, or neither if it is probable and easy to estimate?
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Recorded
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Should a contingent liability be recorded, disclosed in footnotes, or neither if it is probable and not easy to estimate?
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Disclose
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Should a contingent liability be recorded, disclosed in footnotes, or neither if it is remotely possible and not easy to estimate?
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Neither
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Should a contingent liability be recorded, disclosed in footnotes, or neither if it is remotely possible and easy to estimate?
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Neither
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Should a contingent liability be recorded, disclosed in footnotes, or neither if it is reasonably possible and not easy to estimate?
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Disclose
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If current assets increase in a period, what operation should be performed on the statement of cash flows for that account?
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Subtraction
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If current liabilities increase in a period, what operation should be performed on the statement of cash flows for that account?
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Addition
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Name the four things that go in operating activities on the statement of cash flows:
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1. Changes in current assets and current liabilities
2. losses and gains 3. Amortization 4. Depreciation (CLAD) |
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What is capital stock and how is it made/obtained?
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It is stock of company X, owned by company X. It is obtained by buying it back on the secondary market.
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What is the secondary market?
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The stock exchange. What people like us use.
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What is the primary market?
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When companies sell their stock to the public (public offering). (Technically there is normally one or more bank-intermediaries that buy the stock from the company at price X then sell it to the public from a price slightly higher than price X).
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Define time-value of money:
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Money received today is worth more than money received in the future due to opportunity cost.
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What is the present value of money?
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The current value of an amount to be received in the future.
(the current value will be less than the amount that will be paid in the future) |
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What is an annuity?
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A series of periodic cash receipts or payments that are equal in amount each interest period.
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What are the three dates associated with payment of dividends and which need journal entries?
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1. Declaration date (Journal Entry)
2. Date of Record (No Journal Entry) 3. Date of Payment (Journal Entry) |
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Does a stock split increase retained earnings?
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No
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How do you record the sale of bonds at a discount?
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Cash
Discount Bonds Payable |
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How do you record the payment of interest for a bond sold at a discount?
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Interest expense
Discount on bonds payable Cash |
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A cash-equivalent must have an original maturity date equal or less than _______ from its origination.
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3 months
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After a company's stock has been traded on established markets, additional sales of new stock are called:
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seasoned new issues
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