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62 Cards in this Set
- Front
- Back
What are the four financial statements?
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Income Statement
Statement of retained earnings Balance sheet Statement of cash flows |
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Proprietorship
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single owner, personally liable
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partnership
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two or more owners, partners are personally liable
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LLC
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members, members are not personally liable
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Corporations
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Stockholders, stockholders are not personally liable
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Entity Assumption
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A buisness is a separte economic unit
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Continuity Assumption
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entity will continue to exist indefinitely
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Historical cost principle
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assets recorded at purchase price
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Stable-monetary-unit assumption
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accountants assume that the dollars purchasing power is stable over time
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Assets
Liablities Owners Equity |
-economic resources, product future benefit
-outsider claims, debts payable to others(creditors) -Insider claims, represents ownership by stockholders |
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Accounting transactions (double entry)
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accounting has two parts giving and receiving, each transaction affects at least two accounts
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The journal
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chronological record of transactions. 3 steps:
1. specify each acct. affected, and classify each acct. by type. 2. determine whether the acct. is increased or decreased 3. record. debit is in left margin and credit is in right margin |
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Trial balance
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A list of all account balances. Assets first, then liablities, then stockholders equity. Shows debits equal credits. Prepared at the end of the month
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Accural accounting
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records impact of transactions. records revenue when earned and expenses when incurred.
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Cash basis accounting
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records only cash transactions. cash reciepts are treated as revenues. cash payments are handled as expenses
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Revenue principle
Matching principle |
-record after revenue is earned, amount to record is the cash value.
-identifys expenses incurred, measure the expenses, match aganist revenues earned |
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Deferrals
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adjustment for an item that the business paid or received cash in advance
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Depreciation
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allocates cost of plant asset to expense over the assets useful life
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Accurals
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opposite of deferrals.
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Closing books
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temporary accounts are closed to zero and closed into retained earnings. revenues, expenses, and dividends
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Internal controls
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primary way fraud and errors are prevented, detected or corrected.
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Objectives of internal control
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safegaurd assets, encourage employees to follow policy, promote operational efficency, ensure accurate reliable records, comply with legal requirements.
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Internal control procedures
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smart hiring practices, separation of duties
comparison and compliance monitoring adequate records limited access proper approvals |
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Short term investments
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also called marketalbe securities. Easily converted to cash(next liquid after cash). Held for one year or less.
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Trading Securities
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Held for a short time and then sold
If market price of investment increases, a gain results If market price of investment decreases, a loss results Can be debt or equity securities of another company Earn interest or dividend revenue |
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Recievables
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Third most liquid.
Aquired by selling goods or services, and lending money |
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Allowance for uncollectible accounts
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contra account to account receivalbe
shows amount of receivalbes expected to not be collected. |
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Percent of sales method (estimate uncollectiables)
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Estimated % of Uncollectiables x revenue = uncollectiable accounts expense
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Write off
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JE: Dr. allow for BD, Cr. AR
No impact on income stmt |
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Interest
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= Price x Rate x Time
80k x 6% x 3/12 = 1200 Dr. Interest Reciev Cr. Interest Revenue |
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Gross Profit
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= cost of good sold - sales revenue
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Inventory
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Dr. Inventory
Cr. AP (purchase inv on acct.) Dr. AR Cr. Sales (sold inv on acct.) Dr. COGS Cr. Inventory (recorded cost of good sold) |
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Net purchases
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Purchase price
+ Freight in - Purch returns & allowances - Purch discounts |
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Net Sales
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Sales
- sales returns - sales alllowances - sale discounts |
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FIFO
LIFO |
- ending inventory consists of most recent purchase costs
-oldest costs in ending inventory. cost of goods sold |
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Inventory turnover
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cost of goods sold/ average inventory
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Cost of goods sold
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Beg. Inventory
+ purchases =cost of goods available -ending inventory =cost of goods sold |
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Capital Expenditures
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Increase capacity or extend useful life. cost is added to an asset account.
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Depreciation
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allocation of plant assets cost to expense over its life. Land is not depreciated.
=asset cost - residual value |
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Intangible Assets
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no physical form
amoritized not depricated |
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Net book value
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= Bldg (example) - accumulated deprication
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Accured Liablities
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results from expenses incurred but not yet paid.
i.e. sales and wages payable, interest payable, income tax payable |
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unearned revenue
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is a liability.
business recieves cash before earning revenue. Dr. Cash Cr. Unearned rev (received advanced payment Dr. unearned rev Cr. revenue (record earned portion of unearned rev) |
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Bonds
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Carrying value= bp - dsct on bp
= bp + premium on bp Int. Exp = cv x mr Amrt of dsct = a - b Dsct = d -c |
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Paid in capital
Retained earnings |
-amount stockholders have contributed
-amount earned by profitable operations |
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Common Stock
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4 basic rights
shareholders benefit most if corp succeeds |
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Preffered Stock
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shareholders earn a fixed dividend, and few corp issues.
receive dividends and assets first |
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Treasury Stock
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debit balance, contra SE
recorded at cost not par value |
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SE
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issuing stock grows assets and equity
purchasing treasury stock shrinks assets and equity |
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Div on preffered stock
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paid dividends before common stockholders.
cumulative |
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Stock dividends
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proportional dsitribution of stock to shareholders
increase stock account and decrease retained earnings |
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Stock splits
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no accts affected, no JE
decreases market price of shares increase in shares with a proportioinate reduction in par value |
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Purposes of cash flow statements
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-predicts future cash flows
-evaluates management decisions -determines ability to pay dividends and interest -shows relations of net income to cash flows |
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Operating
Investing Financing |
-creat revenue, expenses, gains and losses
-relate to long-term assets -obtain cash form investors and creditors |
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Indirect
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reconciles net income to cash provided by operating activities (GAP)
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Direct
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reports all cash reciepts and cash payments from operating activities (IFRS)
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Working capital ratio
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=current assets - current liabilities
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Acid- test ratio
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cash+short term investments+net current receivables/ current liabilities
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Accounts receivable turnover
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net sales/ average net accounts receivable
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debt ratio
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total liabilities/ total assets
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times-interest-earned
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income from operations/interest expense
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earnings per share
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net income-preferred dividends/average number of common shares outstanding
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