Accy 201 Test #1

Front 1

Chapter 1

Back 1

chapter 1

Front 2

What is the Fundamental Accounting Equation?

Back 2

Assets = Liabilities + Stockholders Equity

Front 3

What are 15 specific examples of Assets?

How do Assets provide value?

Back 3

(Cash, Things Receivable, Property, Plant, and Equipment, and accumulated depreciation, and legal things and good will) Cash, A/R, Interest Receivable, Inventory, Supplies, Prepaid Insurance, Prepaid Rent, Land, Equipment, Buildings, Accum Depric Equipment, Accum Depric Buildings, Copyright, Goodwill, Patent

They provide value because they will help company build revenue

Front 4

What are the 2 Liabilities?

Back 4

Things that are Payable and Unearned Service Revenue

Front 5

What are Stockholders Equity?

Back 5

Common Stock, Retained Earnings, Dividends, Income Summary

Front 6

What is the purpose of accounting?

Back 6

To provide financial information for decision making

Front 7

What is Accounting?

Back 7

The system that records and communicates the economic events of a company to interested users

Front 8

Financial Information?

Back 8

Income Statement and Balance Sheet

Front 9

Income Statement is what?

Back 9

Revenue - Expenses = Net Income

Front 10

What are Revenue?

Back 10

Things that say Revenue

Front 11

What are Expenses?

Back 11

Things that say expense, Cost of Good Sold.

Front 12

What are the three types of Business Activities? explain each.

Back 12

1. Operating (The activities that you engage in to produce revenue.

2. Investing (Buying/Selling long term assets[PPE])

3. Financing (Borrowing Money and Issuing Stock)

Front 13

Retained Earnings Statement is what?

Back 13

Beginning R/E + Income - Dividends = Ending R/E

Front 14

Chapter 2

Back 14

Chapter 2

Front 15

What is a Classified Balance Sheet?

Back 15

It groups together similar assets and similar liabilities, using a number of standard classifications and sections (IE Current & Non Current, LTI & PPE & IA)

Front 16

What are Current Assets?

Back 16

Assets that will be used within a year. IE Cash, A/R, Inventory

List in order of which is expected to be used first (cash is always first)

Front 17

What are Non-Current Assets?

Back 17

Assets that wont be used within a year.

-Long Term Investments
-Property, Plant, and Equipment
-Intangible Assets (IE Legal Agreements, customer lists, sports franchises)

Tangible = physical substance
Intangible = Legal Agreements

Front 18

What are Current Liabilities?

Back 18

Liabilities that will be paid within the upcoming year. IE Accounts Payable, Short Term Notes Payable, Current maturities of long term debt, accrued compensation payable

Front 19

What are Long-Term Liabilities?

Back 19

Obligations that a company expects to pay after one year. IE Long-term debt, Deferred Income Taxes.

Front 20

What are Stock Holders Equity?

Back 20

Common Stock and Retained Earnings

Front 21

What role does Revenues and Expenses play in Classified Balance Sheets?

Back 21

No role, they are not under any category.

Front 22

What is Ratio Analysis?

Back 22

Relationship between Financial Amounts

Front 23

What is the profitability ratio?

Back 23

Earnings per share

Net Income / Shares of Stock

Front 24

What are the Liquidity Ratios and what are they? Which is better?

Back 24

Liquidity Ratios measures the ability to pay short term obligations.

Working Capital = Current Assets - Current Liabilities

-A Negative working capital means that the company might not be able to pay short-term creditors, and the company might ultimately be forced into bankruptcy.

Current Ratio = Current Assets / Current Liabilities

-Current Assets to Every Dollar of liability for the

-The current ratio is a more dependable indicator of liquidity than working capital

Front 25

What is Solvency and what is its ratio?

Back 25

Solvency is the company's ability to pay interest as it comes due and to repay the balance of a debt due at its maturity.

Solvency Ratios measure the ability of a company to survive over a long period of time.

Debt to Total Assets Ratio:
Total Liabilities / Total Assets

It measures the percentage of total financing provided by creditors rather than stockholders.

Long term creditors and stockholders are interested in Solvency.

Front 26

What are the guidelines from a set of rules and practices that have authoritative support?

Back 26

Generally Accepted Accounting Principles (GAAP)

These are the Accounting Rules so to speak.

Front 27

What are the 2 Fundamental Qualities?

Back 27

Relevance and Faithful Representation

Relevance: Accounting info is considered relevant if it would make a difference in a business decision.

Faithful Representation: Means that information accurately depicts what really happened. Info must be complete and non biased.

Front 28

How many Enhancing Qualities are there and what are they?

Back 28

Five; Comparability, Consistency, Verifiable, Timely, and Understandability.

Front 29

What is Comparability?

Back 29

Results when different companies use the same accounting principles.

Front 30

What is Consistency?

Back 30

Means that a company uses the same accounting principles and methods from year to year.

Front 31

What is Verifiable?

Back 31

Information is verifiable if we are able to prove that it is free from error.

Front 32

What is Timely?

Back 32

Information must be available to decision makers before it loses its capacity to influence decisions.

Front 33

What is Understandability?

Back 33

Information has the quality of Understandability if it is presented in a clear and concise fashion, so that reasonably informed users of that information can interpret it and comprehend its meaning.

Front 34

How key assumptions are there in Financial Reporting and what are they?

Back 34

5; Monetary Unit, Economic Entity, Periodicity, Going Concern, Accural Basis

Front 35

What is the Monetary Unit Assumption?

Back 35

That only those things expressed in money are included in accounting records. Same unit (I.E. US Dollar).

Front 36

What is the Economic Entity Assumption?

Back 36

States that every economic entity can be separately identified and accounted for. (IE Reporting transactions of only one company and not bluring company transaction with personal transactions).

Front 37

What is the Periodicity Assumption?

Back 37

States that useful reports cover time periods (1 year) can be prepared for the business.

Front 38

What is the Going Concern Assumption?

Back 38

States that the business will remain in operation for the foreseeable future.

Front 39

What is Accrual Basis?

Back 39

Accrual Basis-Accounting means that transactions that change a company's financial statements are recorded in the periods in which the events occur.

-Revenue Recognition
-Expense Recognition

Front 40

How many Principles are there and what are they?

Back 40

3; Cost, Fair Value, and Full Disclosure

Front 41

What is the Cost Principle?

Back 41

It dictates that companies record assets at their original cost (PPE)

-If land bought at 30k, but increases to 40k, it is still recorded as 30k.

Front 42

What is the Fair Value Principle?

Back 42

It dictates that assets and liabilities should be reported at fair value(the price received to sell an asset or settle a liability).

-Mainly use cost principle.
-Fair Value Principle may be used in situations where assets are actively traded, such as investment securities.

Front 43

What is the Full Disclosure Principle?

Back 43

It requires that companies disclose all circumstances and events that would make a difference to financial statement users.

Front 44

How many Constraints in financial reporting are there and what are they?

Back 44

2; Materiality and Cost

Front 45

What is the Materiality Constraint?

Back 45

It relates to a financial statement item's impact on a company's overall financial condition and operations.

-Material when the items size makes it likely to influence the decision of an investor or creditor.

-Immaterial if an item is too small to impact a decision maker.

Front 46

What is the Cost Constraint?

Back 46

It relates to the fact that providing information is costly.

-Companies weigh the cost that they will incur to provide the information against the benefit that financial statement users will gain from having the information available,

Front 47

Chapter 3

Back 47

Chapter 3

Front 48

What is the Accounting Information System?

Back 48

The system of collecting and processing transaction data and communicating financial information to decision makers

Front 49

What are the Steps in the Accounting Cycle?

Back 49

1. Analyze Transaction
2. Enter Transaction info in Journal
3. Transfer Journal info to Ledger Accounts
4. Prepare Trial Balance
5. Prepare and Post Adjusting Journal Entries
6. Prepare Adjusted Trial Balance
7. Prepare Financial Statements
8. Prepare and Post Closing Entries
9. Prepare Post-Closing Trial Balance

Front 50

Chapter 4

Back 50

Chapter 4

Front 51

What is the Revenue Recognition Principle?

Back 51

It requires that companies recognize revenue in the accounting period in which it is earned.

Front 52

What is the Expense Recognition Principle?

Back 52

It dictates that Expenses be matched with Revenues.

Front 53

What are Adjusting Entries?

Why are they necessary?

When are they required?

What will they always include?

Back 53

They ensure that the revenue recognition and expense recognition principles are followed.

It is necessary because the trial balance may not contain up-to-date can complete data.

Every time a company prepares financial statements.

One income statement account and One Balance Sheet Account.

Front 54

How many types of adjusting entries are there and what are they?

Back 54

2; Deferrals and Accruals

Front 55

What are the 2 subcategories for Deferrals? Explain each.

Back 55

Prepaid Expenses: Expenses paid in cash and recorded as assets before they are used or consumed.

Unearned Revenues: Cash received and recorded as liabilities before revenue is earned.

Front 56

What are the 2 subcategories for Accruals? Explain each.

Back 56

Accrued Revenues: Revenues earned but not yet received in cash or recorded.

Accrued Expenses: Expenses incurred but not yet paid in cash or recorded.

Front 57

Adjusting Entries for Prepaid Expneses

Back 57

-Prepaid expenses are costs that expire either with the passage of time (i.e. rent and insurance) or through use (i.e. supplies).

-An adjusting entry for prepaid expenses results in an increase (debit) to an expense account and a decrease (credit) to an asset account.

Front 58

Adjusting Entries for Unearned Revenues

Back 58

-Results in a decrease (debit) to a liability account and an increase (credit) to a revenue account.

Front 59

Adjusting Entries for Accrued Revenues

Back 59

-Results in an increase (debit) to an asset account and an increase (credit) to a revenue account.

Front 60

Adjusting Entries for Accrued Expenses

Back 60

-Results in an increase (debit) to an expense account and an increase (credit) to a liability account.

Front 61

What are Closing Entries?

Back 61

-They transfer net income (or net loss) and dividends to Retained Earnings.

-They produce a zero balance in each temporary account (Rev, Exp, & Dividends).

-Close each temporary account to another temporary account, Income Summary, the transfer the resulting final net income or loss to Retained Earnings.

Front 62

What is a Post-Closing Trial Balance?

Back 62

-It is a list of all permanent accounts and their balances after closing entries are journalized and posted.