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118 Cards in this Set

  • Front
  • Back
Who are the providers of financial information?
- ________-oriented companies (corporations)
- ________ entities
- ________
profit, not-for-profit, households
The financial accounting environment:
Providers of financial information (profit-oriented companies, not-for-profit entities, households) provide relevant financial information to ________ user groups (investors, creditors, employees, labor unions, customers, suppliers, government agencies, financial intermediaries)
Who are the main external users of financial accounting information?
investors & creditors
Relevant financial information is provided primarily through ________ statements and related ________ notes.
financial, disclosure
What are the 4 most frequently provided financial statements?
1. Balance Sheet
2. Income Statement
3. Statement of Cash Flows
4. Statement of Shareholders' Equity
________ notes explain what's in the financial statements.
A ________ is owned by a single individual.
sole proprietorship
A ________ is owned by two or more individuals.
A ________ is owned by shareholders.
Accounting information should help investors and creditors evaluate the amount, timing and uncertainty of the enterprise's ________ cash flows.
Financial accounting information is used to predict the ________ based on the ________
future, past
Shareholders receive cash in the form of ________ and ________ of stock.
dividends, sale
Creditors (bank) receive cash in the form of ________ and repayment of ________.
interest, principle
Revenue is recognized when cash is received. Expenses are recognized when cash is paid. This is known as ________ accounting.
cash basis
GAAP requires ________ accounting.
Revenue is recognized when earned. Expenses are recognized when incurred. This is known as ________ accounting.
Cash flows in any one year may not be a predictor of ________ cash flows. Accrual accounting is a better way of predicting future cash flows.
________ is considered a better indicator of future cash flows.
Net income
Concepts, principles, and procedures developed to meet the needs of external users
Generally Accepted Accounting Principles (GAAP)
The ________ has the ultimate authority to set accounting rules, which they delegate to the ________ sector, where the ________ sets accounting standards.
SEC, private, FASB
The current US Accounting Standard Setting is done by the ________.
FASB (Financial Accounting Standards Board)
The FASB is supported by the Financial Accounting Foundation, has ________ full-time, independent, voting members. Members of the FASB are not required to be ________.
seven, CPAs
The ________ project integrates and organizes all relevant accounting pronouncements into a searchable, online database.
codification (FASB Accounting Standards Codification)
The main objective of the ________ is to develop a single set of high quality, understandable, and enforceable global accounting standards to help participants in the world's capital markets and other users make economic decisions.
International Accounting Standards Board (IASB)
________ serve as independent intermediaries to help ensure that management has appropriately applied U.S. GAAP in preparing the company's financial statements.
As a result of numerous financial scandals, Congress passed the Public Company Accounting Reform and Investor Protection Act of 2002 (aka ________). The goal was to restore credibility and investor confidence in the financial reporting process.
Sarbanes-Oxley Act
The Code of ________ provides guidance and rules to help accounting professionals perform their professional responsibilities in an ethical manner.
The Conceptual Framework (what the rules are based on) has been described as an Accounting ________. It provides the underlying foundation for accounting ________.
Constitution, standards
Conceptual Framework -
Objective - To provide ________ information that is useful to ________ providers
financial, capital
one of the primary decision-specific qualities that make accounting information useful; made up of predictive value and/or feedback value, and timeliness.
one of the primary decision-specific qualities that make accounting information useful; made up of predictive value and/or feedback value, and timeliness.
faithful representation
confirmation of investor expectations about future cash-generating ability.
predictive value/ confirmatory value
confirmation of investor expectations about future cash-generating ability.
neutral with respect to parties potentially affected.
practice followed in an attempt to ensure that uncertainties and risks inherent in business situations are adequately considered.
practice followed in an attempt to ensure that uncertainties and risks inherent in business situations are adequately considered.
permits valid comparisons between different periods.
permits valid comparisons between different periods.
information that is available to users early enough to allow its use in the decision process.
users must understand the information within the context of the decision being made.
the perceived benefit of increased decision usefulness exceeds the anticipated cost of providing that information. (key constraint)
cost effectiveness
What assumption says that all economic events identified with a particular economic entity?
Economic Entity
What assumption says that a business will continue to operate indefinitely?
Going concern
What assumption says that the life of a company is divided into time periods to provide timely information?
What assumption says that financial statements are measured in a particular monetary unit (like the U.S. dollar)?
Monetary Unit
Process of admitting information into the basic financial statements (criteria: definition, measurability, relevance, reliability)
Process of associating numerical amounts with the elements (measurement attributes: historical cost, net realizable value, current cost, present value of future cash flows, fair value)
Process of including additional supplemental information
Two criteria for revenue recognition (Realization)
1. Earnings process is _______ pr virtually complete.
2. Reasonable certainty as to the _______ of the asset to be received (usually cash).
complete, collectability
The matching principle requires that all _______ incurred in generating revenue for a period also be recognized in the same period.
What is the Accounting Equation?
A = L + OE
What is the Accounting Equation for a Corporation?
A = L + SE
Stockholders' Equity is made up of what two things:
Paid-in Capital (Common Stock)
Retained Earnings
Equation for Retained Earnings
Revenues + Gains - Expenses - Losses - Dividends
Retained earnings = total _______ the company has earned less _______
net income, dividends
What are the permanent accounts and where are they located?
assets, liabilities, paid-in capital, retained earnings

Balance Sheet
What are the temporary accounts that we close at the end of the period?
revenues, gains, expenses, losses
Debit = _______
Credit = _______
The Accounting Processing Cycle:
1. _______ Documents (invoice, check, receipt - anything that triggers a transaction)
2. _______ Analysis
3. Record in _______
4. Post to _______
5. Prepare an _______ trial balance
6. Record & post _______ entries
7. Prepare an _______ trial balance
8. Prepare _______ statements

At the end of the year:
9. Close _______ accounts.
10. Post _______ trial balance.
1. Source
2. Transaction
3. Journal
4. Ledger
5. Unadjusted
6. Adjusting
7. Adjusted
8. Financial
9. Temporary
10. Closing
A _______ balance is a list of all accounts and their balances at a particular date.
At the end of the period, adjusting entries are required to satisfy the _______ principle and the _______ principle.
realization, matching
Transactions where cash is paid or received before a related expense or revenue is recognized
Transactions where cash is paid or received after a related expense or revenue is recognized
Accountants must often make _______ in order to comply with the accrual accounting model
The process of allocating the cost of plant and equipment over their expected useful lives
Straight line depreciation equation
(Asset Cost - Salvage Value) / Useful Life
BV = Asset netted with _______
accumulated depreciation
Accumulated Depreciation is a _______ asset, and _______ assets.
contra, reduces
Accountants often must make estimates of future events to comply with the accrual accounting model. Examples: _______ and _______
Depreciation, Uncollectible Accounts
The _______ statement summarizes the results of profit-generating activities of the company.
A few types of gains and losses, called other _______ income (OCI) or loss items, are excluded from the determination of net income and the income statement, but are included in the broader concept of comprehensive income.
The Statement of Comprehensive Income:
- In the _______ statement approach, net income is a subtotal within the statement followed by these OCI items, culminating in a final total of comprehensive income.
- In the _______ statement approach, a company presents an income statement followed by a statement of comprehensive income.
single, two
The _______ sheet presents the financial position of the company on a particular date.
The statement of _______ discloses the changes in cash during a period.
cash flows
The statement of _______ presents the changes in permanent shareholder accounts.
shareholders' equity
When closing temporary accounts, close all _______ and _______ to _______(which should equal net income) and then close _______ to _______.
revenues, expenses, income summary, income summary, retained earnings
Balance Sheet - Reports a company's financial position on a particular date

- The balance sheet does not report _______ value.
-Resources such as _______ skills and _______ are not recorded in the balance sheet.
market, employee, reputation
Usefulness of the Balance Sheet:
- It describes many of the resources a company has for generating _______ cash flows.
- It provides _______ information useful in assessing a company's ability to pay its current obligations.
- It provides long-term _______ information relating to the riskiness of a company with regard to the amount of liabilities in its capital structure.
future, liquidity, solvency
Assets are listed in the balance sheet in order of _______.
A Classified balance sheet splits the balance sheet into _______ and _______ assets.
current, noncurrent
A comparative balance sheet shows _______ years.
_______ Assets will be converted to cash or consumed within one year or the operating cycle, whichever is longer.
Cash _______ include certain negotiable items such as commercial paper, money market funds, and U.S. treasury bills (mature in 3 months or less).
Current operating cycle or 1 year, whichever is _______
_______ Assets are not expected to be converted to cash or consumed within one year or the operating cycle, whichever is longer.
Some examples of noncurrent assets: _______, property, plant & _______, _______ assets, & other assets
investments, equipment, intangible
Noncurrent Assets -
Investments - Include both _____ and _____ securities of other corporations, land held for speculation, noncurrent receivables, and cash set aside for special purposes
debt, equity
Noncurrent Assets -
Property, Plant, and Equipment - Are _____, long-lived, and used in the operations of the business

- Include land, buildings, equipment, machinery, and furniture as well as natural resources such as mineral mines, timber tracts, and oil wells

- Reported at _____ cost less _____ depreciation, except for land which is not depreciated (doesn't decrease in value)
tangible, original, accumulated
Noncurrent Assets
Intangible Assets -
- Used in the operations of the business but have no _____ substance.
- Include: _____, _____ and _____
- Reported net of accumulated _____
physical, patents, copyrights, franchises, amortization
With noncurrent assets, _____ assets is a catch all for everything that doesn't fit into the other categories (investments, PPE, intangibles)
Obligations to other entities
Obligations expected to be satisfied through current assets or creation of other current liabilities within one year or the operating cycle whichever is longer
current liabilities
When you accrued an expense before you pay for it, that is an accrued _____.
When you receive cash before you perform a serve, that is _____ revenue.
Current liabilities are due in _____ 1 year. Some examples are: A/P, N/P, accrued liabilities, unearned revenues, and current maturities of long-term debt (what's due in the cycle)
less than
Obligations that will not be satisfied within one year or the operating cycle, whichever is longer
long-term liabilities
There are more similarities than differences in balance sheets prepared according to U.S. GAAP and those prepared applying IFRS.

Some differences are:
- FASB doesn't specify a _____ list of items to be presented in the balance sheet, while the IFRS does
- Under FASB, some U.S. companies use the statement of _____ title, it is officially the title under the IFRS(although title is not required)
- Under FASB, current assets and liabilities are presented before noncurrent assets & liabilities, whereas the IFRS usually reports _____ items first
minimum, financial position, noncurrent
The _____ and _____ are working together on the Financial Statement Presentation project to establish a common standard for presenting information in the financial statements.
Disclosure notes:
- _____ - Conveys valuable information about the company's choices form among various alternative accounting methods
- _____ - A significant development (ex: lawsuit) that occurs after the company's fiscal year-end but before the financial statements are issued or available to be issued
- _____ Events and Transactions - Transactions or events that are potentially important to evaluating a company's financial statements, e.g., related-party transactions, errors and irregularities, and illegal acts
summary of significant accounting policies, subsequent events, noteworthy
The _____ discussion & analysis provides a biased but informed perspective of a company's operations, liquidity, and capital resources
_____ is responsible for preparing the financial statements and other information in the annual report.
Management is responsible for maintaining and assessing the company's _____ control procedures.
The auditors' report expresses the auditors' opinion as to the _____ of presentation of the financial statements in conformity with generally accepted accounting principles. The auditors' report must comply with specifications of the Public Companies Accounting Oversight Board (PCAOB).
An auditors opinion that is issued when the financial statements present fairly the financial position, results of operations, and cash flows and are in conformity with U.S. GAAP.
unqualified (good)
An auditors opinion that is issued when there is an exception that is not of sufficient seriousness to invalidate the financial statements as a whole.
An auditors opinion that is issued when the exceptions are so serious that a qualified opinion is not justified (rarely happens)
An auditors opinion that is issued when insufficient information has been gathered to express an opinion
A _____ statement is sent each year to all shareholders, usually in the same mailing with the annual report. It includes information such as: salary, bonus, stock awards, option awards and other compensation.
_____ Financial Statements allow financial statement users to compare year-to-year financial position, results of operations, and cash flows.
_____ Analysis expresses each item in the financial statements as a percentage of that same item in the financial statements of another year (base amount).
_____ Analysis involves expressing each item in the financial statements as a percentage of an appropriate corresponding total, or base amount, within the same year.
_____ Analysis allows analysts to control for size differences over time and among firms.
You generally want a _____ current ratio.
The _____ ratio measures a company's ability to satisfy its short-term liabilities.
The _____ ratio eliminates some current assets (inventories, prepaids, other assets) that are not as easily converted to cash and provides a more stringent indication of a company's ability to pay its current liabilities.
The _____ ratio indicates the extent of reliance on creditors, rather than owners, in providing resources.
debt to equity
The _____ ratio indicates the margin of safety provided to creditors.
times interest earned