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80 Cards in this Set

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3 Business Forms

Sole Proprietorship, Partnership, and Corporation

Definition of Revenues and Expenses

Inflow/Outflow, respectively, in funds due to operations

Difference between Internal and External Users

Info users inside and outside of companies.




Managerial Accounting/Financial Accounting

What is FASB?




What are they in charge of?

Financial Accounting Standards Board




Generally Accepted Accounting Principles (GAAP)

What is the basic and expanded Accounting Equation?

Assets = Liabilities + Owners Equity




Assets = Liabilities + (Owners Equity + Revenue - Expenses)

What 3 activities can businesses engage in?

Operations, Financing, and Investing

What is responsible for developing a single set of worldwide accountings standards so that these standards will help companies to reduce accounting costs, make it easier to acquire foreign companies, and to facilitate comparisons between foreign companies?

International Financial Reporting Standards (IFRS)

Primary Objective of Financial Reporting

provide info for decision makers

What makes information relevant?

makes a difference to decision makers & has predictive nature

Who should financial information be understandable by?

to those that take the time to understand it

What accounts should be on a Balance Sheet?

Assets, Liabilities, and Owners Equity

What accounts should be on an Income Statement?

Revenues minus Expenses equals Net Income

Why are assets recorded at their historical or original costs?

Because it is Verifiable and Objective

What are the left and right sides of a journal?

Debit and Credit

What is the initial recording of a transaction made in a journal/general journal?

Posting

What is meant by double-entry accounting?

System of accounting in which at least 2 accounts affected in every transaction

What is the purpose of a trial-account?

List of assets and their balances use to prove Debit and Credit Equality

Difference between Accounts Receivable and Accounts Payable

Accounts Receivable is a current asset resulting from a credit sale.




Accounts Payable is a current liability resulting from a credit purchase.

When is revenue recognized with respect to accrual accounting?

When earned

When is revenue recognized with respect to cash basis accounting?

When cash is received

When are adjusting entries REQUIRED?

When cash receipts or cash dispersments happen before or after when revenue or expenses should be recognized.

What are closing entries?

Revenue and expense accounts are closed to Retained Earnings at the end of the year

What is a cash equivalent?

Investments easily convertible to cash that are due in 90 days or less

Which asset is most liquid?

Cash

Can a foolproof Internal Control system bedesigned?

No

What accountingfunction can be performed only by a CPA?

Auditing, to render an opinion on the fairness of financial statements

Explain these credit terms; 2/10, n/30

2% discount if paid within 10 days or net total due in 30 days

Explain the Difference between FOB Shipping Point and FOB Destination Point

With Shipping Point when goods are shipped the purchaser owns goods in transit.




With Destination the title passes when goods reach destination, so the seller owns goods in transit.

What's the difference between Accounts Receivable and Notes Receivable?

Accounts Receivable is an informal credit sale.




Notes Receivable is a formal promise to pay principle and interest.

The 2 methods for accounting for Bad Debts are

Allowance and Direct-Write Off

How do you calculate Net Realizable Value of Accounts Receivable

Accounts Receivable minus allowance for doubtful accounts

How do you calculate interest for notes receivable

Interest equals Principle times Rate times Time

How do you calculate Gross Profit

Sales minus Cost of Goods Sold

Notes on Financial Statements provide

Full Disclosure

Inventory going from an asset to an expense (cost of goods sold) is an example of

the matching principle

Generally who uses multiple-step Income Statements (which includes gross profit)

used by merchandisers and retailers




NOT manufacturers

What does the inventory turnover ratio indicate?

how rapidly is turned-over

What inventory costing and valuation methods are their?

FIFO (first in first out) is when the oldest inventory cost is what becomes the cost /


LIFO (last in first out) is when the newest inventory cost is what becomes the cost /


Weighted Average is when all inventories average cost is what becomes the cost /


Specific Identification is when an items specific cost is what becomes the cost







***What will the ending inventory be for FIFO and LIFO?***

FIFO uses up the old and leaves the most recently purchased units.




LIFO uses up the new and leaves the oldest units.

Who would use a Specific Identification?

Auto-dealers, Jewelers, home builders, and antique dealers

What is meant by "Lower of Cost or Market?"

Inventory is reported in statements at whichever is lower, historical cost or market value.

How do you calculate the Book Value of an Asset?

Cost minus Accumulated Depriciation

Which property, plant, and equipment asset is not depreciated?

Land

In order to calculate depreciation, what three items need to be known?

Historical Cost, Residual Value, and Useful Life

Difference between Amortization and Depreication

Amortization is the scheduled charging to expense of an intangible asset over its useful life. (like a License)




Depreciation is the scheduled charging to expense of a tangible asset over its useful life. (like a Truck)

How to calculate depriciation depending on the different methods

Straight-line (SL), expensing asset value equally over time




Unit Production (UP), expensing asset value based on its use




Double-declining (DDB), expensing two times the straight-line rate of the lasting book-value (accelerated depreciation method)

If an asset is sold above or below Book Value what must you account for

Gain on an asset or a loss on an asset

What is a Parent and subsidiary in terms of accounting?

A parent has a 50% or more stake in another firm which is it's subsidiary.




A subsidiary is has 50% or more of it's shares owned by another firm which is its parent.

What is a current liability?

An obligation that will be paid within the next year.




A good example is Accounts Payable.

What is the Current Ratio?

Current Assets divided by Current Liabilities

What is a contingent liability?

A potential liability that depends on future outcomes of past events.




Good examples are product warranties, lawsuits, guarantees, and premium offers on cereal boxes.

What is a long-term liability?

Obligation to pay in more than a year from now.




Good examples are bonds and deferred income taxes

What are callable and convertible bonds?

With Callable the issuing company has the right at any time to retire the bond.




With convertible the holder may redeem the bond for common stock at a future time.

How do you calculate interest on Bonds?

Principle times Rate times Time

What is a debenture bond?

A bond without any collateral backing it.

When is a bond issued for a premium or a discount?

When the stated interest rate is different from market interest rate

Discount of Bonds Payable is what type of account?

Contra Liability

Retained Earnings represents

Earnings from the beginning of the business that have not been paid on expenses or dividends.

What is Par Value

an Arbitrary amount that exists to fulfill legal requirements

Why do investors purchase preferred stock?

Dividends are paid on before common stock

What is a Capital Lease? And what gets recorded in records for a capital lease?

A lease used to finance getting assets.




An asset.

What's the cumulative feature of preferred stock?

If dividends are not paid to preferred stock holders in previous years, those dividends must be paid before common stock

$1 par value stocks sells for $20




By what amount are; cash, common stock, and paid-in-capital increased?

Cash increases $20


Common Stock increases $1


Paid-In-Capital increases $19

Treasury Stock; What is it, why would corporations buy it, and how is it recorded?

Firm owned shares of itself.


Purchased for employee bonuses, to prevent takeover attempts, and to improve financial ratings.


They are recorded at cost.

A company must have what to declare a dividend?

Cash and retained earnings enough to pay the dividend

Two important dates with dividends are?

The date of declaration, where a liability is created.




The date of payment, where the dividend is paid.

What's the effect of a stock dividend?

Transfers value of stock dividend from Retained Earnings to common stock and paid-in-capital

What's the effect of a stock split?

Increase in the number of shares outstanding with a porportionate reduction in the stocks par value.

How do you calculate net income?

Revenues minus expenses

What is the purpose of the Statement of CashFlows?

to summarize cash inflows and outflows for a company over a period of time

How could you identify the indirectmethod from the direct method?

the first line of the operating activities is net income in indirect

What is liquidity?

A companies ability to pay it's debts as they come due

What is profitability?

Earning a net income

What is working capital?

Current Assets minus Current Liabilities

How are common income-statements created?

Each item is expressed as a percent of revenue on the income statement or total assets on the balance sheet.

Which ratio assesses capital structure and risk in a corporation?

Debt to Equity ratio

How do you calculate the Debt to Equity Ratio?

Total liabilities divided by Stockholders Equity

How do you calculate inventory turnover?

Cost of goods sold divided by Average Inventory

How do you calculate accounts receivable turnover?

Net Sales divided by Average Net Accounts Receivable

How do you calculate earnings per share (EPS)?

Net Income minus Preferred Dividends divided by Average number of common stock shares outstanding