Final Exam Study Guide Accounting 101

Front 1

3 Business Forms

Back 1

Sole Proprietorship, Partnership, and Corporation

Front 2

Definition of Revenues and Expenses

Back 2

Inflow/Outflow, respectively, in funds due to operations

Front 3

Difference between Internal and External Users

Back 3

Info users inside and outside of companies.

Managerial Accounting/Financial Accounting

Front 4

What is FASB?

What are they in charge of?

Back 4

Financial Accounting Standards Board

Generally Accepted Accounting Principles (GAAP)

Front 5

What is the basic and expanded Accounting Equation?

Back 5

Assets = Liabilities + Owners Equity

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

Front 6

What 3 activities can businesses engage in?

Back 6

Operations, Financing, and Investing

Front 7

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?

Back 7

International Financial Reporting Standards (IFRS)

Front 8

Primary Objective of Financial Reporting

Back 8

provide info for decision makers

Front 9

What makes information relevant?

Back 9

makes a difference to decision makers & has predictive nature

Front 10

Who should financial information be understandable by?

Back 10

to those that take the time to understand it

Front 11

What accounts should be on a Balance Sheet?

Back 11

Assets, Liabilities, and Owners Equity

Front 12

What accounts should be on an Income Statement?

Back 12

Revenues minus Expenses equals Net Income

Front 13

Why are assets recorded at their historical or original costs?

Back 13

Because it is Verifiable and Objective

Front 14

What are the left and right sides of a journal?

Back 14

Debit and Credit

Front 15

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

Back 15

Posting

Front 16

What is meant by double-entry accounting?

Back 16

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

Front 17

What is the purpose of a trial-account?

Back 17

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

Front 18

Difference between Accounts Receivable and Accounts Payable

Back 18

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

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

Front 19

When is revenue recognized with respect to accrual accounting?

Back 19

When earned

Front 20

When is revenue recognized with respect to cash basis accounting?

Back 20

When cash is received

Front 21

When are adjusting entries REQUIRED?

Back 21

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

Front 22

What are closing entries?

Back 22

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

Front 23

What is a cash equivalent?

Back 23

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

Front 24

Which asset is most liquid?

Back 24

Cash

Front 25

Can a foolproof Internal Control system bedesigned?

Back 25

No

Front 26

What accountingfunction can be performed only by a CPA?

Back 26

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

Front 27

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

Back 27

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

Front 28

Explain the Difference between FOB Shipping Point and FOB Destination Point

Back 28

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.

Front 29

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

Back 29

Accounts Receivable is an informal credit sale.

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

Front 30

The 2 methods for accounting for Bad Debts are

Back 30

Allowance and Direct-Write Off

Front 31

How do you calculate Net Realizable Value of Accounts Receivable

Back 31

Accounts Receivable minus allowance for doubtful accounts

Front 32

How do you calculate interest for notes receivable

Back 32

Interest equals Principle times Rate times Time

Front 33

How do you calculate Gross Profit

Back 33

Sales minus Cost of Goods Sold

Front 34

Notes on Financial Statements provide

Back 34

Full Disclosure

Front 35

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

Back 35

the matching principle

Front 36

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

Back 36

used by merchandisers and retailers

NOT manufacturers

Front 37

What does the inventory turnover ratio indicate?

Back 37

how rapidly is turned-over

Front 38

What inventory costing and valuation methods are their?

Back 38

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

Front 39

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

Back 39

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

LIFO uses up the new and leaves the oldest units.

Front 40

Who would use a Specific Identification?

Back 40

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

Front 41

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

Back 41

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

Front 42

How do you calculate the Book Value of an Asset?

Back 42

Cost minus Accumulated Depriciation

Front 43

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

Back 43

Land

Front 44

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

Back 44

Historical Cost, Residual Value, and Useful Life

Front 45

Difference between Amortization and Depreication

Back 45

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)

Front 46

How to calculate depriciation depending on the different methods

Back 46

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)

Front 47

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

Back 47

Gain on an asset or a loss on an asset

Front 48

What is a Parent and subsidiary in terms of accounting?

Back 48

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.

Front 49

What is a current liability?

Back 49

An obligation that will be paid within the next year.

A good example is Accounts Payable.

Front 50

What is the Current Ratio?

Back 50

Current Assets divided by Current Liabilities

Front 51

What is a contingent liability?

Back 51

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

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

Front 52

What is a long-term liability?

Back 52

Obligation to pay in more than a year from now.

Good examples are bonds and deferred income taxes

Front 53

What are callable and convertible bonds?

Back 53

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.

Front 54

How do you calculate interest on Bonds?

Back 54

Principle times Rate times Time

Front 55

What is a debenture bond?

Back 55

A bond without any collateral backing it.

Front 56

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

Back 56

When the stated interest rate is different from market interest rate

Front 57

Discount of Bonds Payable is what type of account?

Back 57

Contra Liability

Front 58

Retained Earnings represents

Back 58

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

Front 59

What is Par Value

Back 59

an Arbitrary amount that exists to fulfill legal requirements

Front 60

Why do investors purchase preferred stock?

Back 60

Dividends are paid on before common stock

Front 61

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

Back 61

A lease used to finance getting assets.

An asset.

Front 62

What's the cumulative feature of preferred stock?

Back 62

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

Front 63

$1 par value stocks sells for $20

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

Back 63

Cash increases $20

Common Stock increases $1

Paid-In-Capital increases $19

Front 64

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

Back 64

Firm owned shares of itself.

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

They are recorded at cost.

Front 65

A company must have what to declare a dividend?

Back 65

Cash and retained earnings enough to pay the dividend

Front 66

Two important dates with dividends are?

Back 66

The date of declaration, where a liability is created.

The date of payment, where the dividend is paid.

Front 67

What's the effect of a stock dividend?

Back 67

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

Front 68

What's the effect of a stock split?

Back 68

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

Front 69

How do you calculate net income?

Back 69

Revenues minus expenses

Front 70

What is the purpose of the Statement of CashFlows?

Back 70

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

Front 71

How could you identify the indirectmethod from the direct method?

Back 71

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

Front 72

What is liquidity?

Back 72

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

Front 73

What is profitability?

Back 73

Earning a net income

Front 74

What is working capital?

Back 74

Current Assets minus Current Liabilities

Front 75

How are common income-statements created?

Back 75

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

Front 76

Which ratio assesses capital structure and risk in a corporation?

Back 76

Debt to Equity ratio

Front 77

How do you calculate the Debt to Equity Ratio?

Back 77

Total liabilities divided by Stockholders Equity

Front 78

How do you calculate inventory turnover?

Back 78

Cost of goods sold divided by Average Inventory

Front 79

How do you calculate accounts receivable turnover?

Back 79

Net Sales divided by Average Net Accounts Receivable

Front 80

How do you calculate earnings per share (EPS)?

Back 80

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