ACC-OU-Terms and what is-Exam #1 Flashcards
1
Q
What are the three activities within accounting?
A
identification → recording —> communication
2
Q
What is GAAP?
A
is the standard that is generally accepted and practiced
3
Q
What is the historical cost principle?
A
Dictates that companies record assets at their cost
4
Q
What is the fair value principle?
A
States that assets and liabilities should be reported at fair value
5
Q
What is the monetary unit assumption?
A
Requires that companies include in the accounting records only transaction data that can be expressed in money terms
6
Q
What is the economic entity assumption?
A
Requires that activities of the entity be kept separate and distinct from activities of its owner and all other economic entities.
7
Q
What is a partnership
A
Owned by two or more persons. Generally unlimited personal liability
8
Q
what is a corporation?
A
Ownership is divided into shares of stock. limited liability
9
Q
What is a Proprietorship
A
Owned by one person.Owner gets profits, suffers losses and is personally liable for all debts
10
Q
What is the accounting equation?
A
Assets = liabilities + stockholders equity
11
Q
What does the basic accounting equation do
A
Provides underlying framework for recording and summarizing economic transactions or events
12
Q
What are assets?
A
Resources a business owns. Things that provide future services or benefits
13
Q
What are liabilities?
A
Claims against assets (debts and obligations). Creditors ( party to whom made money)
14
Q
What is Stockholders equity
A
Ownership claim on assets.
15
Q
What increases stockholders equity
A
Investments and revenues
16
Q
What decreases stockholders equity
A
Dividends to stockholders
and Expenses
17
Q
What are dividends
A
The distribution of cash or other assets to stockholders
18
Q
are Dividends an expense
A
no. Dividends reduce retained earnings
19
Q
What are expenses
A
Are the cost of assets consumed or service used in the process of generating revenue
20
Q
list accounts that are expenses
A
Salaries expense, Rent expense, Utilities expense, Tax expense,
21
Q
What are transactions
A
Are business economic events recorded by accountants. Can be external or internal
22
Q
Event: purchasing a computer, should this event be recorded
A
yes
23
Q
What accounts consist in stockholders equity
A
Common stock + retained earnings
24
Q
how do you calculate retained earnings
A
Revenues - expenses - dividends
25
what are THE FOUR FINANCIAL STATEMENTS
Income statement, Retained earnings statement, Balance sheet, Statement of cash flows
26
What is a income statement used for
Net income is needed to determine the ending balance in retained earnings
27
Income statement shows what time period
for the month ended
28
What is the retained earnings statement used for
Ending balance in retained earning is needed in preparing the balance sheet
29
retained earnings statement shows what time period
for the month ended
30
What is the balance sheet used for
Balance sheet and income statement are needed to prepared the statement of cash flows
31
what time period does a balance sheet show?
a snap shot or the date, like September 30 2022
32
What is the cash flow statement
Provides financial information about the cash receipts and payments for a specific time
33
what time period does a statement of cash flows show?
for the month ended
34
What is an income statement?
Reports the profitability of the company's operations over a specific period of time.
35
what does a income statement have on it
It list revenues first then by expenses. Shows net income or loss
36
What is a balance sheet
Reports assets, liabilities, and stockholders equity at a specific date (snapshot)
37
what does a balance sheet have on it
List assets at the top, then the liabilities and lastly the stockholders equity. Total assets MUST equal total liabilities and stockholders equity
38
What is statement of cash flows
Provides information about the cash receipts and payments for a specific period of time
39
what is a debit entry system?
Each transaction must effect two or more accounts and crediting at least one other account
40
What causes a debit balance
If the sum of debit entries are greater than the sum of credit entries the account will have a debit balance
41
What causes a credit balance
Of the sum of credit entries are greater than the some of debit entries the account will have a credit balance
42
for assets what increases and decreases with debit and credit
debit it increased + . Credit is negative -
43
For liabilities what increases and decreases with debit and credit
Debit is decreased - . Credit is increased +
44
For stockholders equity (common stock) what increases and decreases with debit and credit
Debit is decreased - . Credit is increased +
45
For stockholders equity (retained earnings) what increases and decreases with debit and credit
Debit is decreased - . Credit is increased +
46
For stockholders equity (revenues) what increases and decreases with debit and credit
Debit is decreased - . Credit is increased +
47
For stockholders equity (expenses) what increases and decreases with debit and credit
Debit is increased +
. Credit is decreased -
48
For stockholders equity (dividends) what increases and decreases with debit and credit
Debit is increased +. Credit is decreased -
49
In summary of stockholders equity common stock, retained earnings, and revenues are debit decreases and credit increases.
While expenses and dividends increase in debit and credit decreases
50
what is a normal balance
Normal balance is on the increased side
51
List of accounts that are assets
Cash,
Accounts receivable,
Prepaid insurance,
Equipment,
Accumulated depreciation equipment
52
List of accounts that are liabilities
Notes payable,
Accounts payable,
Unearned service revenue,
Salaries and wages payable,
Interest payable
53
List accounts that are stockholders equity
Common stock,
Retained earnings,
Dividends,
Income summary
54
List revenue accounts
Service revenue
55
List expenses accounts
Supplies expense,
Depreciation expense,
Insurance expense,
Salaries and wages expense,
Rent expense,
Utilities expense,
Interest expense
56
Seranio (entry): buying office equipment costing 5,000 by signing 3 month 12% 5,000 note payable
Account: equipment 5,000 (debit)
Account: notes payable 5,000 (credit)
57
Seranio (entry): on october 2 pioneer receives a 1,200 cash advance from R Know ( a client) for advertising service that are expected to be completed by December 31
Oct 2
Account: cash 1,200 (debit)
Account: unearned service revenue 1,200 (credit)
58
Scenario (entry): for monthly payment rent
Account: rent expense 900 (debit)
Account: cash 900 (credit)
59
Scenario (entry): payment for insurance
Account: prepaid insurance 600 (debit)
Account: cash 600 (credit)
60
Seraniro (entry): purchase of supplies on credit
Account: supplies 2,500 (debit)
Account: accounts payable 2,500 (credit)
61
Seraniro (entry): company hires new employees on october 15. each employee receives a weekly salary of 500 for a 5 day work week, p[ayable every 2 weeks first payment is made on october 26
No journaling is needed because there was no transaction
62
Scenario (entry): cash for services performed. Example, on october 26, pioneer owes employees salaries of 4,000 and pays them in cash
Account: salaries payable 4,000 (debit)
Account: cash 4,000 (credit)
63
declaration and payment of dividend
Example, on october 31, pioneer board of directors declares and pays a 500 cash dividend to stockholders
Account: dividends 500 (debit)
Account: cash 500 (credit)
64
what order is needed for a trail balance sheet
Assets, Liabilities, Then stockholders equity
65
How are retained earnings calculated?
Beginning balance + Net income - dividends. Net income = revenues - expenses 90,000 - 20,000 - 10,000 - 35,000 = 25,000
66
what is Accrual basis accounting
Companies recognize revenues when they perform services (rather than when they receive cash). Expenses are recognized when incurred (rather than when paid)
67
what is Cash basis accounting
Revenues are recorded when cash is received. Expenses are recorded when cash is paid. is not in accordance with GAAP
68
what is Revenues recognition principle
Revenue in the accounting period in which performance obligation is satisfied
69
what is Expense recognition principle
Match expenses with revenues in the period when the company makes efforts to generate revenues
70
What are adjusting entries needed for?
Ensure revenue recognition and expense recognition principles are followed
71
what are the two Types of adjusting entries
Deferrals and Accruals
72
what is Accrued revenues
revenues for services performed but not yet received in cash or recorded
73
what are Accrued expenses
expenses incurred but not yet paid in cash or recorded
74
What are PREPAID EXPENSES
Payments of expenses that will benefit more than on accounting period
75
what are some examples if prepaid expenses
Insurance
Supplies
Advertising
Rent
Buildings and equipment
76
Adjusting entry for prepaid expenses what increases and decreases for debit and credit
Debit increases to an expense account.
Credit decreases to an asset account
77
Prepaid expenses entry for supplies used
Example, pioneer advertising inc purchased supplies costing 2,500 on oct 5. Pioneer recorded the purchases by increasing (debiting) the asset supplies. This account shows a balance of 2,500 in the october 31 trail balance. An inventory count at the close of business on oct 31 reveals that 1,000 of supplies are still on hand. How it would be recorded
Oct 31 account: supplies expense 1,500 (debit)
Account: Supplies 1,500
78
Example for adjusting entry for insurance expired. Example, october 4 pioneer advertising inc paid 600 for a one year fire insurance policy coverage began on oct 1. Pioneer recorded the payment by increasing (debiting) prepaid insurance. This account show a balance of 600 in oct 31 trail balance. Insurance of 50 (600/12) expires each month
How it would be recorded
Oct 31 account: insurance expense 50 (debit)
Account: Prepaid insurance 50
79
what are Depreciation on buildings (prepaid expenses)
Also called contra asset account. Buildings, equipment are considered assets rather than an expense on the date acquired
80
Example for adjusting entry for depreciation
Example, pioneer advertising, assume that depreciation on the equipment is 480 a year or 40 per month (480/12)
What it would be recorded
Oct 31, account: depreciation expense 40 (debit)
Accumulated depreciation-equipment (credit)
81
What is unearned revenue
Receipt of cash that is recorded as a liability because the service has not been performed
82
what are some examples of unearned revenue accounts
Rent
Airline ticket
Magazine subscriptions
Customer deposits
83
What do accruals record
Revenues for services performed by not yet recorded at the statement date or
Expenses incurred but not yet paid or recorded at the statement date
84
What is accrued revenues
Revenues for services performed but not yet received in cash or recorded
85
what are some examples of accrued revenues accounts
Rent
Interest
Services performed
86
What does accrued revenues increase or decrease with debit or credit
Increases debits as an asset account and Increases credits a revenue account
87
Example of accrual revenues for adjusting entry
Pioneer advertising inc performed services worth 200 that were not billed to clients in oct
What it looks like:
Oct 31 account: accounts receivable 200 (debit)
Service revenue 200 (credit)
88
On November 10, pioneer receives cash of 200 for the services performed in oct
What it looks like:
Nov 10 account: Cash 200 (debit)
Account: accounts receivable 200 (credit)
89
What are Accrued expenses
Expenses incurred but not yet paid in cash or recorded
90
what are some examples of accrued expense accounts
Interest
Taxes
Salaries
91
What does accrued expenses increase or decrease debit or credit
Increase debit as an expense account and
Increases credit as a liability account
92
Example of accrued expenses (adjusting entry) for accrued interest
Pioneer advertising signed a three month not payable in the amount of 5,000 on october 1. The not requires pioneer to pay interest at an annual rate of 12%
So 5,000 * .12 * 1/12 = 50
What it would look like in entry
Oct 31 account: interest expense 50 (debit)
Interest payable 50 (credit)
93
Accrued salaries
Example, pioneer paid salaries and wages on october 26 for the first two weeks oct 15-26. The next payment of salaries will not occur until november 9. The employees receive total salaries of 2,000 for a fice day work week, or 400 per day. This accrued salaries at oct 31 are 1,200 (400 * 3 days)
What it looks like:
oct 31 Account: Salaries and wages expense 1,200 (debit)
Salaries and wages payable 1,200 (credit)
94
Why do you prepare an adjusted trial balance
Prepare after all adjusting entries are journalized and posted
Is the primary basis for the preparation of financial statements
95
Where are financial statements from
They are prepared directly from the adjusting trial balance
