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Accounting Flashcards

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1
Q

Certified Public Accountant (CPA)

A

A licensed accountant who serves the general public rather than one particular company

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2
Q

Corporation

A

A business owned by stockholders; it begins when the state approves its articles of incorporation. A corporation is a legal entity, an “artificial person”, in the eyes of the law

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3
Q

Entity

A

An organization or a section of an organization that, for accounting purposes, stands apart from other organizations and individuals as a separate economic unit

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4
Q

Expense

A

Decrease in owner’s equity that occurs from using assets or increasing liabilities in the course of delivering goods or services to customers

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5
Q

Financial Accounting

A

The branch of accounting that focuses on information for people outside the firm

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6
Q

Financial Accounting Standards Board (FASB)

A

The private organization that determines how accounting is practiced in the United States

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7
Q

Financial Statements

A

Documents that report on a business in monetary amounts, providing information to help people make informed business decisions

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8
Q

Generally Accepted Accounting Principles (GAAP)

A

Accounting guidelines, formulated by the Financial Accounting Standards Board, that govern how accountants measure, process, and communicate financial information

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9
Q

Income Statement

A

Summary of an entity’s revenues, expenses, and net income or net loss for a specific period. Also called the “statement of earnings” or the “statement of operations”

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10
Q

Liability

A

A economic obligation (a debt) payable to an individual or an organization outside the business

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11
Q

Management Accounting

A

The branch of accounting that focuses on information for internal decision makers of a business

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12
Q

Accounting Cycle

A

Process by which companies produce their financial statements for a specific period.

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13
Q

Net Income

A

Excess of total revenues over total expenses. Also called “net earnings’ or “net profit”.

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14
Q

Closing the Accounts

A

Step in the accounting cycle at the end of the period. Closing the accounts consists of journalizing and posting the closing entries to set the balances of the revenue, expense, and withdrawal accounts to zero for the next period.

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15
Q

Closing Entries

A

Entries that transfer the revenue, expense and owner withdrawal balances to the capital account

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16
Q

Current Asset

A

An asset that is expected to be converted to cash, sold, or consumed during the next 12 months, or within the business’s normal operating cycle if the cycle is longer than a year.

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17
Q

Current Liability

A

A debt due to the paid with cash or with goods and services within one year or within the entity’s operating cycle if the cycle is longer than a year.

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18
Q

Current Ratio

A

Current assets divided by current liabilities measures the company’s ability to pay current liabilities from current assets

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19
Q

Debt Ratio

A

Ratio of total liabilities to total assets. Tells the proportion of a company’s assets that it has financed with debt.

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20
Q

Fixed Asset

A

Another name for property, plant, and equipment.

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21
Q

Income Summary

A

A temporary “holding tank” account into which revenues and expenses are transferred prior to their final transfer to the capital account.

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22
Q

Liquidity

A

Measure of how quickly an item can be converted to cash.

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23
Q

Long-Term Asset

A

An asset other than a current asset

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24
Q

Long-Term Liability

A

A liability other than a current liability

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25
Q

Operating Cycle

A

Time span during which cash is paid for goods and services, which are then sold to customers from whom the business collects cash

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26
Q

Permanent Accounts

A

Accounts that are not closed at the end of the period. The asset, liability, and capital accounts.

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27
Q

Plant Assets

A

long-lived tangible assets used in the operation of a business.

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28
Q

Postclosing Trial Balance

A

List of the accounts and their balances at the end of the period after journalizing and posting the closing entries. This last step of the accounting cycle ensures that the ledger is in balance to start the next accounting period.

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29
Q

Reversing Entries

A

Special journal entries that ease the burden of accounting for transactions in the next period.

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30
Q

Temporary Accounts

A

The revenue and expense accounts that relate to a particular accounting period and are closed at the end of the period. For a proprietorship, the owner withdrawal account is also temporary.

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31
Q

Work Sheet

A

A columnar document designed to help move data from the trial balance to their financial statements.

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32
Q

Net Loss

A

Excess of total expenses over total revenues.

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33
Q

Which basis of accounting better measures business income?

A

Accrual basis, because it provides more complete reports of operating performance and financial position.

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34
Q

How to measure revenues?

A

Revenue principle - Record revenues only after they’re earned.

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35
Q

How to measure expenses?

A

Matching principle - Subtract expenses from revenues in order to measure net income

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36
Q

Where to start with the measurement of income at the end of the period?

A

Unadjusted trial balance, usually referred to simply as the trial balance.

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37
Q

How to update the accounts for the financial statements?

A

Adjusting entries at the end of the period.

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38
Q

What are the categories of adjusting entries?

A

Prepaid Expenses, Depreciation of plant assets, Accrued expenses, Accrued revenues, & unearned revenues.

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39
Q

How do the adjusting entries differ from other journal entries?

A
  1. Adjusting entries are made only at the end of the period.
  2. Adjusting entries never affect cash
  3. All adjusting entries debit or credit
    • At least one income statement account (a revenue or an expense), and
    • At least one balance sheet account (an asset or a liability)
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40
Q

Where are the accounts with their adjusted balances summarized?

A

Adjusted trial balances, which aids preparation of the financial statements

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41
Q

Accrual Accounting

A

Accounting that records the impact of a business event as it occurs regardless of whether the transaction affected cash.

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42
Q

Accrued Expenses

A

An expense that the business has incurred but not yet paid

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43
Q

Accrued Revenue

A

A revenue that has been earned but not yet collected in cash

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44
Q

Accumulated Depreciation

A

The cumulative sum of all depreciation expense recorded for an asset

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45
Q

Adjusted Trial Balance

A

A list of all accounts with their adjusted balances

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46
Q

Adjusting Entry

A

Entry made at the end of the period to assign revenues to the period in which they are earned and expenses to the period in which they are incurred. Adjusting entries help measure the Pernod’s income and bring the related asset and liability accounts to correct balances for the financial statements.

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47
Q

Owner’s Equity

A

The claim of a business owner to the assets of the business. Also called “capital”.

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48
Q

Owner’s Withdrawals

A

Amounts removed from the business by an owner

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49
Q

Partnership

A

A business with two or more owners

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50
Q

Proprietorship

A

A business with a single owner

51
Q

Revenue

A

Amounts earned by delivering goods or services to customers. Revenues increase owner’s equity

52
Q

Shareholder

A

A person who owns stock in a corporation

53
Q

Statement of Cash Flows

A

Report of cash receipts and cash payments during a period

54
Q

Statement of Earnings

A

Summary of an entity’s revenues, expenses and net income or net loss for a specific period. Also called the “income statement” or the “statement of operations”.

55
Q

Book Value (of a plant asset)

A

The asset’s cost minus accumulated depreciation

56
Q

Cash-Basis Accounting

A

Accounting that records transactions only when cash is received or paid

57
Q

Contra Account

A

An account that always has a companion account and whose normal balance is opposite that of the companion account.

58
Q

Deferred Revenue

A

A liability created when a business collects cash from customers in advanced of doing work. Also called “unearned revenue”.

59
Q

Depreciation

A

The allocation of a plant asset’s cost to expense over its useful life.

60
Q

Matching Principle

A

Guide to accounting for expenses, identify all expenses incurred during the period, measure the expenses, and match them against the revenues earned during that same period.

61
Q

Stockholders

A

A person who owns stock in a corporation. Also called a “shareholder”.

62
Q

Transaction

A

An event that affects the financial position of a particular entity and can be recorded reliably.

63
Q

Account

A

The detailed record of the changes in a particular asset, liability, or owner’s equity during a period. The basic summary device of accountancy.

64
Q

Prepaid Expense

A

Advance payments of expenses. Examples include prepaid rent, prepaid insurance, and supplies.

65
Q

Revenue Principle

A

The basis for recording revenues; tells accountants when to record revenue and the amount of revenue to record.

66
Q

Time-Period Concept

A

Ensures that information is reported at regular intervals.

67
Q

Unearned Revenue

A

A liability created when a business collects cash from customers in advance of doing work. Also called “deferred revenue”.

68
Q

Income from Operations

A

Gross profit minus operating expenses plus any other operating revenues. Also called “operating income”.

69
Q

What are the two ways to estimate the amount of uncollectibles?

A
  1. percentage of net credit sales (income statement method)

2. aging of accounts receivable (balance sheet method)

70
Q

Specific - Identification Method

A

Inventory costing method based on the specific cost of particular units of inventory.

71
Q

Sarbanes-Oxley Act

A
  • Public companies must issue internal control report
  • Independent auditor must evaluate internal controls
  • Created Public Accounting Oversight Board - oversees work of auditors of public companies.
  • Accounting firms may not both audit and provide certain consulting services for the same client
  • Established penalties for violators.
72
Q

Controls Over Purchase and Payment

A
  • Send purchase order to supplier - purchasing agent
  • Receive inventory and invoice - receiving department
  • Prepare receiving report - receiving department
  • Make sure all documents agree - treasurer or controller
  • Issue check - treasurer or controller
73
Q

Days’ Sales in Receivables

A
  1. One Day sale = Net Sales(or Total Revenue) / 365 days
  2. Day sales in average accounts receivalble = average net accounts receivable / one days’ sales =(beginning net receivables + ending net receivables)/ one days’ sales = days
74
Q

The two methods used to account for uncollectible accounts.

A
  • Allowance
  • Direct write-off

The allowance method is used by mid-size to larger companies for financial reporting. Smaller companies use the direct write-off method for financial reporting. The allowance method is not used income tax reporting.

75
Q

Percent of Sales Method

A

Bad Debts Expense = Net Credit Sales x Bad Debts

76
Q

Debit

A

The left side of an account

77
Q

Note Receivable

A

A written promise for future collection of cash

78
Q

Posting

A

Copying amounts from the journal to the ledger

79
Q

Journal

A

The chronological record of an entity’s transactions

80
Q

Credit

A

The right side of an account

81
Q

Chart of Accounts

A

List of all the accounts with their account numbers

82
Q

Normal Balance

A

The balance that appears on the side of an account-debit or credit - where we record increases

83
Q

Trial Balance

A

A list of all the accounts with their balances

84
Q

Ledger

A

The record holding all the accounts

85
Q

Certified Management Accountant (CMA)

A

A licensed accountant who works for a single company

86
Q

Account Payable

A

A liability backed by the general reputation and credit standing of the debtor.

87
Q

Single-Step Income Statement

A

Format that groups all revenues together and then lists and deducts all expenses together without drawing any subtotals.

88
Q

Average-Cost Method

A

Inventory costing method based on the average cost of inventory during the period. Average cost is determined by dividing the cost of goods available for sale by the number of units available.

89
Q

Conservatism

A

Reporting the least favorable figures in the financial statement.

90
Q

Consistency Principle

A

A business should use the same accounting methods and procedures from period to period.

91
Q

Disclosure Principle

A

A business financial statements must report enough information for outsiders to make knowledgeable decisions about the company.

92
Q

First-In, First-Out (FIFO) Inventory Costing Method

A

Inventory costing method: The first costs into inventory are the first costs out to cost of goods sold. Ending inventory is base on the costs of the most recent purchases.

93
Q

Gross Profit Method

A

A way to estimate inventory on the basis of the cost of goods sold model: Beginning inventory + net purchases = cost of goods available for sale - cost of goods sold = ending inventory

94
Q

Last- In, First Out (LIFO) Inventory Costing Method

A

Inventory costing method: The last cost into inventory are the first costs out to cost of goods sold. Leaves the oldest costs - those of beginning inventory and the earliest purchases of the period - in ending inventory.

95
Q

Lower-of-cost-or-market (LCM) Rule

A

Rule that an asset should be reported in the financial statements at whichever is lower - its historical cost or its market value.

96
Q

Materiality Concept

A

A company must perform strictly proper accounting only for items that are significant to the business’s financial situations

97
Q

Operating Expenses

A

Expenses, other than cost of goods sold, that are incurred in the entity’s major line of business. Examples include rent, depreciation, salaries, wages, utilities, and supplier expense.

98
Q

Other Expense

A

Expense that is outside the main operations of a business, such as a loss on the sale of plant assets.

99
Q

Sales Revenue

A

The amount that a merchandiser earns from selling its inventory. Also called “sales”

100
Q

Inventory

A

All the goods that the company owns and expects to sell in the normal course of operations

101
Q

Inventory Turnover

A

Ratio of cost of goods sold to average inventory. Measures the number of times a company sells its average level of inventory during a year.

102
Q

Invoice

A

A seller’s request for cash from purchaser

103
Q

Multi-Step Income Statement

A

Format that contains subtotals to highlight significant relationships. In addition to net income, it reports gross profit and operating income.

104
Q

Cost of Good Sold

A

The cost of the inventory that the business has sold to customers. Also called “cost of sales”.

105
Q

Net Purchases

A

Purchases less purchase discounts and purchase returns and allowances

106
Q

Net Sales Revenue

A

Sales revenue less sales discount and sales returns and allowances

107
Q

Formula for computing interest on a note:

A

Amount of Interest = Principal x Interest Rate x Time

108
Q

What is the balance in Petty Cash account immediately before replacement? Immediately after replenishment?

A

The balance in Petty Cash is always its specified balance.

109
Q

Principles of Internal Control

A
  • Competent, reliable and ethical personnel - Hire, train, supervise
  • Assignment of responsibilities - each employee has clearly defined responsibilities
  • Separation of Duties - limits fraud, promotes accurate financial statements
  • Audit - examination of company’s financial statements & accounting system.
  • Separate operations from accounting
  • Separate custody of assets from accounting
110
Q

Specific- Unit Cost Method

A

Inventory costing method based on the specific cost of particular units of inventory. Also called the “specific-identification method”

111
Q

Other Revenue

A

Revenue that is outside the main operations of a business, such as gain on the sales of plant assets

112
Q

Periodic Inventory System

A

A system in which the business does not keep a continuous record of inventory on hand. At the end of the period , ti makes a physical count of on-hand inventory and uses this information to prepare the financial statements.

113
Q

Perpetual Inventory System

A

The accounting inventory system in which the business keeps a running record of inventory and cost of goods sold

114
Q

Sales

A

The amount that a merchandiser earns from selling its inventory

115
Q

Sales Discount

A

Reduction in the amount receivable from customer, offered by the seller as an incentive for the customer to pay promptly. A contra account to sales revenue.

116
Q

Sales Returns and Allowances

A

Decreases in the seller’s receivable from a customer’s return of merchandise or from granting the customer an allowance from the amount owed to the seller. A contra account to sales revenue.

117
Q

Collusion

A

*when two or more employees work together to defraud the company
* Solutions: - add more internal control
Note: Always consider cost/benefit of controls

118
Q

Gross Margin Percentage

A

Gross profit divided by net sales revenue. A measure of profitability. Also called “gross profit percentage”.

119
Q

Acid Test Ratio

A

A stringent measure of ability to pay current liabilities

Acid-test ratio = Cash + Short-term Investments + Net Current Receivables / Total Current Liabilities

The higher the acid test ratio, the more able the business is to pay its current liabilities

120
Q

Assets

A

An economic resource that is expected to be of benefit in the future

121
Q

Accounting

A

The information system that measures business activities, processes that information into reports, and communicates the results to decision makers.

122
Q

Balance Sheet

A

An entity’s assets, liabilities, and owner’s equity as of a specific date. Also called the “statement of financial position”.

123
Q

Operating Income

A

Gross profit minus operating expenses plus any other operating revenues. Also called “income from operations”.

124
Q

Formula for computing interest on a note:

A

Amount of interest = Principal x Interest Rate x Time

Economic Finance KB (4 decks)

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