Accounting Flashcards
Asset =
Liabilities (L) + Equity (E)
account receivables - asset or liability?
the amount due by customers to the firm - asset
account payable - asset or liability?
the amount owed by the firm to supplier or services that are already charged but haven’t been delivered - liability
Intellectual property is part of what assets?
a subset of intangible assets, including copyrights, patents and trademarks.
T or F: Goodwill is subset of tangible asset
F - its a subset of intangible assets
what is treasure stock?
the amount paid to buyback the form’s own shares from current shareholders
What are some of the current liabilities type?
account payable, notes payable, tax payable
What are some of the non-current liabilities type?
long-term debt, leases, bonds, deferred income taxes
T or F: In the accrual accounting rule, you can only record sale or COGS when the service is delivered or rendered
T
T or F: Revenue is recognized based on when the cash is received
F - revenue ≠ cash received
Use excel to do this problem:
In Q1, Concord milk received a payment of $2,500 for the $10,000 order to be delivered. However, the company couldn’t deliver the full service until Q2, and its customer paid the remaining amount in Q3
Use this format:
1) Cash + Account Receivable = Account Payable + Common Stock + Retain Earnings
2) Revenue - Expense = Net Income = Retain Earnings
Cost Flow Assumptions (CFA)
Assumption about which units get sold since units can be purchased with different price at different point in time
T or F: Cost Flow Assumptions doesn’t have to math the physical flow of goods
T
T or F. Firms can pick and change their CFA every now and then
F - they have to pick one strategy and stick with it
What are four cost flow assumptions?
1) Specific Identification
2) Average Cost
3) First-in, First -out (FIFO)
4) Last-in, First-out (LIFO)
what does the specific Identification assumption dictate?
the ability to identify exactly which item has been sold (demand high-tech system)
what does the FIFO Inventory assume?
older costs are assigned to the goods sold, and more recent cost are assigned to ending inventory
what does the LIFO inventory assume?
the more recent costs are assigned to the goods sold, while older costs are assigned to ending inventory
Note: Revere of FIFO inventory
Not allowed by IRFS
1) In what circumstances, does a company use LIFO inventory recording?
2) What is the implication of this technique?
1) When a company experiences a consistent inflation to show a lower gross profit, and thus minimize the tax liability
2) When those low-cost units and inventory eventually do get sold, there will be a much higher profit realized and higher taxes to be paid.
Where do we look for a company’s cost flow assumption?
footnote - we can find how sales & COGS are recognized
What are some costs that associate with fix assets beside the purchase price of equipment?
Transportation Costs
Installation & set-up charges
test-runs
What is the capitalization on the asset?
the process of assign more cost to the fix asset while reduce expenses on income statement
Depreciation expense
Depreciation Expense is the expense allocates the total, capitalized cost of the asset to the period in which the asset is used in the business
T or F: The straight-line depreciation is the most common
T
Describe the straight-line depreciation equation
(Cost - Residual Value)/ Useful Life
what is residual value?
an estimate of asset’s value at end of its useful life
what is the useful life in depreciation concept?
an estimate by the firm’s management of how long it will use the asset
T or F: Depreciation expense is a cash expense.
F - its a non -cash expense (cash was paid when the asset was purchased)
T or F: Useful life can’t be revised if management decides to use the asset for a longer or shorter period of time
F - It can be revised
How are investors certain about the value of useful life?
by relying on the auditor to double-check management’s assumptions to ensure they are reasonable and consistent with how the firm actually uses the assets in practice.
T or F: Auditors can’t require management to use better and more realistic assumption when unrealistic assumptions about the useful life is made
F - They can
an A company pay a $5000 down payment in October for a specialized equipment. The machine is delivered in December, at which the company pays the balance of purchase price of $8000. How much expense should company A recognize in each of the following month?
Trick question - Company A shouldn’t recognize these transactions as expenses but as capitalization of an asset worth $13,000
