Accounting Chp 3&4

Question 1

Operating (Cash to Cash) Cycle

Answer 1

the time it takes for a company to pay cash to suppliers, sell goods and services to customers, and collect cash from customers

Question 2

Time Period Assumption

Answer 2

long life of a company can be reported in shorter time periods such as months, quarters, and years

Question 3

Revenues

Answer 3

Amounts earned and recorded from a company’s day to day business activities, mostly when a company sells products or provides services to customers or clients

Question 4

When Revenue is earned

Answer 4

Cash or Accounts Receivable (amounts due from customers) increases

Question 5

Unearned or Deferred Revenue

Answer 5

A liability created when a business collects cash from customers in advance of providing services or delivering goods.

Question 6

Expenditure

Answer 6

outlay of cash for any purpose

Question 7

Expenses

Answer 7

costs incurred to generate revenue during the period (most not paid in cash) (costs of operating the business)

Question 8

Operating Income (Income

Answer 8

net sales (operating revenues) less operating expenses (including cost of goods sold)

measure of profit from central ongoing operations

Question 9

Other Items

Answer 9

Activities not included as part of income from operations

Question 10

Interest Revenue

Answer 10

Interest revenue is the amount of money a company earned from interest during a set period. (Using excess cash to purchase stocks or bonds in other companies, interest dividends earned on investments in other companies.)

Question 11

Interest Expense

Answer 11

borrowing money, cost of using that money (banks are the exception as it is central to their operation)

Question 12

Losses (Gains) on Sale of Investments

Answer 12

When investments are sold for less (or more) than the original cost, a loss (or gain) results and is reported as an Other Item on the income statement

Question 13

Pre Tax Income

Answer 13

Operating Income is subtracted from Operating Revenues to determine income before income taxes (pre tax income)

Question 14

Income Tax Expense

Answer 14

From Pre Tax Income, apply the tax rates to get Income Tax Expense

Question 15

Earnings Per Share EPS

Answer 15

Used in evaluating the operating performance and profitability of a company

EPS = Net Income / Weighted Average Number of Shares of Common Stock Outstanding

Question 16

Accrual Basis Accounting

Answer 16

reporting income when it is earned and expenses when they are incurred

Question 17

Revenue Recognition Principle

Answer 17

When the company transfers promised goods or services to customers, in the amount it expects to be entitled to receive

Question 18

Expense Recognition Principle (Matching Principle)

Answer 18

The principle that matches expenses with revenues in the period when the company makes efforts to generate those revenues.

Question 19

Net Profit Margin

Answer 19

net income / net sales (or operating revenues)