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Accounting > Accounting Exam 1 > Flashcards

Accounting Exam 1 Flashcards

1
Q

Why do we need accounting?

A

So that investors and creditors know where to invest their money

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2
Q

Accounting categories

A

Managerial accounting

Financial accounting

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3
Q

Managerial accounting

A

deals with the methods accountants use to provide information to an organization’s internal users

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4
Q

Financial accounting

A

measures business activities of a company and communicates those measurements to external parties (stockholders, banks, and anyone else that has a monetary interest in the company but does not work there) for decision-making purposes.

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5
Q

Objectives of financial accounting

A
  • useful to investors and creditors in making decisions
  • helps predict cash flow
  • tells about economic resources, claims to resources, and changes to resources and claims
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6
Q

accounting system

A
  • Record transactions throughout a given time period
  • create adjustments at the end of the period
  • Produce financial statements which are a summary of all of the business activities into a few pages of reports
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7
Q

4 primary financial statements

A
  1. Income Statement
  2. Balance sheet
  3. Statement of stockholders equity
  4. Statement of Cash Flows
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8
Q

Income statement

A

A financial statement that reports the economic performance over an interval of time (a month, quarter, year)

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9
Q

The Balance sheet

A

Financial statements that present the company’s financial position on a particular date

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10
Q

Balance Sheet components

A

Assets
Liabilities
Stockholders Equity Accounts
Net realizable receivable

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11
Q

Assets

A

a present right of an entity to an economic benefit

things that we own

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12
Q

Examples of Assets

A
  • Cash
  • Accounts receivables
  • Inventory
  • Prepaid expenses
  • patents
  • Equipment
  • Land
  • Office supplies
  • allowance for uncollectible account
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13
Q

Liabilities

A

a present obligation of an entity to transfer an economic benefit
Things that we owe

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14
Q

Examples of Liabilities

A
  • Accounts Payable
  • Unearned revenue
  • Notes payable
  • interest payable
  • taxes payable
  • Mortgages
  • Credit cards
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15
Q

Stockholders equity

A

Common stock and retained earnings

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16
Q

Retained Earnings

A

The cumulative net income a company has earned - the cumulative dividends they have shared with their owners

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17
Q

Retained Earnings overtime calculation

A

Beginning R/E + New net income - New Dividends = Ending R/E

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18
Q

Balance Sheet Equation

A

Assets= Liabilities + Stockholders’ Equity

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19
Q

Net Income equation

A

Revenue - Expenses

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20
Q

Revenue

A

the increase in assets or decrease in liabilities associated with providing goods and services to customers

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21
Q

Expenses

A

decrease in assets or increase in liabilities related to the cost of providing a service or selling a good

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22
Q

Examples of expenses

A
  • Salary expense
  • Cost of inventory sold
  • Interest expense on debt
  • utility expense
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23
Q

dividends

A

distributions to stockholders typically in the form of cash because the stockholders are considered owners
-are not an expense

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24
Q

Asset accounts

A

cash account
supplies
equipment

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25
Q

liability accounts

A 
accounts payable
salaries payable
utilities payable 
taxes payable 
notes payable
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26
Q

Common stock transaction accounts affected

A

cash increase

stockholders equity increases

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27
Q

Borrowing from bank accounts affected

A

cash increases

notes payable increases

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28
Q

Purchasing equipment accounts affected

A

equipment increases

cash decreases

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29
Q

Pay rent in advance accounts affected

A

prepaid rent increase

cash decrease

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30
Q

Purchase supplies on account accounts affected

A

Supplies increases

Accounts payable increases

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31
Q

Provide services for cash accounts affected

A

cash increases

service revenue increases

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32
Q

Provide services on account accounts affected

A

accounts receivable increases

service revenue increases

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33
Q

Receive cash in advance from customers accounts affected

A

Cash increase

Deferred revenue increases

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34
Q

Pay salaries to employees accounts affected

A

salaries expense decreases

cash decreases

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35
Q

Pay cash dividends accounts affected

A

Dividends decrease

cash decrease

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36
Q

When dividends increase

A

Retained earnings and stockholders equity decrease

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37
Q

When expenses increase

A

Net income decreases, Retained earnings decrease, and stockholders equity decreases

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38
Q

When revenue increases

A

Net income increases, retained earnings increase, and stockholders equity increases

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39
Q

Debit

A

left side of an account and indicates an increase in asset, expense, dividend and a decrease to liability, stockholders equity, or revenue account

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40
Q

Credit

A

the right side of an account indicates a decrease in assets, expenses, dividend accounts and an increase to liability, stockholders equity, or revenue

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41
Q

deferred revenue

A

customers have prepaid for a good/service that has not been delivered yet creates a liability

42
Q

Notes payable

A

when you borrow from the bank creates a liability

43
Q

Accrual accounting

A

measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur. Matching revenue and expenses at the time transactions occur rather than when payment is made or received

44
Q

revenue recognition principle

A

record revenue in the period in which we provide goods and services to customers

45
Q

Expense recognition

A

any costs used to help generate revenues are recorded as expenses in the same period as those revenues

46
Q

Expenses and revenue can be…

A

recorded before, after, during the company receives cash from the customers

47
Q

Cash basis accounting

A

record revenues at the time cash are received and expenses at the time cash are paid

48
Q

What is the difference between accrual accounting and cash basis accounting?

A

The timing of when we record revenues and expenses

49
Q

What are the 2 categories in accrual accounting?

A

Prepayments and accruals

50
Q

Prepayments in accrual accounting

A

involve cash flows occurring before the revenues and expenses are recognized
ex: cash paid for rent in advance

51
Q

accruals in accrual accounting

A

involve cash flows occurring after the revenues and expenses are recognized
ex: when a company owes salaries to employees at the end of the current period but will not pay those salaries until the following period

52
Q

adjusting entry

A

entries at the end of the period used to update balances of revenues and expenses (and changes in their related assets and liabilities) that have occurred during the period but that we have not yet

53
Q

Prepaid rent adjusting entry

A

Rent expense debit

Prepaid rent credit

54
Q

Supplies purchase on account (not yet used) adjusting entry

A

Supplies expense debit

Supplies credit

55
Q

Receive cash in advance from customers adjusting entry

A

Deferred revenue increases

Service revenue decrease

56
Q

accured expenses

A

occur when a company has used costs in the current period but the company hasn’t yet paid cash for those costs
ex: employee salaries, utility expense, interest, and taxes

57
Q

Accrued salaries

A

postpone paying salaries to employees until next period (adjustment required)

58
Q

Accrued utility

A

postpone paying utility bill until next period (adjustment required)

59
Q

Accrued interest

A

Record monthly interest that is charged when borrowing money (adjustment required)

60
Q

accrued salaries adjustment entry

A

Salaries Expense debit

Salaries payable credit

61
Q

accrued utility cost adjustment entry

A

Utility Expense

Utilities Payable

62
Q

accrued interest adjustment entry

A

Interest expense debit

Interest payable credit

63
Q

Accrued revenues

A

occur when a company provides products or services but hasn’t received cash
ex: accounts receivable, interest receivable

64
Q

Interest receivable

A

Being owed interest on the amount that is lent to others

65
Q

accounts receivable

A

the right to a customers money when selling products or services to customers on account

66
Q

Interest receivable adjustment entry

A

Interest receivable debit

Interest Revenue credit

67
Q

Accounts receivable adjustment

A

accounts receivable debit

service revenue credit

68
Q

What is the order of preparing statements?

A
  1. Income Statement
  2. Statement of retained earnings
  3. Balance Sheet
  4. Statement of cash flows
69
Q

Temporary accounts

A

dividends, revenues, expense accounts

70
Q

What accounts should be closed at the end of the period?

A

Temporary accounts which are dividends, expenses, and revenues

71
Q

Closing entries

A

transfer the balance of all revenue, expenses, and dividend accounts to the balance of retained earnings

72
Q

What happens if we later learn that some of the customers likely won’t pay?

A

Write down an estimate of our exected loss and record in bad debts expense and allowance for uncollectible accounts

73
Q

Bad debt expense

A

an account that is used to reduce income and is used when creating an estimate of how much loss will be recorded from customers that don’t pay

74
Q

Bad debt expense

A

an account that is used to reduce income and is used when creating an estimate of how much loss will be recorded from customers that don’t pay is recorded on income statement

75
Q

allowance for uncollectible account

A

contra asset account representing the number of accounts receivable not expected to be collected a way to reduce accounts receivable

76
Q

Income Statement components

A

Revenue

expenses - bad debt expense

77
Q

How to transfer revenue to retained earnings to close entry?

A

Debit each revenue accounts for its balance and credit retained earnings for the total

78
Q

How to transfer expenses to retained earnings to close entry?

A

credit each of the expense accounts for its balance and debit retained earnings for the total

79
Q

How to transfer dividends to retained earnings to close entry?

A

credit dividends for its balance and debit retained earnings for the same amount

80
Q

How to close accounts receivable when cash is received?

A

Cash debit

Accounts receivable credit

81
Q

net revenue

A

a company’s total revenues - any discounts, returns, and allowances

82
Q

uncollectible account

A

customers account that no longer are considered collectible (when customers are unable to pay back)

83
Q

net account receivable

A

the difference between total accounts receivable and the allowance for uncollectible accounts

84
Q

What happens when we actually know that a customer won’t pay?

A

we write off the account

85
Q

writing off an account

A

a form of adjusting an entry (the estimate entry) because we have not received information on who and how much will not be paid

86
Q

Writing off entry

A

Allowance for uncollectible accounts debit

Accounts receivable credit

87
Q

Collecting on accounts previously written off steps

A
  1. reverse write off (previous) entry based on the amount that was received
    Accounts receivable
    allowance for uncollectible accounts
  2. record the collection of the account receivable
    cash
    accounts receivable
88
Q

aging method

A

basing the estimate of future bad debts on the various ages of individual accounts receivable using a higher percentage for old accounts than for new accounts meaning that the older the account the less likely to be collected

89
Q

inventory

A

types

90
Q

inventory

A

items a company intends for sale to customers in the ordinary course of business also includes items that are not yet finished products

91
Q

What statement is inventory reported on?

A

Balance sheet

92
Q

cost of goods sold what statement does it get reported on?

A

an expense and on the income statement

93
Q

Sales revenue

A

sales of inventory

94
Q

service revenue

A

services provided

95
Q

net sales

A

net amount of revenues

96
Q

cost of goods sold

A

the cost of inventory is also referred to as cost of sales

97
Q

gross profit

A

the difference between net sales and cost of goods sold

98
Q

where is gross profit reported on?

A

Income statement

99
Q

net realizable value

A

the net amount a company expects to realize in cash from the sale of inventory

100
Q

lower of cost and net realizable value

A

method where companies report inventory in the balance sheet at the lower of cost and net realizable value

101
Q

Journal entry for inventory

A

Cost of goods sold debit

Inventory credit

Accounting (1 decks)

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