Accounting II Flashcards
1
Q
UCC
A
Uniform Commercial Code
2
Q
Promissory note
A
written promise to pay a certain amount of money at a specific future time.
3
Q
Interest
A
fee charged for the use of money.
Interest = Principal x Rate x Time
4
Q
Banker’s year
A
360 day period
5
Q
Principal
A
Amount shown on the face of a note.
6
Q
Face Value (face amount)
A
- An amount of money indicated to be paid, exclusive of interest or discount.
7
Q
Maturity Value
A
- the total amount (principal plus interest) that must be paid when a note comes due.
8
Q
Note Payable
A
- a liability that represents a written promise by the maker of the note (the debtor) to pay another party (the creditor) a specified amount at a specified future date.
9
Q
Discounting
A
- deducting the interest in advance from the principal on a note payable
10
Q
Note Receivable
A
- an asset that represents a creditor’s written promise to pay a specified amount at a specified future date.
11
Q
Draft
A
- a written order that requires one party (a person or business) to pay a stated sum of money to another party.
ex. a check
12
Q
Bank draft
A
- check written by a bank that orders another bank to pay the stated amount to a specific party.
13
Q
Cashier’s check
A
- draft on the issuing bank’s own funds.
14
Q
Commercial draft
A
- note issued by one party that orders another party to pay a specified amount on a specified date.
- sight draft or time draft
15
Q
Sight draft
A
- commercial draft that is payable on presentation.
16
Q
Bill of lading
A
- business document that lists the goods accepted for transportation by a carrier.
17
Q
Interest expense
A
- Non-operating expense
- “Other income and Expense” on Income Statement
18
Q
Discount period
A
- period from the date the note is taken to the bank to be discounted (or sold) & continues on to the maturity date.
19
Q
Contingent liability
A
- an item that can become a liability if certain future events happen.
20
Q
Physical Inventory
A
- actual count of the number of units of each type of good on hand
21
Q
Periodic Inventory
A
- amount of goods on hand is determined by periodic counts
22
Q
Perpetual Inventory
A
- inventory is based on a running total number of units.
23
Q
Specific Identification Method
A
- valuation is based on the actual cost of each item of merchandise
24
Q
Average Cost Method
A
- average cost of units of an item available for sale during the period to arrive at the value of ending inventory.
- Weighted average Method
25
Q
First In, First Out method
A
- assumes that the oldest merchandise is sold first.
* FIFO
26
Q
Last In, First Out method
A
- most recently purchased merchandise is sold first, and thus assigns the most recent costs to cost of goods sold.
- LIFO
27
Q
Market Price
A
- rice the business would have to pay to buy an item of inventory through usual channels in usual quantities.
- Replacement Cost
28
Q
Lower of cost or market rule
A
- inventory is reported at its original cost or its replacement cost, whichever is lower.
- by item, in total, or by group.
29
Q
Gross Profit Method
A
- rate of gross profit on sales and the ratio of cost of goods sold to net sales are relatively constant from period to period.
30
Q
Retail Method
A
- estimates inventory cost by applying the ratio of cost to selling price in the current accounting period to the retail price of the inventory.
31
Q
Markon
A
- difference between the cost and the initial retail price of merchandise.
32
Q
Markups
A
- price increases above the original markons
33
Q
Markdowns
A
- price reductions below the original markon
34
Q
Real Property
A
- consists of land, land improvements (such as sidewalks and parking lots), buildings, and other structures attached to the land.
35
Q
Tangibile Personal Property
A
- machinery, equipment, furniture, and fixtures that can be removed and used elsewhere.
36
Q
Capitalized Cost
A
- all costs recorded as part of the asset’s cost.
37
Q
Salvage, Residual, or scrap value
A
- estimate of the amount that could be obtained from an asset’s sale or disposition at the end of its useful life.
38
Q
Net salvage value
A
- salvage value of the asset less any costs to remove or sell it.
39
Q
Declining-balance Method
A
- book value of an asset at the beginning of the year is multiplied by a percentage to determine depreciation for the year.
40
Q
Accelerated method of depreciation
A
- allocates greater amounts of depreciation to an asset’s early years of useful life.
41
Q
Double-declining-balance method
A
- uses a rate equal to twice the straight-line rate and applies that rate to the book value of the asset at the beginning of the year.
42
Q
Sum of the year’s digits method
A
- a fractional part of the asset cost is charged to expense each year. The denominator (the bottom part) of the fraction is always the “sum of the years’ digits.”
43
Q
Units of output method
A
- calculates depreciation at the same rate for each unit produced.
44
Q
Income tax method
A
- trade-in transactions are easier than those for financial accounting because neither gain nor loss is recognized for tax purposes.
45
Q
Depletion
A
- cost of the natural resource to expense over the period in which the resource produces revenue.
46
Q
Intangible assets
A
- assets that lack a physical substance.
47
Q
Patent
A
- exclusive right given by the U.S. Patent Office to manufacture and sell an invention for a period of 17 years from the date the patent is granted.
48
Q
Copyright
A
- exclusive right granted by the federal government to produce, publish, and sell a literary or artistic work for a period equal to the creator’s life plus 70 years.
49
Q
Goodwill
A
- value of a business in excess of the value of its identifiable assets.
50
Q
Amortization
A
- periodic transfer of intangible’s cost to expense
51
Q
Unlimited Liability
A
- a partner’s personal assets as well as the partnership’s assets can be required in payment of the firm’s debts.
52
Q
Limited Partners
A
- liable only for their investment in the partnership.
53
Q
General Partner
A
-a partner who has unlimited liability.
54
Q
Mutual Agency
A
- each partner is empowered to act as an agent for the partnership, binding the firm by those acts so long as they are within the normal scope of the partnership’s activities.
55
Q
Partnership agreement
A
- legal contract forming a partnership and specifying certain details of the operation
- articles of partnership
56
Q
Distributive Share
A
- the amount of net income or net loss allocated to each partner.
- not cash distribution
57
Q
Dissolution
A
- legal term for termination of a partnership
58
Q
Liquidation
A
- when the business is completely terminated
59
Q
Shareholder
A
- a person who owns shares of stock in a corporation and is, thus, one of the owners of the corporation.
60
Q
Limited liability partnership (LLP)
A
- a general partnership that provides some limited liability for all partners.
61
Q
Subchapter S corporations
A
- entities formed as corporations which meet the requirements of Subchapter S of the Internal Revenue Code to be treated essentially as a partnership so the corporation pays no income tax.
62
Q
Authorized capital stock
A
- the number of shares authorized for issue by the corporate charter.
63
Q
Par value
A
- an amount assigned by the corporate charter to each share of stock for accounting purposes.
64
Q
Stated value
A
- value that can be assigned to no-par-value stock by a board of directors for accounting purposes
65
Q
Market value
A
- price per share at which stock is bought and sold.
66
Q
Common stock
A
- only one class of stock
67
Q
Preferred Stock
A
- has special claims on the corporate profits or, in case of liquidation, on corporate assets.
68
Q
Liquidation value
A
- usually par value or an amount higher than par value
69
Q
Convertible preferred stock
A
- conveys the right to convert that stock to common stock after a specified date or during a period of time.
70
Q
Callable preferred stock
A
- gives the issuing corporation the right to repurchase the preferred shares from the stockholders at a specific price.
71
Q
Dividends
A
- distributions of the profits of a corporation to its shareholders.
72
Q
Preference dividends
A
- Preferred stock bears a basic or stated dividend rate
73
Q
Cumulative preferred stock
A
- conveys to its owners the right to receive the preference dividend for the current year and any prior years in which the preference dividend was not paid before common stockholders receive any dividends.
74
Q
Noncumulative preferred stock
A
- conveys to its owners the stated preference dividend for the current year, but stockholders have no rights to dividends for years in which none were declared.
75
Q
Nonparticipating preferred stock
A
- conveys to its owners the right to only the preference dividend amount specified on the stock certificate.
76
Q
Participating preferred stock
A
- conveys the right not only to the preference dividend amount but also to a share of other dividends paid.
77
Q
Organization costs
A
- costs associated with establishing a corporation.
78
Q
No-par-value stock
A
- not assigned a par value in the corporate charter.
79
Q
Subscription book
A
- listing of the stock subscriptions received
80
Q
Subscribers’ ledger
A
- contains an account receivable for each stock subscriber.
81
Q
Registrar
A
- accounts for all the stock issued by the corporation and makes sure that the corporation does not issue more shares than are authorized.
82
Q
Deferred income taxes
A
- amount of taxes that will be payable (or beneficial) in the future as a result of the difference between taxable income and income for financial statement purposes in the current and past years.
83
Q
Paid-in Capital
A
- (or contributed capital) represents the amount of capital acquired from capital stock transactions.
84
Q
Retained earnings
A
- represents the cumulative profits and losses of the corporation not distributed as dividends. Dividends reduce retained earnings.
85
Q
Declaration date
A
-the date on which the board of directors declares the dividend.
86
Q
Record date
A
- the date used to determine who will receive the dividend
87
Q
Stockholders of records
A
- will receive the declared dividend.
88
Q
Payment date
A
- the date on which the dividend is paid.
89
Q
Stock dividend
A
- a distribution of the corporation’s own stock on a pro rata basis that results in conversion of a portion of the firm’s retained earnings to permanent capital
90
Q
Stock split
A
- occurs when a corporation issues two or more shares of new stock to replace each share outstanding without making any changes in the capital accounts.
91
Q
Appropriation of retained earnings
A
- a formal declaration of an intention to restrict dividends.
92
Q
Donated capital
A
- capital resulting from the receipt of gifts by a corporation
93
Q
Treasury stock
A
- a corporation’s own capital stock that has been issued and reacquired.
94
Q
Statement of retained earnings
A
- shows all changes that have occurred in retained earnings during the period.
95
Q
Bonds payable
A
- long-term debt instruments that are written promises to repay the principal at a future date. Interest is due at a fixed rate that is payable annually, semiannually, or quarterly over the life of the bond
96
Q
Secured bonds
A
- have property pledged to secure the claims of the bondholders.
97
Q
Collateral trust bonds
A
- involve the pledge of securities, such as stocks or bonds of other companies.
98
Q
Debentures
A
- Unsecured bonds backed only by a corporation’s general credit
99
Q
Registered bonds
A
- bonds issued to a party whose name is listed in the corporation’s records.
100
Q
Coupon bonds
A
- unregistered bonds that have coupons attached for each interest payment.
- bearer bond
101
Q
Serial bonds
A
- bonds issued at one time but payable over a period of years
102
Q
Convertible bonds
A
- give the owner the right to convert the bonds into common stock under specified conditions.
103
Q
Callable bonds
A
- allow the issuing corporation to require the holders to surrender the bonds for payment before their maturity date.
104
Q
Call price
A
- amount the corporation must pay for the bond when it is called.
105
Q
Market interest rate
A
- interest rate a corporation is willing to pay and investors are willing to accept at the current time.
106
Q
Face interest rate
A
- contractual interest rate specified on the bond.
107
Q
Leveraging
A
- Using borrowed funds to earn a profit higher than the interest that must be paid on the borrowing
108
Q
Premium on bonds payable
A
- the excess of the price paid over the face value of a bond
109
Q
Bond issue costs
A
- costs incurred in issuing bonds, including items such as legal and accounting fees and printing costs.
110
Q
Bond sinking bond investment
A
- fund established to accumulate assets to pay off bonds when they mature.
111
Q
Vertical analysis
A
- the relationship of each item on a financial statement to some base amount on the statement.
112
Q
Horizontal analysis
A
- the percentage change for individual items in the financial statements from year to year.
113
Q
Ratio analysis
A
- the relationship between various items in the financial statements. Ratio analysis can involve items on the same statement or items on different statements.
114
Q
Comparative Statement
A
- financial statements presented side by side for two or more years.
115
Q
Trend analysis
A
- compares selected ratios and percentages over a period of time.
- often 5 years
116
Q
Industry averages
A
- The financial ratios and percentages that reflect averages for similar companies
117
Q
Return on common stockholders’ equity
A
- a key measure of how well the corporation is making a profit for its shareholders.
118
Q
Price-earnings ratio
A
- compares the market value of common stock with the earnings per share of that stock.
119
Q
Asset Turnover
A
- ratio of net sales to total assets measures the effective use of assets in making sales.
120
Q
Total equities
A
= corporation’s liabilities + stockholders’ equity
121
Q
Liquidity
A
- measures the ability of a business to pay its debts when due.
122
Q
Working capital
A
- a measure of the ability of a company to meet its current obligations.
working capital = current assets- current liabilities
123
Q
Current ratio
A
- measures the ability of a business to pay its current debts using current assets.
current ratio = current assets/current liabilities
124
Q
Acid-test ratio
A
- measures immediate liquidity.
acid test ratio = (cash+receivables+marketable securities)/ current liabilities
125
Q
Quick assets
A
- Cash
- Receivables
- Marketable securities.
126
Q
Corporations issue four financial statements:
A
- Income statement,
- Balance sheet
- Retained earnings/stockholders’ equity
- Statement of cash flows.
127
Q
Statement of cash flows
A
- provides information about the cash receipts and cash payments of a business.
128
Q
Operating activities
A
- routine business operations
129
Q
Investing activities
A
- involve the acquisition (cash outflow) or disposal (cash inflow) of long-term assets, including land, buildings, equipment, and investments in bonds and other securities.
130
Q
Financing activities
A
- involve transactions that provide cash to the business to carry on its activities.
131
Q
Operating assets & liabilities
A
- Current assets and current liabilities
