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Spring Semester 23 > ACCT 2001 Test 1 > Flashcards

ACCT 2001 Test 1 Flashcards

1
Q

decision-usefulness

A

financial accounting has the burden of providing useful information

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2
Q

three groups who use accounting information

A

owner/ manager, creditors, stockholders

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3
Q

principle means of assessing financial performance are

A

financial statements

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4
Q

set of accounting standards

A

Generally Accepted Accounting Principles

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5
Q

real-time online database that can be used to access the Codification, using a numerical index system

A

Codification Research System

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6
Q

what is the objective of financial reporting

A

provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in making decisions about providing resources to the entity

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7
Q

relevant information

A

capable of making a difference in a decision

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8
Q

faithful representation

A

numbers and descriptions match what really happened

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9
Q

materiality

A

if omitting or misstating info would influence decisions of users

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10
Q

comparability

A

lets users identify the real similarities and differences in economic events between companies

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11
Q

verifiability

A

when independent measurers using the same methods, get similar results

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12
Q

timeliness

A

having information available to decision makers before it loses its capacity to influence decisions

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13
Q

understandability

A

quality of information that lets reasonably informed users see its significance

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14
Q

comparability

A

identifying similarities and differences in economic events between 2 companies

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15
Q

consistency

A

when the same company follows the same accounting treatment from period to period

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16
Q

4 assumptions in accounting

A

economic entity, going concern, monetary unit, periodicity

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17
Q

economic entity (acct assumption)

A

economic activity can be identified with a particular unit of accountability; company keeps activity separate and distinct from its owners and business units

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18
Q

going concern (acct assumption)

A

assume company will have a long life

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19
Q

monetary unity

A

money is the common denominator of economic activity and provided appropriate basis for accounting measurement and analysis

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20
Q

periodicity

A

implies that a company can divide its economic activities into artificial time periods (monthly, yearly, quarterly)

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21
Q

fair value

A

price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date

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22
Q

revenue recognition principle

A

companies recognize (record) revenue in the accounting period in which the performance obligation is satisfied

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23
Q

expense recognition principle

A

expenses are matched (recorded) with the revenues when possible

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24
Q

product costs

A

include material, labor, and overhead attached to a product and may be carried into future periods and recognized as expenses when revenue from product is recognized

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25
Q

period costs

A

such as officer’s salaries and other administrative costs are recognized immediately because there is no direct relation ship between period costs and revenue

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26
Q

full disclosure principle

A

dictates that companies should provide information that is of sufficient importance to influence the judgement and decisions of informed users

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27
Q

cost restraint ( cost benefit principle)

A

weighing the cost of providing information with the benefits of using it

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28
Q

major part of an annual report (10k)

A

management discussion and analysis; financial statements; auditors report; notes to the financial statement

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29
Q

Why did the FASB develop a conceptual framework for financial reporting?

A

to resolve financial reporting controversies

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30
Q

capital allocation

A

determining how and at what cost money is allocated among competing interests

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31
Q

The SEC believes that accounting standards should come from

A

the private sector

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32
Q

Who are general purpose financial statements primarily prepared for

A

users that lack the ability to demand the financial information they need

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33
Q

What happens when products get obsolete faster

A

it becomes harder to define a time period

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34
Q

accounting information system

A

collects and processes transaction data and communicates financial information to decision makers

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35
Q

general ledger accounting systems

A

software programs that integrate various accounting functions

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36
Q

basic accounting equation that will always be in balance is

A

assets= liabilities+ stockholder’s equity

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37
Q

transactions

A

business economic events recorded by accountants

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38
Q

external transactions

A

between an entity and its environment

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39
Q

internal transactions

A

event occurring within an entity

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40
Q

entire group of accounts maintained by a company

A

ledger

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41
Q

chart of accounts

A

lists all the accounts and the account numbers that identify their location

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42
Q

trial balance

A

a list of accounts and their balances at a given time; usually prepared at the end of an accounting period and proves the mathematical equality of debits and credits

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43
Q

Why do companies make adjusting entries?

A

For all revenues to be recorded in the period in which services are fulfilled and for expenses to be recorded in the period which they are incurred

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44
Q

When are adjusting entries made?

A

Anytime financial statements are needed

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45
Q

Types of adjusting entries

A

deferrals and accruals

46
Q

prepaid expenses (deferrals)

A

expenses paid in cash before they are used or consumes

47
Q

unearned revenue (deferrals)

A

cash received before services performed

48
Q

accrued revenues (accrurals)

A

revenues for services performed but not yet received in cash or recorded

49
Q

accrued expenses (accrurals)

A

expenses incurred but not yet paid in cash or recorded

50
Q

depreciation

A

process of expensing (allocating) the cost of the asset over it’s useful life in a rational and systematic manner

51
Q

book value

A

cost of an asset- accumulated depreciation

52
Q

adjusted trial balance

A

basis for making financial statements; made after journalizing and posting αll adjusting entries

53
Q

What is never used in an adjusting entry?

A

Cash

54
Q

Closing entries

A

closing process reduces the balance of the nominal (temporary) accounts to zero in order to prepare the accounts for the next period’s transactions

55
Q

To close accounts:

A

Revenues and expenses close into income summary; income summary closes into retained earnings; dividends close into retained earnings

56
Q

What is reported on the balance sheet but not the adjusted trail balance?

A

ending retained earnings

57
Q

Reversing entry

A

Debits all cash payments of expenses to the related. expense account (ex: Melanie made adjusting entries to several accounts at the beginning of an accounting period)

58
Q

Usefulness: What do investors and creditors use the income statement to do? (3 items)

A

evaluate the past performance of the company, provide a basis for predicting future performance, helps assess the risk/ uncertainty of achieving future cash flows

59
Q

Limitations of the income statement:

A

Company omit items they cannot measure reliably, income number’s affected by the accounting methods employed, income measurement involves judgment

60
Q

Revenues

A

Inflows or other enhancements of assets of an entity or settlements of its liabilities

61
Q

Expenses

A

Outflows or other using up assets or incurrences of liabilities

62
Q

Gains

A

Increases in equity (net assets) from peripheral or incidental transactions

63
Q

Multistep income statement

A

An income statement that shows several steps in determining net income that reports net sales, operating expenses, income from operations, income before income tax, and net income (distinguishes between operating and non-operating activities)

64
Q

Operating Expenses

A

Selling and administrative expenses

65
Q

Examples of non-operating items

A

Dividend revenue, gain on sale of equipment, interest expense on bonds and notes, loss on flood/ casualty

66
Q

Net income is used to assess whether a company has been

A

successful

67
Q

Earnings per share

A

measures the dollars earned by each share of common stock

68
Q

Earnings per share formula

A

(NI- preferred dividend)/ weighted avg number of common shares outstanding

69
Q

2 special items

A

discounted operations and other comprehensive income

70
Q

Discontinued Operations occurs when 2 things happen:

A

company eliminates the results of operation of component of the business; elimination of a component that reps a strategic shift

71
Q

When a company has discontinued operations (what are the 2 items to report on the income statement)

A

1) the gain or loss from the disposal of a component of business and 2) the results of the operations of a component that has been or will be disposed of (both shown net of tax)

72
Q

income from continued operation

A

used only when a company has discontinued operations; will be the subtotal minus the discontinued operations section on the income statement

73
Q

Other comprehensive income

A

small amounts of gain/ losses that should not be reported on the income statement (ex: gains and losses from available for sale, pension gain/ loss, foreign currency gain/ loss)

74
Q

Comprehensive Income definitions

A

1) includes all changes in equity during a period except those resulting from investments by owners or distributions to owners 2) income statement plus the gains/ losses that bypass the income statement called other comprehensive income

75
Q

Two ways to report comprehensive income

A

1 statement approach and 2 statement approach

76
Q

Gross profit formula

A

Gross Profit= sales- COGS

77
Q

Income from operations formula

A

Income from operations= gross profit- operating expenses

78
Q

Net income formula

A

NI= income from operations+ other revenues

79
Q

Comprehensive Income Formula

A

Comprehensive income=

80
Q

Statement of Stockholder’s equity

A

This statement reports the changes in each stockholders’ equity account and in total stockholders’ equity are prepared in columnar form

81
Q

Earnings Management

A

Planned timing of revenues, expenses, gains, and losses to smooth out bumps in earnings

82
Q

Non GAAP Reporting

A

Reporting of information that has been computed by adjusting GAAP reported information, like EBITDA example

83
Q

standalone selling price

A

price the company would sell a product or a service, separately to a customer

84
Q

The statement of income or statement of earnings is most commonly referred to as the

A

income statement

85
Q

Another name for the balance sheet

A

statement of financial position

86
Q

Assets, liabilities and equity are reported at

A

a specific date

87
Q

The balance sheet helps predict________ of future cash flows

A

amounts, timing and uncertainty

88
Q

__________ provides information about how quickly a company can concert assets into cash

A

balance sheet

89
Q

Why is liquidity important? Assess ability to pay ______ and _________ obligations

A

current; maturing

90
Q

refers to the ability to pay debts as they mature

A

solvency

91
Q

Solvency example: a company with ________ of long-term debt relative to assets has a ________ solvency than a similar company with a lower level of long term debt

A

high level; lower level

92
Q

Companies with relatively high debt more risky because they will need more of their _______ to meet their ________________ which includes principal and interest payments

A

assets; fixed obligations

93
Q

Financial Flexibility

A

liquidity and solvency affect this; it’s the ability to take effective actions to alter the amounts and timing of cash flows so it can respond to unexpected needs

94
Q

Generally, the ________ an enterprise’s Financial Flexibility, the _________ its risk of failure

A

greater; lower

95
Q

3 major limitations of the balance sheet

A

1) most assets and liability are reported at historical cost
2) use of judgements and estimates
3) many items of financial value are omitted if they cannot be recorded objectively

96
Q

3 general classification on the balance sheet

A

assets, liabilities and equity

97
Q

assets

A

probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

98
Q

liabilities

A

probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events

99
Q

equity

A

residual interest in the assets of an entity that remains after deducting its liabilities

100
Q

cash and other assets a company expects to convert into cash, sell, or consume either in _________ or in the operating cycle, whichever is longer

A

1 year

101
Q

what is an operating cycle

A

the average time between when a company acquires materials and supplies and when it receives cash for sales of the product

102
Q

cash equivalents

A

short-term highly liquid investments that mature within 3 months or less

103
Q

Required disclosures include:

A

cash posted as collateral for certain derivative instruments

104
Q

short- term investments are when a company has invested in _______ and _______ of other companies

A

stocks; bonds

105
Q

debt securities are investments in ______ or ________ of other companies or government entities

A

bonds; notes

106
Q

Short term investments are generally held at

A

fair value

107
Q

3 separate classifications of debt securities

A

held to maturity, trading, available for sale

108
Q

held to maturity:

A

company has the positive intent and ability to hold maturity (reported at amortized cost)

109
Q

trading:

A

Bought and held primarily for sale in the near term to generate income on short- term price differences (reported at fair value)

110
Q

available for sale:

A

not classified as Held-to-Maturity or Trading (reported at fair value as current or noncurrent depending upon management’s intent

111
Q

4 types of supplemental disclosures

A

1) accounting policies 2) contractual situations 3) contingencies 4) fair values

112
Q

4 techniques to disclose pertinent information

A

1) parenthetical explanations 2) cross reference and contra items 3) supporting schedule 4) terminology

Spring Semester 23 (17 decks)

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