acounting test 1 Flashcards
person whom the corporation owes money
creditor
obligation to repay a creditor
liability
borrowing money with a promise to repay on a later date with interest
notes payable
used by corporations to obtain large amounts of money with promise to repay
bonds payable
dollar amount paid to corporation for shares
common stock
makes of 70% of all businesses in the U.S. Easiest the start up but has high liability
sole proprietorship
a business of 2+ people with low tax rates but high liquidity due the nature of the business form
partnership
large business not owned by a single entitiy but a group of stockholders who own portions of the business
corperation
what business is the highest taxed and is normally double taxed
corporations
portion of a companys earnings paid to the share holders
dividends
economic resources of a corporation, creditors and stockholders have claim to these
assets
residual interest in assets of a corporation that remain after deducting liability
stockholders equity
purchase and sale of the assets that used in operations
investing activities
increase in assets that results from the sale of products or services business
revenue
obligation to a supplier to repay the amount owed if a corporation uses credit
accounts payable
companies’ business activities are summarized and reported in a set of standardized reports. Investors use these to assess information and make decisions about a company
financial statement
What are the 4 basic financial statements
balance sheet, income statement , retained earnings report, statement of cash flow
reports the resources owned by a company and the claims against those resources (liability and stockholders equity) at a specific point in time
Balance sheet
reports how well a company has performed over a period of time
income statement
reports how much of the company’s income was retained in the business and how much was distributed to owners in a period of time
retained earnings report
reports the sources and uses of a company’s cash over a period of time
statement of cash flow`
a common set of rules and conventions that have been developed to guide the preparation of financial statements
GAAP
sets the accounting rules for publicly traded company’s
SEC
the balance sheet is organized to help users identify the fundamental economic similarities and differences between the various items within the balance sheet
classified balance sheet
accounting year that usually lines with the business cycle
fiscal year
basic classification of a company’s assets between current and noncurrent items
current assets
Cash and other assets are expected to be converted within
1 year or one operating cycle
average time it takes a company to purchase goods, resell goods, and collect cash from customers
operating cycle
common types of current assets
cash, marketable securities, accounts receivable, inventories
assets not classified as current are classified as long-term or _______. These include long-term investments such as property, plant , and equipment.
noncurrent assets
investment held for 1+ year
long-term investment
long-lived, productive assets used by a company to produce revenue
property, plant , and equipment
provide benefit to a company for a number of years but they are not physical
intangible assets
obligations that will be satisfied within 1 year or the operating cycle, listed in order in which they will be due
current liabilities
obligation to repay a vendor
accounts repayble
obligation to repay an employee
salaries payable
obligation to deliver goods or perform a promised service
unearned revenue
obligation to pay interest on money that a company has borrowed
interest payable
obligation to repay taxes on company income
income taxes payable
obligation to pay a required payment beyond 1 year or operating cycle
long term liability,
stockholders equity arises from 2 sources
Contributed capital, retained earnings
owners contributions of cash and assets to the company including stock
contributed capital
accumulated net income of a company that has not been distributed to owners in the form of dividends
retained earnings
a company’s liabilities and equity
capital
ability to pay obligations as they become due
liquidity
measure of liquidity
working capital
current assets minus current liability
working capital
alternative measure of liquidity that allows comparisons to be made between different companys
current ratio
current asses divided by current liabilities
current ratio
reports the results of company’s operations over a period of time
income statement
increase in net assets that result from the sale of products or services
revenue
increase in net assets that occur from peripheral or incidental transactions
gains
cost of resources used to earn revenue
expenses
decreases in net assets that occur from peripheral or incidental transactions
losses
net sales minus cost of foods sold
gross margin formula
gross margin minus operating expenses
income from operations
multiple step income statements reports nonoperating activities in a section which is frequently called other income and expenses
nonoperating activities
subtracted from income operations to obtain income before taxes
net income
return on sales, show the percentage of profit in each dollar of sales revenue
Computed as net income / sales revenue
net profit margin
owners contribution through purchase of stock
direct contribution
owner contribution by company retaining some of net income each year rather than paying dividends
indirect contribution
used to monitor and evaluate a company’s dividend payout to its shareholders
retained earnings statement
Describes the company’s cash receipts and cash payments over a period of time
statements of cash flow
any cash flows directly related to earring income. This category includes cash sales and collections of accounts receivable as well as cash payments for goods, services , salaries and interest
cash flow from operating activities
any cash flow related to the acquisition or sale of investment and long term assets such as property, plant and equipment.
cash flow from investing activities
any cash flow related to obtaining capital of the company. This category includes the issuance and repayment of debt, stock transactions, and dividends
cash flow from financing activities
Creditors use _______ statements to assess the creditworthiness of a company
Cash flow
information is _____ if it helps user make business decisions by providing feedback about future decisions
relevant
complete, unbiased, and free from error information
faithful representation
_____ information allows users to compare similarities and difference between one another
comparability
information is _______ when independent parties can agree on the measurement of the activity.
verifiability
if it is available to users before it loses its ability to influence decisions.
timeliness
if users who have a reasonable knowledge of accounting and business can, with reasonable study effort, comprehend the meaning of the information, it is considered
understandibility
the benefit received from accounting information should be greater than the cost of providing that information.
cost constraint
Examples: cash, accounts receivable, inventory, investments, equipment, etc.
assets
accounts payable, notes payable, taxes payable, etc.
liabilities
Contributed Capital: resources exchanged for ownership interest.
Retained Earnings: profits earned and retained in the business.
examples of equity
are reported on the income statement. They increase net income and increase retained earnings.
revenues
