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Accounting > ALL EXAM REVIEW > Flashcards

ALL EXAM REVIEW Flashcards

1
Q

Rules of Accounting and who creates them

A

FASB: Financial Accounting Standards Board

-Privately funded organization that governs accounting standards & issues GAAP

GASB: Governmental Accounting Standards Board

-Issues GAAP

GAAP: Generally Accepted Accounting Principles

SEC: Securities and Exchange Commission

-Responsible for enforcing GAAP

IASB: International Accounting Standards Board

-Private-sector organization that develops and approves IFRS

IFRS: International Financial Reporting Standards

-Accounting rules for public companies’ financial statements that make them consistent and easily comparable around the world

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2
Q

Economic Entity Assumption

A

Requires business owners to keep their transactions separate from the activities of their business

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3
Q

Revenue Recognition Principle

A

States that a company should recognize income when it has delivered a product or performed a service, regardless of when the customer actually pays

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4
Q

Expense Recognition Principle

A

aka Matching Principle

Requires companies to record expenses and revenues in the same accounting period when they are related to each other

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5
Q

Cost Principle

A

States that assets should be recorded and reported at their original purchase price

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6
Q

Periodicity Assumption

A

the accounting concept that a business’s financial activities can be divided into distinct time periods (months, qtrs, years)

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7
Q

Fair Value Principle

A

States assets and liabilities should be reported at their current market value, rather than their original purchase price

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8
Q

Monetary Unit Assumption

A

The idea that businesses record their financial activities using a stable currency (i.e. $)

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9
Q

Going Concern Assumption

A

The idea that a business will continue to operate for the foreseeable future

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10
Q

Corporations v Partnerships v Sole Proprietorships

A

-Corp: A business organized under state law that is a separate legal entity

1 or more owners (called stockholders)

-Part: A business with two or more owners and not organized as a corporation

-Sole: A business with a single owner

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11
Q

(LLC) Limited Liability Corp

A

A company in which each member is only liable for their own actions

One or more owners

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12
Q

Assets v Liabilities v Equity v Revenues v Expenses

A

-Assets:Future economic benefit

Ex. Cash, Land, Equipment, ACCOUNTS RECEIVABLE

-Equity: Something a business owes to its owners, or the value of the investment to the owner; what’s yours after taking out what you still owe

Ex. Revenues, Expenses, Dividends

-Liab: Future economic sacrifice or obligation

Ex. Salaries/Notes/Accounts Payable, Unearned Revenue

-Rev: The income that comes in from customers

-Exp: Money a company spends on things like rent, salaries, materials, and utilities

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13
Q

Elements of a Journal Entry

A

Credit (R), Debit (L), Date

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14
Q

Debit v Credit & how are they used

A

-Deb: Increase asset/expense accounts or Decrease liability/equity accounts

-Credits: Decrease asset/expense accounts or Increase liability/equity accounts

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15
Q

Normal Balance

A
  • Asset: Debit
    -Liab: Credit
    -Equity: Credit
    -Rev: Credit
    -Exp: Debit
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16
Q

!!!!Identify the purpose of common accounts such as cash, accounts
receivable, accounts payable, equipment

A
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17
Q

Define a trial balance and what is it used for

A

A list of all accounts with their balances

Assets listed first then liabilities and equity

Used to make sure the companys book keeping is accurate

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18
Q

Cash accounting v Accrual accounting

A
  • Cash: Records revenue when money is received and expenses when money is paid out

-Acc: Records revenue when it is earned and expenses when they originally occur

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19
Q

Contra-account

A

An account that reduces the balance of another related account

Ex. Equipment= 10,000 Depreciation= 2,000

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20
Q

Book Value

A

The value of an asset as recorded on a company’s balance sheet

Calculation: Original cost of asset - accumulated depreciation

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21
Q

!!!!!!!!Know how, why, and when adjusting entries (deferrals and accruals) and closing
entries are prepared

A
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22
Q

What is a temporary vs permanent account and examples of each

A

-Temp: An account that is used to accumulate transactions for a specific period and is then closed at the end of that period

Ex. Revenues, Expenses, and Dividends

-Perm: An account that maintains its balance over multiple accounting periods and is not closed at the end of the period

Ex. Assets, Liabilities, and Equity

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23
Q

What accounts appear on BS and IS

A

-Income Statement: Revenues
Expenses
= Net Income

-Balance Sheet: Everything not included on a Statement of Retained Earnings or Income Statement

i.e Beginning Balance
Dividends
Net Income (statement of retained earnings)

24
Q

Accrued Revenue v Deferred Revenue

A

Accrued Revenue: recognized before cash is received

Deferred Revenue: recognized after cash is received but before the service is provided or product is delivered

25
Q

Merchandise company v Service company

A

-Difference is inventory (one has tangible goods, one does not)
-Merchandise company recognizes revenue when they deliver the product to the customer, while a Service company recognizes revenue as the service is performed

26
Q

Periodic v Perpetual inventory system

A

-Period: inventory entries are only recorded once a week, month, or year

-Perp: anytime a transaction occurs that affects inventory, inventory is directly affected most used today

27
Q

How do you interpret and apply credit terms for purchases or sales

A

1/10 net 30….. Discount of 1% if paid in 10 days otherwise pay within 30 days

28
Q

!!!!How do you interpret and apply shipping terms for purchases or sales

A
29
Q

Inventory Shrinkage

A

Difference between the inventory the company expects to have and the inventory they actually have (Expected ending inventory - Actual inventory)

Causes could be theft, damage, spoilage, fraud, or error

30
Q

Single step v Multi step income statements

A

-SIngle: Simple, less detailed, focuses on total revenues and expenses (SERVICE COMPANIES)

-Multi-Step: More detailed, provides insights into gross and operating profits, preferred for larger or more complex businesses (MERCH COMPANIES)

31
Q

Unit 2 principles and assumptions

A

-Consistency Principle: must be consistent with methods used from year to year (i.e. FIFO, LIFO)

-Disclosure Principle: requires companies to share all relevant information about their financial statements

-Materiality Concept: helps ensure that financial reports present relevant information that can aid stakeholders in making informed decisions
-only requires companies to disclose information that is important

32
Q

Identify the characteristics of the specific identification inventory cost system

A

-Companies use Specific ID when they want to record each cost separately
-Tracking each individual item in inventory, allowing for precise cost attribution to each unit sold
-Most used for luxury companies

33
Q

Understand and apply the Lower-of-cost-or-market principle (LCM)

A

requires that merchandise inventory be reported in the financial statements at whichever is lower: the historical cost of the inventory or the market value of the inventory

34
Q

Know the differences between the different inventory methods in periods of rising prices

A

In periods of rising prices, FIFO presents higher gross profit, inventory, and taxes

Weighted Avg always presents a number between FIFO and LIFO

35
Q

Five different components of internal controls

A

CRIME
Control procedures, Risk assessment, Information system, Monitoring of controls, control Environment

36
Q

Understand and apply the internal control procedures

A

Assignment of Procedures, Segregate Duties, Restrict Access, Documents, Audit/Independently Verify

37
Q

Purpose of the bank reconciliation

A

to ensure that a company’s accounting records match the cash balances in its bank account (bank and book)

38
Q

Internal controls directly associated with the use of a bank account

A

Human error, fraud, collusion, cost v benefit most important

39
Q

What journal entries are typically prepared after the bank reconciliation is complete

A

Bank Fees, Interest Earned, NSF Checks, and Errors

40
Q

FIFO v LIFO

A

First in First Out
Last in First Out

41
Q

How accounts receivable are created

A

When something is sold and the customer is extended a credit (says they will pay later)

42
Q

!!!!!How to calculate the estimate using the percentage of sales and aging of accounts
receivable methods

A
43
Q

why you cannot use the direct write-off method

A

it does not record expenses in the same period as the related revenue, leading to inaccurate financial reporting; aka Matching Principle (requires companies to record expenses in the same period as the revenues they generate)

44
Q

purpose of asset capitalization

A

to record the cost of acquiring or improving a long-term asset on the balance sheet, spreading its expense over its useful life to match revenue generation and improve financial accuracy

45
Q

how are natural resource costs allocated

A

Depletion; allocating the cost of a natural resource, such as oil or timber, over the period of time that the resource is exploited or used up

46
Q

Bonds: Def, Characteristics, Components

A

Written promise to pay

Multiple parties to whom you owe money to; Sold to investors

-Amount on the bond/Specific Principal Amount= Face Value or Par Value
-Rate on the bond/Specific Interest Amount/Rate= Stated Rate

47
Q

Benefits of stock financing compared to bond financing

A

Stock financing avoids fixed repayment obligations and interest costs, reducing financial strain and risk, while providing access to long-term capital without increasing debt levels

48
Q

How to record sale of par value stock and no par stock

A

To record the sale of par value stock, credit the common stock account for the par value and credit additional paid-in capital for any amount received above the par value. For no-par stock, credit the common stock account for the total proceeds received since there is no par value to allocate

49
Q

Process of dividend declaration and payment

A

When declaring a dividend, the board of directors authorizes the payment, creating a liability by debiting retained earnings and crediting dividends payable. When the dividend is paid, the dividends payable account is debited, and cash is credited to record the payment

50
Q

Purpose of cash flow statement

A

The purpose of the cash flow statement is to provide insights into a company’s cash inflows and outflows from operating, investing, and financing activities, helping stakeholders assess liquidity, financial health, and cash management efficiency

51
Q

Indirect v Direct Methods for preparing the cash flow statement

A

Indirect method starts with net income and adjusts for non-cash items and changes in working capital to calculate cash flows from operating activities

Direct method reports actual cash receipts and payments, providing a more detailed view of cash transactions

52
Q

Identify and calculate events reported in each section of cash flow statement

A

The cash flow statement includes operating activities, calculated by adjusting net income for non-cash expenses and changes in working capital; investing activities, calculated from cash inflows and outflows related to asset purchases and sales; and financing activities, derived from transactions involving debt, equity, and dividend payments

53
Q

The steps of the indirect method of calculating cash flows from operating activities

A

Starts with net income

Adjusts for non-cash expenses like depreciation and amortization

Adds back losses and subtracts gains

Accounts for changes in working capital items such as accounts receivable, inventory, and accounts payable

54
Q

Understand the impact of a sale of fixed asset on the investing activities section

A

The sale of a fixed asset is reported as a cash inflow in the investing activities section, with the proceeds recorded regardless of any gain or loss recognized on the sale

55
Q

Types and purpose of analysis of financial statements and what each indicates

A

-Horizontal analysis: (examines trends over time to indicate growth or decline)

-Vertical analysis (compares components of a financial statement as percentages to indicate proportionality)

-Ratio analysis (calculates financial metrics to assess profitability, liquidity, efficiency, and solvency).

These analyses help stakeholders evaluate financial performance, trends, and overall health

Accounting (9 decks)

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