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Introduction To Accounting > Basics > Flashcards

Basics Flashcards

1
Q

What is accounting?

A

The process of identifying, recording, and communicating financial information to help users make informed decisions.

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2
Q

What is the Accounting Equation?

A

Assets = Liabilities + Equity

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3
Q

Define Accrual Basis Accounting.

A

An accounting method that recognizes revenues when they are earned and expenses when they are incurred.

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4
Q

What are accrued expenses?

A

Expenses that have been incurred during a period but have not yet been paid or recorded.

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5
Q

What are accrued revenues?

A

Revenues that have been earned during a period but have not yet been recorded or received in cash.

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6
Q

What is the Acid-Test Ratio?

A

(Cash + Short-Term Investments + Receivables) / Current Liabilities

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7
Q

What is an adjusting entry?

A

An entry made at the end of an accounting period to update account balances to reflect the correct amounts for the period.

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8
Q

What is the Allowance for Doubtful Accounts?

A

A contra-asset account used to reduce the carrying amount of accounts receivable.

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9
Q

What is the Allowance Method?

A

An accounting method for bad debts that estimates and records bad debts expense in the same period when the related sales are recorded.

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10
Q

Define amortization.

A

The process of allocating the cost of an intangible asset over its useful life.

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11
Q

What are assets?

A

Resources owned by a company that have future economic value.

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12
Q

What is a Balance Sheet?

A

A financial statement that presents a company’s assets, liabilities, and equity at a specific point in time.

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13
Q

What is Bad Debts Expense?

A

The expense recognized when it is estimated that some accounts receivable will not be collected.

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14
Q

True or False: The Banker’s Rule uses a 360-day year for interest calculation.

A

True

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15
Q

What is the Business Entity Assumption?

A

The accounting principle that assumes that the business is a separate entity from its owner and other businesses.

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16
Q

Define Cash Basis Accounting.

A

An accounting method that recognizes revenues when cash is received and expenses when cash is paid.

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17
Q

What is a Chart of Accounts?

A

A list of all the accounts used by a company in its accounting system.

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18
Q

What is a Classified Balance Sheet?

A

A balance sheet that groups assets and liabilities into categories such as current and non-current.

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19
Q

What are Closing Entries?

A

Entries made at the end of an accounting period to transfer the balances of temporary accounts to the owner’s capital account.

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20
Q

Define Commercial Substance.

A

Exists if the company’s future cash flows are expected to change as a result of an exchange of plant assets.

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21
Q

Who is a Consignee?

A

The party who receives goods on consignment from the consignor to sell on their behalf.

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22
Q

Who is a Consignor?

A

The owner of goods who delivers them to a consignee to sell on their behalf.

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23
Q

What is the Consistency Principle?

A

The accounting principle that requires a company to use the same accounting methods from period to period.

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24
Q

What is a Contra Asset Account?

A

An account that is offset against an asset account to reduce its value.

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25
Q

What is the Cost Principle?

A

The accounting principle that requires assets to be recorded at their historical cost.

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26
Q

Define Credit in accounting.

A

An entry on the right side of a T-account.

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27
Q

What are Current Assets?

A

Assets that are expected to be converted to cash or used up within one year.

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28
Q

What are Current Liabilities?

A

Liabilities that are expected to be paid within one year.

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29
Q

What is the Current Ratio?

A

Current Assets / Current Liabilities

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30
Q

Define Debit in accounting.

A

An entry on the left side of a T-account.

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31
Q

What is the Debt Ratio?

A

Total Liabilities / Total Assets

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32
Q

What is the Declining-Balance Depreciation Method?

A

An accelerated depreciation method that depreciates an asset at a faster rate in the early years of its life.

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33
Q

What is Depletion?

A

The process of allocating the cost of a natural resource over its estimated useful life.

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34
Q

What is Depreciation?

A

The process of allocating the cost of a tangible, long-lived asset over its useful life.

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35
Q

What is the Direct Write-Off Method?

A

A method of accounting for bad debts that recognizes bad debt expense only when a specific account is deemed uncollectible.

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36
Q

What is a Dishonored Note?

A

A note receivable that the maker fails to pay at maturity.

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37
Q

Define Double-Entry Accounting.

A

A system of accounting in which every transaction is recorded in at least two accounts.

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38
Q

What is Equity?

A

The residual interest in the assets of a company after deducting liabilities.

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39
Q

What is Ethics in accounting?

A

Beliefs that distinguish right from wrong and guide behavior.

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40
Q

What are Expenses?

A

Costs incurred by a company in the process of generating revenue.

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41
Q

What are Financial Statements?

A

Formal reports that communicate a company’s financial information to stakeholders.

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42
Q

What is First-In, First-Out (FIFO)?

A

An inventory costing method that assumes that the first goods purchased are the first ones sold.

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43
Q

What does FOB Destination mean?

A

The seller bears the cost of shipping and ownership transfers to the buyer when goods reach their destination.

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44
Q

What does FOB Shipping Point mean?

A

The buyer bears the cost of shipping and ownership transfers when goods leave the seller’s shipping point.

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45
Q

What is the Fraud Triangle?

A

A model describing the three factors that contribute to fraudulent behavior: opportunity, pressure, and rationalization.

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46
Q

What is the Full Disclosure Principle?

A

The principle that requires companies to disclose all information that is relevant and material to users of financial statements.

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47
Q

What are Generally Accepted Accounting Principles (GAAP)?

A

The set of accounting standards, conventions, and rules that guide the preparation of financial statements.

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48
Q

What is a General Ledger?

A

A record containing all of a company’s accounts, organized by account number.

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49
Q

What is the Going-Concern Assumption?

A

The principle that assumes that the business will continue to operate in the foreseeable future.

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50
Q

What are Goods in Transit?

A

Goods that have been shipped but not yet received by the buyer.

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51
Q

Define Goodwill.

A

An intangible asset representing the excess of the purchase price of a business over the fair market value of its identifiable net assets.

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52
Q

What is the Gross Margin Ratio?

A

Gross Profit / Net Sales

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53
Q

What is an Income Statement?

A

A financial statement that reports a company’s revenues and expenses over a period.

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54
Q

What are Installment Accounts Receivable?

A

Amounts owed by customers for purchases made on credit, with payments made in installments.

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55
Q

What are Intangible Assets?

A

Long-term assets that lack physical substance but have value based on the rights or privileges they confer.

56
Q

What is Internal Control?

A

A system of policies and procedures designed to safeguard assets and ensure the accuracy of financial records.

57
Q

What does the International Accounting Standards Board (IASB) do?

A

Sets International Financial Reporting Standards (IFRS).

58
Q

Define International Financial Reporting Standards (IFRS).

A

A set of global accounting standards becoming increasingly prevalent worldwide.

59
Q

What is Inventory?

A

Goods held by a company for sale to customers.

60
Q

What is Inventory Turnover?

A

Cost of Goods Sold / Average Inventory

61
Q

What are Investing Activities?

A

Activities that involve acquiring and disposing of long-term assets.

62
Q

What is a Journal?

A

A chronological record of a company’s transactions.

63
Q

What is Journalizing?

A

The process of recording transactions in a journal.

64
Q

What is Last-In, First-Out (LIFO)?

A

An inventory costing method that assumes the last goods purchased are the first ones sold.

65
Q

What are Liabilities?

A

Obligations or debts that a company owes to others.

66
Q

Define Liquidity.

A

A measure of a company’s ability to meet its short-term obligations.

67
Q

What are Long-Term Investments?

A

Investments that are expected to be held for more than one year.

68
Q

What are Long-Term Liabilities?

A

Liabilities that are not expected to be paid within one year.

69
Q

What does Lower of Cost or Market (LCM) mean?

A

A rule that requires inventory to be reported at the lower of its cost or its market value.

70
Q

What is a Lump-Sum Purchase?

A

The purchase of multiple assets for a single price.

71
Q

What is the Matching Principle?

A

The principle that requires expenses to be recognized in the same period as the revenues they helped generate.

72
Q

What is Materiality?

A

The concept that information is material if omitting it could influence decisions.

73
Q

What is a Maturity Date?

A

The date when a note receivable is due and payable.

74
Q

What is Merchandise Inventory?

A

Goods that a merchandising company purchases to resell.

75
Q

What is the Modified Accelerated Cost Recovery System (MACRS)?

A

An accelerated depreciation method allowed for tax purposes in the United States.

76
Q

What is the Monetary Unit Assumption?

A

The principle that assumes transactions are measured in a common monetary unit.

77
Q

What is a Multiple-Step Income Statement?

A

An income statement format that presents various subtotals.

78
Q

What are Natural Resources?

A

Assets that are physically extracted from the environment.

79
Q

What is Net Income?

A

The excess of revenues over expenses for a period.

80
Q

What is Net Realizable Value?

A

The estimated selling price of an asset, less estimated costs.

81
Q

What are Notes Payable?

A

Formal written promises to pay a specific amount of money.

82
Q

What are Notes Receivable?

A

Formal written promises to receive a specific amount of money.

83
Q

What are Operating Activities?

A

Activities that comprise the company’s primary business operations.

84
Q

What is the Operating Cycle?

A

The time it takes for a company to convert cash into inventory.

85
Q

What is Owner’s Capital?

A

The owner’s investment in the company.

86
Q

What are Owner’s Withdrawals?

A

Distributions of cash or other assets from the business to the owner.

87
Q

What is Partial-Year Depreciation?

A

Depreciation calculated for the portion of the year an asset is owned.

88
Q

What are Patents?

A

Exclusive rights granted by the government to an inventor.

89
Q

What is the Periodic Inventory System?

A

An inventory system where the cost of goods sold is determined only at the end of a period.

90
Q

What is a Perpetual Inventory System?

A

An inventory system that keeps a continuous record of the cost of each item.

91
Q

What are Plant Assets?

A

Long-lived, tangible assets used in the operations of a business.

92
Q

What does Pledging Receivables mean?

A

Using accounts receivable as collateral for a loan.

93
Q

What is a Post-Closing Trial Balance?

A

A trial balance prepared after closing entries have been posted.

94
Q

What are Prepaid Expenses?

A

Expenses paid in advance that benefit future periods.

95
Q

What is the Profit Margin?

A

Net Income / Net Sales

96
Q

What is a Promissory Note?

A

A written promise to pay a specified amount of money.

97
Q

What is a Purchase Allowance?

A

A reduction in the purchase price granted by a supplier.

98
Q

What is a Purchase Discount?

A

A reduction in the purchase price for paying an invoice early.

99
Q

What is a Purchase Return?

A

Merchandise returned to a supplier for credit or a refund.

100
Q

What are Receivables?

A

Amounts due from individuals or companies.

101
Q

What is Relevant Information?

A

Information capable of making a difference in decisions of users.

102
Q

What is Reliable Information?

A

Information free from error and bias.

103
Q

What is Revenue?

A

Increases in assets or settlements of liabilities from delivering goods.

104
Q

What is the Revenue Recognition Principle?

A

Determines when revenue should be recognized.

105
Q

What are Reversing Entries?

A

Optional entries made at the beginning of an accounting period to reverse certain adjusting entries.

106
Q

What is Return on Assets (ROA)?

A

Net Income / Average Total Assets

107
Q

What are Sales?

A

Revenues from selling goods or services.

108
Q

What is a Sales Allowance?

A

A reduction in the selling price due to defects.

109
Q

What is a Sales Discount?

A

A reduction in the selling price for early payment.

110
Q

What are Sales Returns and Allowances?

A

A contra-revenue account used to record reductions in sales revenue.

111
Q

What is Salvage Value?

A

The estimated amount expected from selling or disposing of an asset at the end of its useful life.

112
Q

What is the Sarbanes-Oxley Act (SOX)?

A

Legislation passed in 2002 to enhance corporate governance and financial reporting.

113
Q

What does Selling Receivables mean?

A

Transferring ownership of accounts receivable to another company for cash.

114
Q

What is a Service Company?

A

A company that primarily earns revenue by providing services.

115
Q

What is a Single-Step Income Statement?

A

An income statement format that lists all revenues and all expenses together.

116
Q

What are Source Documents?

A

Original documents that provide evidence of transactions.

117
Q

What is the Specific Identification Method?

A

An inventory costing method that tracks the cost of each individual item.

118
Q

What is a Statement of Cash Flows?

A

A financial statement that reports cash inflows and outflows from activities over a period.

119
Q

What is a Statement of Owner’s Equity?

A

A financial statement showing changes in the owner’s equity account over a period.

120
Q

What is the Straight-Line Depreciation Method?

A

A method that allocates an equal amount of depreciation expense to each year.

121
Q

What is a T-Account?

A

A simplified representation of a ledger account.

122
Q

What are Temporary Accounts?

A

Accounts that are closed at the end of each accounting period.

123
Q

What is the Time Period Assumption?

A

The principle that assumes the economic life of a business can be divided into artificial time periods.

124
Q

What is Total Asset Turnover?

A

Net Sales / Average Total Assets

125
Q

What is a Trade Discount?

A

A reduction in the list price of goods.

126
Q

What is a simplified representation of a ledger account?

A

A representation showing debits on the left side and credits on the right side.

127
Q

What are Temporary Accounts?

A

Accounts that are closed at the end of each accounting period, including revenue, expense, and withdrawal accounts.

128
Q

Define the Time Period Assumption in accounting.

A

The principle that assumes the economic life of a business can be divided into artificial time periods, such as months, quarters, and years.

129
Q

What does Total Asset Turnover measure?

A

An efficiency ratio that measures how effectively a company utilizes its assets to generate sales.

130
Q

How is Total Asset Turnover calculated?

A

Net Sales / Average Total Assets.

131
Q

What is a Trade Discount?

A

A reduction in the list price of an item offered to customers who buy in large quantities.

132
Q

What is a Trial Balance?

A

A list of all the accounts in the general ledger and their balances at a particular point in time, used to ensure total debits equal total credits.

133
Q

Define Unearned Revenue.

A

A liability account representing payments received in advance for goods or services not yet delivered or rendered.

134
Q

What is the Units-of-Production Depreciation Method?

A

A depreciation method that allocates depreciation expense based on the actual usage of the asset.

135
Q

What is Useful Life in accounting?

A

The estimated period over which an asset is expected to provide economic benefits to a company.

136
Q

Define the Weighted-Average Inventory Method.

A

An inventory costing method that calculates the average cost of all units available for sale and assigns that cost to both cost of goods sold and ending inventory.

137
Q

What is a Worksheet in accounting?

A

An informal tool used to organize information needed to prepare financial statements, aiding in the preparation process.

Introduction To Accounting (1 decks)

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