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Accounting > Business > Flashcards

Business Flashcards

1
Q

Accounting

A

the language of business because its an information system; it measures business activities, process data into financial statements and reports, communicates results to decision makers.

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2
Q

Financial Accounting

A

For decision makers outside the entity (investors, creditors, public, government agencies)

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3
Q

Managerial Accounting

A

For managers inside the entity (budgets, forecasts, projections)

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4
Q

Proprietorship

A

a single owner; tend to be small retail stores or solo providers of professional services; PERSONALLY liable for all business’s debts; distinct entity for accounting purposes

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5
Q

Partnership

A

Two or more parties as co-workers; Many are small or medium-sized companies; general partnerships have mutual agency and unlimited liability; in limited-liability partnerships, only liable up to the investment put in.

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6
Q

Limited Liability Company

A

Business (not owners) is liable for debts; May have one owner or many called members; Members have limited liability

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7
Q

Corporation

A

Owned by stockholders (shareholders); able to raise large sums of capital by issuing stock; formed understate law; legally distinct from its owners; Stockholders have no personal obligation for the corporation’s debts, limited liability.

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8
Q

Double Taxation

A

Corporation pays income tax; Shareholders taxed on dividends. Stockholders elect board of directors which - Set policy; Appoints officers.

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9
Q

Accounting Equation

A
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10
Q

Accounting Equation

A

Assets = Liabilities + Owner’s Equity

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11
Q

Financial Statements

A

income statement, retained earnings statement, balance sheet, statement of cash flows

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12
Q

Retained Earnings

A

beginning retained earnings + net income - dividends = end retained earnings

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13
Q

Transaction

A

any event that has a financial impact on the business and can be measured reliably

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14
Q

Assets

A

economic resources that provide a future benefit.
- Cash; Accounts Receivable; Inventory; Investments; Property, Plant, Equipment

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15
Q

Liabilities

A

a debt or payable.
- Accounts Payable; Notes Payable

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16
Q

Stockholders’ Equity

A

the stockholders’ claims to the assets of the company.
- Common Stock; Retained Earnings; Dividends; Revenues; Expenses

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17
Q

Journal Entries

A

Double-entry system; records dual effects of each transaction, at least two accounts in each transaction

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18
Q

T-Accounts

A

a record of increases and decreases in a specific asset, liability, equity, revenue, or expense. Assets (Debit +, Credit -) = Liabilities (Debit -, Credit +) + Stockholders’ Equity (Debit -, Credit +)

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19
Q

Journal

A

a chronological record of transaction. Three Steps:
1) Specify each account affected by the transaction and classify by type
2) Determine if each account is increased/decreased (debit or credit)
3) Record in the journal

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20
Q

Flow of Accounting Data

A

1) Transaction Occurs
2) Transaction Analyzed
3) Transaction Entered in the Journal
4) Amounts Posted to the Ledger Accounts

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21
Q

Trial balance

A

Lists all accounts with their balances; Assets listed first, then liabilities and stockholders’ equity; Shows that debits equal credits; Usually prepared at the end of the period; facilities preparation of the financial statements.

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22
Q

Normal Balance of an Account

A

Assets (Debit); Liabilities (Credit); Stockholders’ Equity - Overall (Credit): Common Stock (credit), Retained Earnings (Credit), Dividends (Debit), Revenues (Credit), Expenses (Debit)

23
Q

Accural Accounting

A

Records impact of transactions when they occur. Records revenue when earned and expenses when incurred.

24
Q

Cash Basis Accounting

A

records only cash transactions- cash receipts and cash payments. Ignores important information. Results in incomplete financial statements. Only used by the smallest business.

25
Q

Accrual Accounting - Cash transactions

A

Collecting cash from customers. Receiving cash from interest earned. Paying salaries, rent, and other expenses. Borrowing money. Paying off loans. Issuing stock.

26
Q

Accrual Accounting - Non Cash transactions

A

Sales on account. Purchases of inventory on account. Depreciation expenses. Usage of prepaid rent, insurance, and supplies. Earning of revenue when cash is collected in advance.

27
Q

Revenue Principle

A
  • when to record (recognize revenue)
  • what amount of revenue to record
28
Q

Expense Recognition Principle

A

identify all expenses incurred during the period, measure the expenses and recognize them in the same period in which any related revenues are earned

29
Q

Adjusting Entries - Deferrals, Depreciation, Accruals

A

Deferrals - An adjustment for payment of an item or receipt of cash in advance
Depreciation - Allocates the cost of a plant asset to expense over the asset’s useful life
Accruals- The opposite of a deferrals

30
Q

Straight Line Depreciation Method

A

(purchase cost - salvage value) / useful life assumption

31
Q

Steps to Close Books:
Do - Close Temporary Accounts (Revenues, Expenses, Dividends)
Don’t - Permanent Accounts (Assets, Liabilities, Stockholder’s Equity)

A

1) Debit each revenue for the amount of its credit balance. Credit Retained Earnings for the sum of all revenues.
2) Credit each expense account for the amount of its debit balance. Debit Retained Earnings for the sum of all expenses.
3) Credit the Dividends account for the amount of its debit balance. Debit Retained Earnings for the same account.

32
Q

Fraud and its impact

A

Intentional misrepresentation of facts. For the purpose of persuading another party to act in a certain way. Cause injury or damage.

33
Q

Prepare Bank Reconciliation

A

In reconciling the bank account, it is customary to reconcile the balance per books and the balance per bank to their adjusted balance.
Docs include: Signature Card, Deposit ticket, Check, Bank Statement, Bank Reconciliation

34
Q

Bank Side

A

deposits in transit, outstanding checks, bank errors

35
Q

Book Side

A

Bank collections
Electronic funds transfers
Service charge
Interest revenue
NSF checks
Cost of printed checks
Book errors

36
Q

Accounting for Sales Discounts

A

When the seller allows a discount, this is recorded as a reduction of revenues and is typically a debit to a contra revenue account.
Cash - Dr XXX Discount - Dr XXX
To Sales - Cr XXX To Party’s Name - Cr XXX

37
Q

Shipping Terms - Revenue Recognition

A

Related transportation and delivery expenses directly associated with the shipments are recorded once the revenue is recognized. Revenue is recognized at a point in time when the control passes to the customer.

38
Q

Accounting for bad debt

A

Direct Write Off Method: writing off a bad debt expense directly against the corresponding receivable account . Therefore, under the direct write-off method, a specific dollar amount from a customer account will be written off as a bad debt expense.

39
Q

Accounting for Notes Receivables - Journal Entries

A

The journal entry for interest on a note receivable is to debit the interest income account and credit the cash account. The portion of the note receivable due to be repaid within time period is classified as a current asset and the balance as a long-term asset.

40
Q

First-In, First-Out (FIFO)

A

Method to assign cost to inventory that assumes items are sold in the order acquired; earliest items purchased are the first sold. Determine the cost of your oldest inventory and Multiply that cost by the amount of inventory sold to calculate COGS.

41
Q

Last-In, First-Out (LIFO)

A

Method for assigning cost to inventory that assumes costs for the most recent items purchased are sold first and charged to cost of goods sold. Determine the cost of your most recent inventory and Multiply it by the amount of inventory sold.

42
Q

Gross Profit Percentage

A

gross profit/net sales revenue

43
Q

Plant Assets

A

The cost of any asset is the sum of all the costs incurred to bring the asset to its intended use.
Costs include: Purchase price, Taxes, Commissions, other costs ready to use.

44
Q

Land

A

Purchase price. Brokerage commission. Survey fee. Legal fees. Back property taxes. Expenditures for grading and cleaning land. Removing any unwanted buildings.

45
Q

Building, Machinery, and Equipment

A

Purchasing - Purchase price. Brokerage commission. Sales and other taxes. Expenditures to repair and renovate building for its intended purpose.
Cost - Purchase price. Transportation from the seller. Insurance while in transmit. Sales and other taxes. Purchase commission. Installation costs. Expenditures to test the asset before it’s placed in service. Cost of any special platforms.

46
Q

Book Value

A

the difference between the cost of a depreciable asset and its related accumulated depreciation
Book Value = Cost - Accumulation Depreciation

47
Q

How to Measure Depreciation Cost

A

purchase price and all costs to get plant asset ready for use, known amount.

48
Q

Estimated Useful Life

A

length of service expected from using the asset, estimated amount

49
Q

Estimated Residual Value

A

expected cash value of an asset at the end of its useful life

50
Q

Straight-Line Method

A

A depreciation method that allocates an equal amount of depreciation each year. (Cost - Residual value) / Useful life.

51
Q

Current Liabilities

A

debts of the business that must be paid within the next accounting period

52
Q

short-term notes payable

A

notes payable that are due within one year

53
Q

Note(s)

A

A written promise to pay a specified amount on a definite future date within one year or the company’s operating cycle, whichever is longer.

54
Q

Current Portion of Long-Term Debt

A

Portion of long-term debt due within one year or the operating cycle, whichever is longer; reported under current liabilities.

Accounting (2 decks)

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