Ch. 2 (IFSA) Financial Reporting Mechanics Flashcards by Tom Sharrock

___

Sales of goods and services to customers: (R)
Costs of providing the goods and services: (X)
Income tax expense: (X)

Assets (A), Liabilities (L), Owners’ Equity (E), Revenue (R), and Expenses (X)

Operating activities

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Operating activities

Sales of goods and services to customers: (_)
Costs of providing the goods and services: (X)
Income tax expense: (X)

Assets (A), Liabilities (L), Owners’ Equity (E), Revenue (R), and Expenses (X)

Revenue (R)

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Operating activities

Sales of goods and services to customers: (R)
Costs of providing the goods and services: (_)
Income tax expense: (X)

Assets (A), Liabilities (L), Owners’ Equity (E), Revenue (R), and Expenses (X)

Expenses (X)

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Operating activities

Sales of goods and services to customers: (R)
Costs of providing the goods and services: (X)
Income tax expense: (_)

Assets (A), Liabilities (L), Owners’ Equity (E), Revenue (R), and Expenses (X)

Expenses (X)

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___

Purchase or sale of assets, such as property, plant, and equipment: (A)
Purchase or sale of other entities’ equity and debt securities: (A)

Assets (A), Liabilities (L), Owners’ Equity (E), Revenue (R), and Expenses (X)

Investing activities

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Investing activities

Purchase or sale of assets, such as property, plant, and equipment: (_)
Purchase or sale of other entities’ equity and debt securities: (A)

Assets (A), Liabilities (L), Owners’ Equity (E), Revenue (R), and Expenses (X)

Assets (A)

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Investing activities

Purchase or sale of assets, such as property, plant, and equipment: (A)
Purchase or sale of other entities’ equity and debt securities: (_)

Assets (A), Liabilities (L), Owners’ Equity (E), Revenue (R), and Expenses (X)

Assets (A)

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___

Issuance or repurchase of the company’s own preferred or common stock: (E)
Issuance or repayment of debt: (L)
Payment of distributions (i.e., dividends to preferred or common stockholders): (E)

Assets (A), Liabilities (L), Owners’ Equity (E), Revenue (R), and Expenses (X)

Financing activities

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Financing activities

Issuance or repurchase of the company’s own preferred or common stock: (_)
Issuance or repayment of debt: (L)
Payment of distributions (i.e., dividends to preferred or common stockholders): (E)

Assets (A), Liabilities (L), Owners’ Equity (E), Revenue (R), and Expenses (X)

Owners’ Equity (E)

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Financing activities

Issuance or repurchase of the company’s own preferred or common stock: (E)
Issuance or repayment of debt: (_)
Payment of distributions (i.e., dividends to preferred or common stockholders): (E)

Assets (A), Liabilities (L), Owners’ Equity (E), Revenue (R), and Expenses (X)

Liabilities (L)

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Financing activities

Issuance or repurchase of the company’s own preferred or common stock: (E)
Issuance or repayment of debt: (L)
Payment of distributions (i.e., dividends to preferred or common stockholders): (_)

Assets (A), Liabilities (L), Owners’ Equity (E), Revenue (R), and Expenses (X)

Owners’ Equity (E)

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Ideally, an analyst would prefer that most of a company’s profits (and cash flow) come from its ___.

operating activities

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The accounts used in a company’s accounting system will be set forth in ___.

a chart of accounts

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___ will be set forth in a chart of accounts.

The accounts used in a company’s accounting system

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Any account that is offset or deducted from another account is called ___.

a contra account

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Common Accounts - ___

Cash and cash equivalents
Accounts receivable, trade receivables
Prepaid expenses
Inventory
Property, plant, and equipment
Investment property
Intangible assets (patents, trademarks, licenses, copyright, goodwill)
Financial assets, trading securities, investment securities
Investments accounted for by the equity method
Current and deferred tax assets

Assets

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___ is called a contra account.

Any account that is offset or deducted from another account

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Common Accounts - Assets

___
Accounts receivable, trade receivables
Prepaid expenses
Inventory
Property, plant, and equipment
Investment property
Intangible assets (patents, trademarks, licenses, copyright, goodwill)
Financial assets, trading securities, investment securities
Investments accounted for by the equity method
Current and deferred tax assets

Cash and cash equivalents

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Common Accounts - Assets

Cash and cash equivalents
___
Prepaid expenses
Inventory
Property, plant, and equipment
Investment property
Intangible assets (patents, trademarks, licenses, copyright, goodwill)
Financial assets, trading securities, investment securities
Investments accounted for by the equity method
Current and deferred tax assets

Accounts receivable, trade receivables

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Common Accounts - Assets

Cash and cash equivalents
Accounts receivable, trade receivables
___
Inventory
Property, plant, and equipment
Investment property
Intangible assets (patents, trademarks, licenses, copyright, goodwill)
Financial assets, trading securities, investment securities
Investments accounted for by the equity method
Current and deferred tax assets

Prepaid expenses

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Common Accounts - Assets

Cash and cash equivalents
Accounts receivable, trade receivables
Prepaid expenses
___
Property, plant, and equipment
Investment property
Intangible assets (patents, trademarks, licenses, copyright, goodwill)
Financial assets, trading securities, investment securities
Investments accounted for by the equity method
Current and deferred tax assets

Inventory

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Common Accounts - Assets

Cash and cash equivalents
Accounts receivable, trade receivables
Prepaid expenses
Inventory
___
Investment property
Intangible assets (patents, trademarks, licenses, copyright, goodwill)
Financial assets, trading securities, investment securities
Investments accounted for by the equity method
Current and deferred tax assets

Property, plant, and equipment

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Common Accounts - Assets

Cash and cash equivalents
Accounts receivable, trade receivables
Prepaid expenses
Inventory
Property, plant, and equipment
___
Intangible assets (patents, trademarks, licenses, copyright, goodwill)
Financial assets, trading securities, investment securities
Investments accounted for by the equity method
Current and deferred tax assets

Investment property

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Common Accounts - Assets

Cash and cash equivalents
Accounts receivable, trade receivables
Prepaid expenses
Inventory
Property, plant, and equipment
Investment property
___
Financial assets, trading securities, investment securities
Investments accounted for by the equity method
Current and deferred tax assets

Intangible assets (patents, trademarks, licenses, copyright, goodwill)

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Common Accounts - Assets Cash and cash equivalents Accounts receivable, trade receivables Prepaid expenses Inventory Property, plant, and equipment Investment property Intangible assets (patents, trademarks, licenses, copyright, goodwill) ___ Investments accounted for by the equity method Current and deferred tax assets

Financial assets, trading securities, investment securities

Common Accounts - Assets Cash and cash equivalents Accounts receivable, trade receivables Prepaid expenses Inventory Property, plant, and equipment Investment property Intangible assets (patents, trademarks, licenses, copyright, goodwill) Financial assets, trading securities, investment securities ___ Current and deferred tax assets

Investments accounted for by the equity method

Common Accounts - Assets Cash and cash equivalents Accounts receivable, trade receivables Prepaid expenses Inventory Property, plant, and equipment Investment property Intangible assets (patents, trademarks, licenses, copyright, goodwill) Financial assets, trading securities, investment securities Investments accounted for by the equity method ___

Current and deferred tax assets

Common Accounts - ___ Accounts payable, trade payables Provisions or accrued liabilities Financial liabilities Current and deferred tax liabilities Reserves Minority interest Unearned revenue Debt payable Bonds (payable)

Liabilities

Common Accounts - Liabilities ___ Provisions or accrued liabilities Financial liabilities Current and deferred tax liabilities Reserves Minority interest Unearned revenue Debt payable Bonds (payable)

Accounts payable, trade payables

Common Accounts - Liabilities Accounts payable, trade payables ___ Financial liabilities Current and deferred tax liabilities Reserves Minority interest Unearned revenue Debt payable Bonds (payable)

Provisions or accrued liabilities

Common Accounts - Liabilities Accounts payable, trade payables Provisions or accrued liabilities ___ Current and deferred tax liabilities Reserves Minority interest Unearned revenue Debt payable Bonds (payable)

Financial liabilities

Common Accounts - Liabilities Accounts payable, trade payables Provisions or accrued liabilities Financial liabilities ___ Reserves Minority interest Unearned revenue Debt payable Bonds (payable)

Current and deferred tax liabilities

Common Accounts - Liabilities Accounts payable, trade payables Provisions or accrued liabilities Financial liabilities Current and deferred tax liabilities ___ Minority interest Unearned revenue Debt payable Bonds (payable)

Reserves

Common Accounts - Liabilities Accounts payable, trade payables Provisions or accrued liabilities Financial liabilities Current and deferred tax liabilities Reserves ___ Unearned revenue Debt payable Bonds (payable)

Minority interest

Common Accounts - Liabilities Accounts payable, trade payables Provisions or accrued liabilities Financial liabilities Current and deferred tax liabilities Reserves Minority interest ___ Debt payable Bonds (payable)

Unearned revenue

Debt payable

Bonds (payable)

Common Accounts - ___ Capital, such as common stock par value Additional paid-in capital Retained earnings Other comprehensive income

Owners’ equity

Common Accounts - Owners’ equity ___ Additional paid-in capital Retained earnings Other comprehensive income

Capital, such as common stock par value

Common Accounts - Owners’ equity Capital, such as common stock par value ___ Retained earnings Other comprehensive income

Additional paid-in capital

Common Accounts - Owners’ equity Capital, such as common stock par value Additional paid-in capital ___ Other comprehensive income

Retained earnings

Common Accounts - Owners’ equity Capital, such as common stock par value Additional paid-in capital Retained earnings ___

Other comprehensive income

Common Accounts - ___ Revenue, sales Gains Investment income (e.g., interest and dividends)

Revenue

Common Accounts - Revenue ___ Gains Investment income (e.g., interest and dividends)

Revenue, sales

Common Accounts - Revenue Revenue, sales ___ Investment income (e.g., interest and dividends)

Gains

Common Accounts - Revenue Revenue, sales Gains ___

Investment income (e.g., interest and dividends)

Common Accounts - __ Cost of goods sold Selling, general, and administrative expenses (SG&A; e.g., rent, utilities, salaries, advertising) Depreciation and amortization Interest expense Tax expense Losses

Expense

Common Accounts - Expense ___ Selling, general, and administrative expenses (SG&A; e.g., rent, utilities, salaries, advertising) Depreciation and amortization Interest expense Tax expense Losses

Cost of goods sold

Common Accounts - Expense Cost of goods sold ___ Depreciation and amortization Interest expense Tax expense Losses

Selling, general, and administrative expenses (SG&A; e.g., rent, utilities, salaries, advertising)

Common Accounts - Expense Cost of goods sold Selling, general, and administrative expenses (SG&A; e.g., rent, utilities, salaries, advertising) ___ Interest expense Tax expense Losses

Depreciation and amortization

Common Accounts - Expense Cost of goods sold Selling, general, and administrative expenses (SG&A; e.g., rent, utilities, salaries, advertising) Depreciation and amortization ___ Tax expense Losses

Interest expense

Common Accounts - Expense Cost of goods sold Selling, general, and administrative expenses (SG&A; e.g., rent, utilities, salaries, advertising) Depreciation and amortization Interest expense ___ Losses

Tax expense

Losses

___ are the unsold units of product on hand.

Inventories (sometimes referred to as inventory stock)

Inventories are ___.

the unsold units of product on hand (sometimes referred to as inventory stock)

___ are amounts customers owe the company for products that have been sold as well as amounts that may be due from suppliers (such as for returns of merchandise).

Trade receivables (also referred to as commercial receivables , or simply accounts receivable )

Trade receivables (also referred to as commercial receivables , or simply accounts receivable ) are ___.

amounts customers owe the company for products that have been sold as well as amounts that may be due from suppliers (such as for returns of merchandise)

___ represent amounts owed to the company from parties other than customers.

Other receivables

Other receivables represent ___.

amounts owed to the company from parties other than customers

___ are very liquid short - term investments, usually maturing in 90 days or less.

Cash equivalents

Cash equivalents are ___.

very liquid short - term investments, usually maturing in 90 days or less

___ presents a company’s financial position at a particular point in time using the following equation: Assets = Liabilities + Owners’ equity

The balance sheet

The balance sheet presents ___ using the following equation: Assets = Liabilities + Owners’ equity

a company’s financial position at a particular point in time

The balance sheet presents a company’s financial position at a particular point in time using the following equation: ___ = Liabilities + Owners’ equity

Assets

The balance sheet presents a company’s financial position at a particular point in time using the following equation: Assets = ___ + Owners’ equity

Liabilities

The balance sheet presents a company’s financial position at a particular point in time using the following equation: Assets = Liabilities + ___

Owners’ equity

The balance sheet presents a company’s financial position at a particular point in time using the following equation: ___

Assets = Liabilities Owners’ + equity

___ = Contributed capital + Retained earnings

Owners’ equity

Owners’ equity = ___ + Retained earnings

Contributed capital

Owners’ equity = Contributed capital + ___

Retained earnings

___ presents the performance of a business for a specific period of time. The equation reflected in it is the following: Revenue - Expenses = Net income (loss)

The income statement

The income statement presents ___. The equation reflected in the income statement is the following: Revenue - Expenses = Net income (loss)

the performance of a business for a specific period of time

The income statement presents the performance of a business for a specific period of time. The equation reflected in the income statement is the following: ___ - Expenses = Net income (loss)

Revenue

The income statement presents the performance of a business for a specific period of time. The equation reflected in the income statement is the following: Revenue - ___ = Net income (loss)

Expenses

The income statement presents the performance of a business for a specific period of time. The equation reflected in the income statement is the following: Revenue - Expenses = ___

Net income (loss)

When ___, it reports net income.

a company’s revenue exceeds its expenses

When a company’s revenue exceeds its expenses, it reports ___.

net income

When ___, it reports a net loss.

a company’s revenues are less than its expenses

When a company’s revenues are less than its expenses, it reports ___.

a net loss

___ Assets 2,000 Liabilities 500 Owners’ equity 1,500 2,000

Balance Sheet

Balance Sheet ___ 2,000 Liabilities 500 Owners’ equity 1,500 2,000

Assets

Balance Sheet Assets ___ Liabilities 500 Owners’ equity 1,500 2,000

2,000

Balance Sheet Assets 2,000 ___ 500 Owners’ equity 1,500 2,000

Liabilities

Balance Sheet Assets 2,000 Liabilities ___ Owners’ equity 1,500 2,000

500

Balance Sheet Assets 2,000 Liabilities 500 ___ 1,500 2,000

Owners’ equity

Balance Sheet Assets 2,000 Liabilities 500 Owners’ equity ___ 2,000

1,500

Balance Sheet Assets 2,000 Liabilities 500 Owners’ equity 1,500 ___

2,000

___ Revenue 250 Expense 50 Net income 200

Income Statement

Income Statement ___ 250 Expense 50 Net income 200

Revenue

Income Statement Revenue ___ Expense 50 Net income 200

250

Income Statement Revenue 250 ___ 50 Net income 200

Expense

Income Statement Revenue 250 Expense ___ Net income 200

Income Statement Revenue 250 Expense 50 ___ 200

Net income

Income Statement Revenue 250 Expense 50 Net income ___

200

___ are linked together through the retained earnings component of owners’ equity.

The balance sheet and the income statement

The balance sheet and the income statement are linked together through ___ of owners’ equity.

the retained earnings component

___ = Beginning retained earnings + Net income - Dividends

Ending retained earnings

Ending retained earnings = ___ + Net income - Dividends

Beginning retained earnings

Ending retained earnings = Beginning retained earnings ___ - Dividends

+ Net income (Revenues - Expenses)

Ending retained earnings = Beginning retained earnings + Net income ___

- Dividends

Ending retained earnings = ___

Beginning retained earnings + Net income - Dividends

___ represent the earnings (i.e., net income) not distributed as dividends to owners.

Retained earnings

Retained earnings represent the earnings (i.e., net income) ___.

not distributed as dividends to owners

___ Beginning retained earnings 250 Plus net income 200 Minus dividends 0 Ending retained earnings 450

Statement of Retained Earnings

Statement of Retained Earnings ___ 250 Plus net income 200 Minus dividends 0 Ending retained earnings 450

Beginning retained earnings

Statement of Retained Earnings Beginning retained earnings ___ Plus net income 200 Minus dividends 0 Ending retained earnings 450

250

Statement of Retained Earnings Beginning retained earnings 250 ___ 200 Minus dividends 0 Ending retained earnings 450

Plus net income

Statement of Retained Earnings Beginning retained earnings 250 Plus net income ___ Minus dividends 0 Ending retained earnings 450

200

Statement of Retained Earnings Beginning retained earnings 250 Plus net income 200 ___ 0 Ending retained earnings 450

Minus dividends

Statement of Retained Earnings Beginning retained earnings 250 Plus net income 200 Minus dividends ___ Ending retained earnings 450

Statement of Retained Earnings Beginning retained earnings 250 Plus net income 200 Minus dividends 0 ___ 450

Ending retained earnings

Statement of Retained Earnings Beginning retained earnings 250 Plus net income 200 Minus dividends 0 Ending retained earnings ___

450

In assessing the financial impact of each event and converting these events into accounting transactions, the following steps are taken: 1. ___

In assessing the financial impact of each event and converting these events into accounting transactions, the following steps are taken: 1. Identify which accounts are affected, by what amount, and whether the accounts are increased or decreased. 2. Determine the element type for each account identified in Step 1 (e.g., cash is an asset) and where it fits in the basic accounting equation. Rely on the economic characteristics of the account and the basic definitions of the elements to make this determination. 3. Using the information from Steps 1 and 2, enter the amounts in the appropriate column of the spreadsheet. 4. Verify that the accounting equation is still in balance.

In assessing the financial impact of each event and converting these events into accounting transactions, the following steps are taken: 2. ___

In assessing the financial impact of each event and converting these events into accounting transactions, the following steps are taken: 3. ___

In assessing the financial impact of each event and converting these events into accounting transactions, the following steps are taken: 4. ___

Recording a basic accounting system 1. Capitalize ___ (OE) Contributed Capital 150,000

(A) Cash 150,000

Recording a basic accounting system 1. Capitalize (A) Cash 150,000 ___

(OE) Contributed Capital 150,000

Recording a basic accounting system 2. Investments ___ (A) Other Assets 100,000 Investments

(A) Cash (100,000)

Recording a basic accounting system 2. Investments (A) Cash (100,000) ___

(A) Other Assets 100,000 Investments

Recording a basic accounting system 3. Pay Landlord ___ (A) Other Assets 1,000 Prepaid Rent (A) Other Assents 2,000 Rent Deposit

(A) Cash (3,000)

Recording a basic accounting system 3. Pay Landlord (A) Cash (3,000) ___ (A) Other Assents 2,000 Rent Deposit

(A) Other Assets 1,000 Prepaid Rent

Recording a basic accounting system 3. Pay Landlord (A) Cash (3,000) (A) Other Assets 1,000 Prepaid Rent ___

(A) Other Assets 2,000 Rent Deposit

Recording a basic accounting system 4. Buy equipment ___ (A) Other Assets 6,000 Office equipment

(A) Cash (6,000)

Recording a basic accounting system 4. Buy equipment (A) Cash (6,000) ___

(A) Other Assets 6,000 Office equipment

Recording a basic accounting system 5. Sell subscription___ (L) 1,200 Unearned fees

(A) Cash 1,200

Recording a basic accounting system 5. Sell subscription (A) Cash 1,200 ___

(L) 1,200 Unearned fees The company has not yet actually earned the subscription fees because it has an obligation to deliver newsletters in the future. So, this amount is recorded as a liability called unearned fees (or unearned revenue).

Recording a basic accounting system 6. Buy books ___ (L) 10,000 Accounts payable

(A) Other Assets 10,000 Inventory

Recording a basic accounting system 6. Buy books on credit (A) Other Assets 10,000 Inventory ___

(L) 10,000 Accounts payable

Recording a basic accounting system 7. Advertise - ___ - (OE) Expense (600)

(A) Cash (600)

Recording a basic accounting system 7. Advertise (A) Cash (600) ___

(OE) Expense (600)

Recording a basic accounting system 8. Borrow ___ (L) 12,000 Bank debt

(A) Cash 12,000

Recording a basic accounting system 8. Borrow (A) Cash 12,000 ___

(L) 12,000 Bank debt

Recording a basic accounting system 9. 9 Sell books on account ___ (A) Other Assets (100) Inventory (OE) Revenue 125 (OE) Expense (100)

(A) Other Assets 125 Accounts receivable

Recording a basic accounting system 9. 9 Sell books on account (A) Other Assets 125 Accounts receivable ___(OE) Revenue 125 (OE) Expense (100)

(A) Other Assets (100) Inventory

Recording a basic accounting system 9. Sell books on account - (A) Other Assets 125 Accounts receivable - (A) Other Assets (100) Inventory - ___ - (OE) Expense (100)

(OE) Revenue 125

Recording a basic accounting system 9. Sell books on account - (A) Other Assets 125 Accounts receivable - (A) Other Assets (100) Inventory - (OE) Revenue 125 - ___

(OE) Expense (100)

Recording a basic accounting system 10. Cash sale ___ (A) Other Assets (200) Inventory (OE) Revenue 250 (OE) Expense (200)

(A) Cash 250

Recording a basic accounting system 10. Cash sale (A) Cash 250 ___ (OE) Revenue 250 (OE) Expense (200)

(A) Other Assets (200) Inventory

Recording a basic accounting system 10. Cash sale (A) Cash 250 (A) Other Assets (200) Inventory ___ (OE) Expense (200)

(OE) Revenue 250

Recording a basic accounting system 10. Cash sale (A) Cash 250 (A) Other Assets (200) Inventory (OE) Revenue 250 ___

(OE) Expense (200)

___ requires that revenue be recorded when earned and that expenses be recorded when incurred, irrespective of when the related cash movements occur.

Accrual accounting

Accrual accounting requires that ___.

revenue be recorded when earned and that expenses be recorded when incurred, irrespective of when the related cash movements occur

___ arises when a company receives cash prior to earning the revenue.

Unearned (or deferred ) revenue

Unearned (or deferred ) revenue arises when ___.

a company receives cash prior to earning the revenue

___ arises when a company earns revenue prior to receiving cash but has not yet recognized the revenue at the end of an accounting period.

Unbilled (or accrued) revenue

Unbilled (or accrued) revenue arises when ___.

a company earns revenue prior to receiving cash but has not yet recognized the revenue at the end of an accounting period

___ arises when a company makes a cash payment prior to recognizing an expense.

Prepaid expense

Prepaid expense arises when ___.

a company makes a cash payment prior to recognizing an expense

___ arise when a company incurs expenses that have not yet been paid as of the end of an accounting period.

Accrued expenses

Accrued expenses arise when ___.

a company incurs expenses that have not yet been paid as of the end of an accounting period

___ record increases of asset and expense accounts or decreases in liability and owners’ equity accounts.

Debits

Debits record ___.

increases of asset and expense accounts or decreases in liability and owners’ equity accounts

___ record increases in liability, owners’ equity, and revenue accounts or decreases in asset accounts.

Credits

Credits record ___.

increases in liability, owners’ equity, and revenue accounts or decreases in asset accounts

___ is a document or computer file in which business transactions are recorded in the order in which they occur (chronological order).

A journal

A journal is a document or computer file in which ___.

business transactions are recorded in the order in which they occur (chronological order)

___ is the collection of all business transactions in an accounting system sorted by date.

The general journal

The general journal is ___.

the collection of all business transactions in an accounting system sorted by date

___ is a document or computer file that shows all business transactions by account.

A ledger

A ledger is a document or computer file that ___.

shows all business transactions by account

___ is a document that lists account balances at a particular point in time.

A trial balance

A trial balance is a document that ___.

lists account balances at a particular point in time

___, a final product of the accounting system, are prepared based on the account totals from an adjusted trial balance.

The financial statements

The financial statements, a final product of the accounting system, are prepared based on ___.

the account totals from an adjusted trial balance