Chapter 2 Flashcards
1
Q
Common stock vs. Preferred stock
A
Preferred stock has a preference in liquidation and dividends, common stock has voting rights
2
Q
General ledgers are written in the order of:
A
Assets in order of liquidity, liabilities, stockholders’ equity
3
Q
Who declares dividends
A
Board of directors
4
Q
What does an increase in dividends affect?
A
A decrease in retained earnings
5
Q
What does an increase in net income affect?
A
An increase in retained earnings
6
Q
Compound Entry
A
Two or more debits, credits, or both in a journal entry
7
Q
Simple/Regular Entry
A
Only one debit and one credit in a journal entry
8
Q
What does APIC stand for?
A
Additional Paid-in Capital
9
Q
Calendar year-end
A
12 consecutive months beginning January 1 and ending December 31
10
Q
52-53-week tax year-end
A
A fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month
11
Q
Accounting/fiscal year-end
A
12 consecutive months ending on the last day of any month except December
12
Q
10-K (and the difference between that and a 10-Q)
A
A report filed annually with the SEC that provides information about a company, disclosure notes, auditor’s report + all 4 of its financial statements; 10-Q is a quarterly statement)
13
Q
Debit: Left or right?
A
Left
14
Q
Credit: Left or right?
A
Right
15
Q
In general, are assets credits or debits?
A
Debits
16
Q
In general, are liabilities credits or debits?
A
Credits
17
Q
In general, is stockholders’ equity credits or debits?
A
Credits
18
Q
What are the 4 financial statements in order?
A
Income statement, Statement of Stockholders’ Equity, Balance Sheet, Statement of Cash Flow
19
Q
What is included in the heading of an income statement?
A
Entity name, type of statement, period of the statement (for the year ended date), unit of measurement (for __ of dollars)
20
Q
What is included in the heading of a statement of stockholders’ equity?
A
Entity name, type of statement, period of the statement (for the year ended date), unit of measurement (for __ of dollars)
21
Q
What is included in the heading of a balance sheet?
A
Entity name, type of statement, date of the statement, unit of measurement (for __ of dollars)
22
Q
What is included in the heading of the cash flow statement?
A
Entity name, type of statement, period of the statement (for the year ended date), unit of measurement (for __ of dollars)
23
Q
What is it called if retained earnings are negative?
A
Retained deficit
24
Q
What are cash equivalents?
A
Assets that can be liquidated into cash within 3 months
25
What happens if external auditors are involved in the management of a company?
They lose independence and cannot issue an audit report for that company
26
How do debits and credits compare in quantity?
Debits=credits
27
Short-Term/Current Asset definition
Assets that the company will use or turn into cash within one year
28
Short-term/Current liability definition
A financial obligation to be paid within one year
29
Long-Term Liability Definition
A financial obligation of a company that is due more than one year in the future
30
Long-Term Asset Definition
An asset that benefit the company for more than one year
31
Tangible Asset Definition
An asset that has a physical form and a set monetary value
32
Intangible Asset Definition
An asset that is not physical in nature
33
Examples of intangible assets (list 6)
Goodwill, intellectual property, trademarks, patents, copyrights
34
What is included in selling, general, and administrative expenses? (list 3)
Sales commission, CEO salary, telephone bill
35
Out of property, plant, and equipment, what is non-depreciable
Property (land)
36
What is the income tax rate
21%, but state, local, and international taxes are not included in that, so it could appear as 30%)
37
What can happen if an account payable is not paid within the year?
It can turn into a note payable, and interest will be charged
38
A key difference between note and account payable?
Note: formally written and charges interest
Account: informal and no. interest
39
Example of long-term debt
Loan or a note payable
40
Type of account and debit or credit?: Accounts payable
Short-term liability, Credit
41
Type of account and debit or credit?: Accounts Receivable
Current Asset, Debit
42
Type of account?: Depreciation
Expense
43
Type of account and debit or credit?: Bonds payable
Short-term liability, Credit
44
Type of account and debit or credit?: Cash
Current Asset, Debit
45
Type of account and debit or credit?: Common stock
Equity, Credit
46
Type of account and debit or credit?: Cost of goods sold
Expense, Debit
47
Type of account?: Dividends
Equity
48
Type of account and debit or credit?: Dividends Payable
Short-term liability, Credit
49
Type of account and debit or credit?: PP&E
Long-term asset, Debit
50
Type of account and debit or credit?: Income tax payable
Short-term liability, Credit
51
Type of account and debit or credit?: Inventory
Current Asset, Debit
52
Type of account and debit or credit?: Long-term investment in Bonds
Long-term Asset, Debit
53
Type of account and debit or credit?: Land
Long-Term Asset, Debit
54
Type of account and debit or credit?: notes payable
Short-term liability, Credit
55
Type of account and debit or credit?: Notes receivable
Current asset, Debit
56
Type of account and debit or credit?: APIC
Equity, Credit
57
Type of account and debit or credit?: Retained Earnings
Equity, Credit
58
Type of account and debit or credit?: Materials and Supplies
Current Asset, Debit
59
Type of account and debit or credit?: Unearned revenue
Short term liability, debit
60
Type of account and debit or credit?: Intangible assets
Long-term asset, debit
61
Type of account and debit or credit?: Accrued expenses
short-term liability, credit
62
Type of account and debit or credit?: Crude oil, products, merchandise
current asset, debit
63
Accrued expeses Definition
Expenses that have been incurred but not yet paid
64
Unearned revenue definition
Money received from a customer for goods/services. that have not yet been delivered
65
APIC definition
Money an investor pays above and beyond the par value price of a stock; the value of share capital above its stated par value, so the difference in the issue price of a stock and its par value
66
Par value definition
the value of a single common share of stock
67
Dividends definition
a portion of what the company earned in the form of cash payments, and their shares can be sold eventually at a higher price than they paid
68
Financing Activities Definition
borrowing or paying back money to lenders and receiving additional funds from stockholders or paying them dividends
69
Investing Activities Definition
buying and selling items such as plant and equipment used in production
70
Operating Activities Definition
the day-to-day process of purchasing from suppliers, manufacturing beverages, delivering products, collecting payments from customers, paying suppliers
71
Why do marketing managers and credit managers use financial statements?
to decide whether to extend credit to customers
72
Why do supply chain managers use financial statements?
to determine whether suppliers have the resources to meet demand and invest in future development
73
Why do employee unions and human resource managers use financial statements?
To use financial statements as a basis of contract negotiations over pay rates
74
Purpose of the income statement
reports the accountant’s primary measure of performance of a business, revenues less expenses during the accounting period
75
Income statement equation
REVENUES - EXPENSES = NET INCOME/LOSS
76
Purpose of the statement of stockholders' equity
reports changes in the company's common stock and. retained earnings during the accounting period
77
Statement of stockholders' equity equation
Beginning Retained Earnings + Net Income (or -net loss) - Dividends = Ending Retained Earnings
78
Purpose of the Balance sheet
Reports the financial position (assets, liabilities, stockholders’ equity) of an accounting entity
79
Balance sheet equation
ASSETS = LIABILITIES + STOCKHOLDERS’ EQUITY
80
Purpose of the Statement of Cash Flows
reports inflows (receipts) and outflows (payments) of cash during the accounting period in categories of operating, investing, and financing
81
Definition of Retained Earnings
the amount of earnings (profits) reinvested in the business (and thus not distributed to stockholders in the form of dividends)
82
What does GAAP stand for?
Generally accepted accounting principles
83
What does SEC stand for?
Securities and Exchange Commission
84
What does the SEC do?
They determine the measurement rules for financial statements that companies issuing stock to the public (publicly traded companies) must provide to stockholders; they created FASB
85
What does FASB stand for?
Financial Accounting Standards Board
86
What are FASB's official pronouncements called?
FASB Accounting Standards Codification
87
What does FASB do?
They detail the rules of GAAP
88
Who is responsible for the financial statements at a company?
The management of the company
89
3 ways to assure investors that financial records are accurate
1. maintain a system of controls
2. hire outsde independent auditors
3. form a board of directors
90
What is equity for a sole proprietorship called?
owner's equity
91
What is equity for a partner called?
partners' equity
92
What is equity for a corportation called?
Shareholders' equity
93
What is equity for a LLC/LLP called?
Members' equity
94
2 fundamental qualitative characteristics of useful info provided by company's about financial accounting
Relevance and faithful representation
95
What are 3 assumptions of financial reporting?
1. separate entity assumption
2. going concern assumption (continuity assumption)
3. Monetary unit assumption
96
What is the Separate Entity Assumption?
Each business’s activities must be accounted for separately from the activities of its owners, all other persons, and all other entities
97
What is the going concern assumption (continuity assumption)
The business will continue operating into the foreseeable future, long enough to meet its contractual commitments and plans
98
What is the Monetary Unit Assumption
Each business entity accounts for and reports Financial results primarily in terms of the national monetary unit without any adjustments or changes in purchasing power (inflation)
99
What is treasury stock?
Amount paid to repurchase its own stock from investors
100
What are creditors?
An entity that a company owes money
101
In what order are assets listed on the balance sheet?
In order of liquidity
102
In what order are liabilities listed on the balance sheet?
In order of maturity (how soon an obligation is to be paid)
103
Type of account and debit or credit?: Prepaid Expenses
current asset, debit
104
What kind of activity is a loan to an employee?
Investing
105
What are the components of journal entries?
Date, Debits, Credits, Explanation
106
Why is it important to specify if a note is short-term or long-term?
It could affect the current ratio
107
What kind of activity is: borrowed from banks
Financing
108
What kind of activity is: purchased investments
Investing
109
What kind of activity is: purchased PP&E
Investing
110
What kind of activity is: Issued Additional Stock
Financing
111
What kind of activity is: Sold short-term investments
Investing
112
What kind of activity is: Declared dividends
No effect; not a type of activity
113
What would you write in a journal entry for declared dividends?
Debit: Retained Earnings
Credit: Dividends payable
114
What would you write in a journal entry for the issuance of dividends?
Debit: Dividends Payable
Credit: Cash
115
What do you do during the accounting period?
Analyze transactions, record journal entries in the general journal, Post amounts to the general ledger
116
What do you do at the end of the period?
Prepare trial balance, Adjust revennues and expenses and related balance sheet accounts, prepare financial statements, close accounts and record them in journal and post to ledger
117
What type of account is unearned revenues?
Current liability; credit unearned revenue
