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AEM 2225: Financial Accounting > Chapter 2 > Flashcards

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

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2
Q

General ledgers are written in the order of:

A

Assets in order of liquidity, liabilities, stockholders’ equity

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3
Q

Who declares dividends

A

Board of directors

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4
Q

What does an increase in dividends affect?

A

A decrease in retained earnings

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5
Q

What does an increase in net income affect?

A

An increase in retained earnings

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6
Q

Compound Entry

A

Two or more debits, credits, or both in a journal entry

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7
Q

Simple/Regular Entry

A

Only one debit and one credit in a journal entry

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8
Q

What does APIC stand for?

A

Additional Paid-in Capital

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9
Q

Calendar year-end

A

12 consecutive months beginning January 1 and ending December 31

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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

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11
Q

Accounting/fiscal year-end

A

12 consecutive months ending on the last day of any month except December

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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)

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13
Q

Debit: Left or right?

A

Left

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14
Q

Credit: Left or right?

A

Right

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15
Q

In general, are assets credits or debits?

A

Debits

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16
Q

In general, are liabilities credits or debits?

A

Credits

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17
Q

In general, is stockholders’ equity credits or debits?

A

Credits

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18
Q

What are the 4 financial statements in order?

A

Income statement, Statement of Stockholders’ Equity, Balance Sheet, Statement of Cash Flow

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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)

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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)

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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)

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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)

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23
Q

What is it called if retained earnings are negative?

A

Retained deficit

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24
Q

What are cash equivalents?

A

Assets that can be liquidated into cash within 3 months

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25
Q

What happens if external auditors are involved in the management of a company?

A

They lose independence and cannot issue an audit report for that company

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26
Q

How do debits and credits compare in quantity?

A

Debits=credits

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27
Q

Short-Term/Current Asset definition

A

Assets that the company will use or turn into cash within one year

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28
Q

Short-term/Current liability definition

A

A financial obligation to be paid within one year

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29
Q

Long-Term Liability Definition

A

A financial obligation of a company that is due more than one year in the future

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30
Q

Long-Term Asset Definition

A

An asset that benefit the company for more than one year

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31
Q

Tangible Asset Definition

A

An asset that has a physical form and a set monetary value

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32
Q

Intangible Asset Definition

A

An asset that is not physical in nature

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33
Q

Examples of intangible assets (list 6)

A

Goodwill, intellectual property, trademarks, patents, copyrights

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34
Q

What is included in selling, general, and administrative expenses? (list 3)

A

Sales commission, CEO salary, telephone bill

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35
Q

Out of property, plant, and equipment, what is non-depreciable

A

Property (land)

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36
Q

What is the income tax rate

A

21%, but state, local, and international taxes are not included in that, so it could appear as 30%)

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37
Q

What can happen if an account payable is not paid within the year?

A

It can turn into a note payable, and interest will be charged

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38
Q

A key difference between note and account payable?

A

Note: formally written and charges interest
Account: informal and no. interest

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39
Q

Example of long-term debt

A

Loan or a note payable

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40
Q

Type of account and debit or credit?: Accounts payable

A

Short-term liability, Credit

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41
Q

Type of account and debit or credit?: Accounts Receivable

A

Current Asset, Debit

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42
Q

Type of account?: Depreciation

A

Expense

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43
Q

Type of account and debit or credit?: Bonds payable

A

Short-term liability, Credit

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44
Q

Type of account and debit or credit?: Cash

A

Current Asset, Debit

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45
Q

Type of account and debit or credit?: Common stock

A

Equity, Credit

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46
Q

Type of account and debit or credit?: Cost of goods sold

A

Expense, Debit

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47
Q

Type of account?: Dividends

A

Equity

48
Q

Type of account and debit or credit?: Dividends Payable

A

Short-term liability, Credit

49
Q

Type of account and debit or credit?: PP&E

A

Long-term asset, Debit

50
Q

Type of account and debit or credit?: Income tax payable

A

Short-term liability, Credit

51
Q

Type of account and debit or credit?: Inventory

A

Current Asset, Debit

52
Q

Type of account and debit or credit?: Long-term investment in Bonds

A

Long-term Asset, Debit

53
Q

Type of account and debit or credit?: Land

A

Long-Term Asset, Debit

54
Q

Type of account and debit or credit?: notes payable

A

Short-term liability, Credit

55
Q

Type of account and debit or credit?: Notes receivable

A

Current asset, Debit

56
Q

Type of account and debit or credit?: APIC

A

Equity, Credit

57
Q

Type of account and debit or credit?: Retained Earnings

A

Equity, Credit

58
Q

Type of account and debit or credit?: Materials and Supplies

A

Current Asset, Debit

59
Q

Type of account and debit or credit?: Unearned revenue

A

Short term liability, debit

60
Q

Type of account and debit or credit?: Intangible assets

A

Long-term asset, debit

61
Q

Type of account and debit or credit?: Accrued expenses

A

short-term liability, credit

62
Q

Type of account and debit or credit?: Crude oil, products, merchandise

A

current asset, debit

63
Q

Accrued expeses Definition

A

Expenses that have been incurred but not yet paid

64
Q

Unearned revenue definition

A

Money received from a customer for goods/services. that have not yet been delivered

65
Q

APIC definition

A

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
Q

Par value definition

A

the value of a single common share of stock

67
Q

Dividends definition

A

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
Q

Financing Activities Definition

A

borrowing or paying back money to lenders and receiving additional funds from stockholders or paying them dividends

69
Q

Investing Activities Definition

A

buying and selling items such as plant and equipment used in production

70
Q

Operating Activities Definition

A

the day-to-day process of purchasing from suppliers, manufacturing beverages, delivering products, collecting payments from customers, paying suppliers

71
Q

Why do marketing managers and credit managers use financial statements?

A

to decide whether to extend credit to customers

72
Q

Why do supply chain managers use financial statements?

A

to determine whether suppliers have the resources to meet demand and invest in future development

73
Q

Why do employee unions and human resource managers use financial statements?

A

To use financial statements as a basis of contract negotiations over pay rates

74
Q

Purpose of the income statement

A

reports the accountant’s primary measure of performance of a business, revenues less expenses during the accounting period

75
Q

Income statement equation

A

REVENUES - EXPENSES = NET INCOME/LOSS

76
Q

Purpose of the statement of stockholders’ equity

A

reports changes in the company’s common stock and. retained earnings during the accounting period

77
Q

Statement of stockholders’ equity equation

A

Beginning Retained Earnings + Net Income (or -net loss) - Dividends = Ending Retained Earnings

78
Q

Purpose of the Balance sheet

A

Reports the financial position (assets, liabilities, stockholders’ equity) of an accounting entity

79
Q

Balance sheet equation

A

ASSETS = LIABILITIES + STOCKHOLDERS’ EQUITY

80
Q

Purpose of the Statement of Cash Flows

A

reports inflows (receipts) and outflows (payments) of cash during the accounting period in categories of operating, investing, and financing

81
Q

Definition of Retained Earnings

A

the amount of earnings (profits) reinvested in the business (and thus not distributed to stockholders in the form of dividends)

82
Q

What does GAAP stand for?

A

Generally accepted accounting principles

83
Q

What does SEC stand for?

A

Securities and Exchange Commission

84
Q

What does the SEC do?

A

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
Q

What does FASB stand for?

A

Financial Accounting Standards Board

86
Q

What are FASB’s official pronouncements called?

A

FASB Accounting Standards Codification

87
Q

What does FASB do?

A

They detail the rules of GAAP

88
Q

Who is responsible for the financial statements at a company?

A

The management of the company

89
Q

3 ways to assure investors that financial records are accurate

A
  1. maintain a system of controls
  2. hire outsde independent auditors
  3. form a board of directors
90
Q

What is equity for a sole proprietorship called?

A

owner’s equity

91
Q

What is equity for a partner called?

A

partners’ equity

92
Q

What is equity for a corportation called?

A

Shareholders’ equity

93
Q

What is equity for a LLC/LLP called?

A

Members’ equity

94
Q

2 fundamental qualitative characteristics of useful info provided by company’s about financial accounting

A

Relevance and faithful representation

95
Q

What are 3 assumptions of financial reporting?

A
  1. separate entity assumption
  2. going concern assumption (continuity assumption)
  3. Monetary unit assumption
96
Q

What is the Separate Entity Assumption?

A

Each business’s activities must be accounted for separately from the activities of its owners, all other persons, and all other entities

97
Q

What is the going concern assumption (continuity assumption)

A

The business will continue operating into the foreseeable future, long enough to meet its contractual commitments and plans

98
Q

What is the Monetary Unit Assumption

A

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
Q

What is treasury stock?

A

Amount paid to repurchase its own stock from investors

100
Q

What are creditors?

A

An entity that a company owes money

101
Q

In what order are assets listed on the balance sheet?

A

In order of liquidity

102
Q

In what order are liabilities listed on the balance sheet?

A

In order of maturity (how soon an obligation is to be paid)

103
Q

Type of account and debit or credit?: Prepaid Expenses

A

current asset, debit

104
Q

What kind of activity is a loan to an employee?

A

Investing

105
Q

What are the components of journal entries?

A

Date, Debits, Credits, Explanation

106
Q

Why is it important to specify if a note is short-term or long-term?

A

It could affect the current ratio

107
Q

What kind of activity is: borrowed from banks

A

Financing

108
Q

What kind of activity is: purchased investments

A

Investing

109
Q

What kind of activity is: purchased PP&E

A

Investing

110
Q

What kind of activity is: Issued Additional Stock

A

Financing

111
Q

What kind of activity is: Sold short-term investments

A

Investing

112
Q

What kind of activity is: Declared dividends

A

No effect; not a type of activity

113
Q

What would you write in a journal entry for declared dividends?

A

Debit: Retained Earnings
Credit: Dividends payable

114
Q

What would you write in a journal entry for the issuance of dividends?

A

Debit: Dividends Payable
Credit: Cash

115
Q

What do you do during the accounting period?

A

Analyze transactions, record journal entries in the general journal, Post amounts to the general ledger

116
Q

What do you do at the end of the period?

A

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
Q

What type of account is unearned revenues?

A

Current liability; credit unearned revenue

AEM 2225: Financial Accounting (1 decks)

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