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AC 501 01 > Chapter 2 > Flashcards

Chapter 2 Flashcards

1
Q

Intracompany

A

comparing company results across 2+ periods

ex: comparing Apple’s income to it’s prior-year income

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2
Q

Intercompany

A

comparing results across competitors

ex: comparing Apple’s income to Samsung’s

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3
Q

Industry

A

comparing results to industry norms

ex: comparing Apple’s profit margin to the industry’s

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4
Q

Guidelines (rule of thumb)

A

comparing results to standards based on experience

ex: the 2:1 level for the current ratio

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5
Q

4 Building Blocks of Analysis

A
  1. Liquidity (meeting short term obligations and generate rev)
  2. Solvency (meeting long term obligations and generate future rev)
  3. Profitability (providing financial rewards to attract/retain financing
  4. Market Prospects (generating positive market expectations)
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6
Q

Source Documents

A

identify and describe transactions and events entering the accounting system

ex: sales receipts, checks, bank statements

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7
Q

Account

A

record of increases and decreases in a specific asset, liability, equity, rev, or exp

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8
Q

General Ledger/Ledger

A

a record of all accounts used by a company

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9
Q

Unclassified Balance Sheet

A

broadly groups accounts into assets, liabilities, and equity

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10
Q

Examples of Asset Accts

A
  • anything receivable
  • cash
  • land
  • prepaid accts
  • equipment/supplies
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11
Q

Examples of Liability Accts

A
  • anything payable
  • unearned revenue
  • accrued liabilities
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12
Q

Examples of Equity Accts

A
  • owner investments
  • dividends
  • revenue (not unearned)
  • expenses
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13
Q

Chart of Accounts

A

list of all ledger accounts; each acct is assigned an identification number

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14
Q

T-Account

A

ledger account used to show the effects of transactions

debits on left, credits on right

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15
Q

Does debit/credit mean increase/decrease?

A

No. Whether it increases/decreases depends on the account.

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16
Q

Account Balance

A

difference between total debits and total credits for an account

17
Q

Debit Balance

A

total debits > total credits

18
Q

Credit Balance

A

total credits > total debits

19
Q

Zero Balance

A

total debits = total credits

20
Q

Double-Entry Accounting

A

demands the acct equation remain in balance. this means two things:

  1. 2+ accts are involved, 1+ debit, 1+ credit
  2. total amt debited MUST equal total amt credited
21
Q

Accounts for which debit is the normal balance side

Debit (+) / Credit (-)

A
  • expenses
  • assets
  • dividends

think “DrEAD”

22
Q

Accounts for which credit is the normal balance side

Debit (-) / Credit (+)

A
  • liabilities
  • common stock
  • revenues
23
Q

Steps of Processing Transactions

A
  1. identify transactions and source documents
  2. analyze transactions using the acct equ
  3. record journal entries chronologically
  4. post/transfer entries to ledger
24
Q

Journal

A

complete record of each transaction in one place; shows debits and credits for each transaction

25
Q

Journalizing

A

recording transactions in a journal

26
Q

Posting

A

transferring journal entry info to the ledger

27
Q

General Journal

A

journal used to record any transaction; used by every company

28
Q

Posting Reference (PR) Column

A

part of journal; left blank initially, then filled in w/ acct number

29
Q

Balance Column Account

A

similar to T-acct, but includes transaction date, explanation column, and a running balance column

30
Q

Steps to Posting a Journal Entry

A
  1. identify ledger acct debited
  2. in ledger, enter the entry date, journal and page in PR, debit amt, and new balance of ledger acct
  3. enter ledger acct number in PR column
  4. repeat steps 1&2 for credited acct
31
Q

Trial Balance

A

list of all ledger accts and their balance at a point in time; not a financial statement

32
Q

Process of Preparing a Trial Balance

A
  1. list each acct title and its amt (from ledger) in the trial balance
  2. compute the total of debit balances and total of credit balances
  3. verify (prove) total debit balances = total credit balances
33
Q

Balance sheet reports a company’s financial position at a ___ ___ ___.

A

point in time

34
Q

Income statement, statement of retained earnings, and statement of cash flows all report a company’s financial performance over a ___ ___ ___

A

period of time

35
Q

Are dollar signs used in journals/ledgers?

A

No.

36
Q

Are dollar signs used in financial statements and trial balances?

A

Only beside the first and last numbers in a column.

37
Q

Higher Financial Leverage

A

when a company finances a relatively large portion of its assets with liabilities; means greater risk for the company

38
Q

Debt Ratio Definition

A

used to measure risk associated with liabilities

39
Q

Debt Ratio Equation

A

(Debt Ratio) = (Total Liabilities) / (Total Assets)

AC 501 01 (4 decks)

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