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Financial Accounting 2503-41 > Cumulative > Flashcards

Cumulative Flashcards

1
Q

Convert Asset to Expense (Ex: Prepaid Insurance)

A

Dr Expense; Cr Asset

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2
Q

Convert Liability to Revenue (Ex: Unearned Revenue)

A

Dr Liability; Cr Revenue

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3
Q

Accruing Unpaid Expense (Ex: Salaries Payable)

A

Dr Expense; Cr Liability

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4
Q

Accruing Uncollected Revenue (Ex: Unbilled Revenue)

A

Dr Account Receivable; Cr Revenue

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5
Q

Depreciation

A

Dr Depreciation Expense; Cr Accumulated Depreciation

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6
Q

What is meant by external users of accounting information?

A

External users of accounting information are individuals and other enterprises that have a current or potential interest in the reporting enterprise, but that are not involved in the day-to-day operations of that enterprise.

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7
Q

What is meant by the return of your investment?

A

The repayment to an investor of the amount originally invested in another enterprise.

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8
Q

What is meant by return on your investment?

A

The payment of an amount (interest, dividends) for using another’s money.

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9
Q

What is a Balance Sheet also known as?

A

The Statement of Financial Position

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10
Q

What does a Balance Sheet show?

A

The Balance Sheet is a position statement showing where the company stands in financial terms at a specific date.

Also known as a Statement of Financial Position.

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11
Q

What is an Income Statement?

A

The Income Statement is an activity statement that shows details and results of the company’s profit-related activities for a period of time (e.g.- a month, a quarter, or a year).

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12
Q

What is a Statement of Cash Flows?

A

The Statement of Cash Flows is an activity statement that shows the details of the company’s cash activities during a period of time.

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13
Q

What is the definition of Capital Stock?

A

Capital Stock is transferable units of ownership in a corporation.

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14
Q

What is the Cost Principle?

A

The Cost Principle is the widely used principle of accounting for assets at their original cost to the current owner.

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15
Q

What is the definition of Expenses?

A

Expenses are past, present, or future reductions in cash required to generate revenues.

Expenses result in negative cash flows.

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16
Q

What is a Financial Statement?

A

A Financial Statement is a declaration of information believed to be true and communicated in monetary terms.

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17
Q

What is the definition of the Financing Activities category?

A

The Financing Activities category in the Statement of Cash Flows reflects the results of debt and equity financing transactions.

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18
Q

What is the definition of Income Statement?

A

The Income Statement is an activity statement that subtracts from the enterprise’s revenue those expenses required to generate the revenues, resulting in a net income or a net loss.

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19
Q

What is the definition of Investing Activities?

A

Investing Activities is a category in the Statement of Cash Flows that reflects the results of purchases and sales of assets, such as land, buildings and equipment

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20
Q

What is the definition of Liabilities?

A

Liabilities are the debts or obligations of an entity that resulted from past transactions. They represent the claims of creditor’s on the enterprise’s assets.

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21
Q

What is the definition of Liquidity?

A

Liquidity is having the financial ability to pay debts as they become due.

22
Q

What is the definition of Operating Activities?

A

Operating Activities is a category in the Statement of Cash Flows that includes the cash effects of all revenues and expenses included in the Income Statement.

23
Q

What is the definition of Owner’s Equity?

A

Owner’s Equity is the excess of assets over liabilities. The amount of the owner’s investment in the business, plus profits from successful operations that have been retained in the business.

24
Q

What is the definition of Positive Cash Flows?

A

Positive Cash Flows are increases in cash that add to the enterprise’s cash balance.

25
Q

What is the definition of Retained Earnings?

A

Retained Earnings is the portion of Stock Holder’s equity that has accumulated as a result of profitable operations.

26
Q

What is the definition of Revenues?

A

Revenues are increases in the enterprise’s assets as a result of profit-oriented activities.

Revenues result in positive cash flows.

27
Q

What order are liabilities listed on financial statements?

A

Liabilities are listed by the earliest due date. A liability is listed first if it is due first.

28
Q

How are assets listed on the Balance Sheet?

A

Assets are listed in the order of liquidity.

29
Q

What is the definition of Statement of Cash Flows?

A

The Statement of Cash Flows shows the ways cash changed during a designated period.

30
Q

What information is found within the Statement of Cash Flows?

A

The information found on the Statement of Cash Flows is cash received from revenues and other transactions as well as the cash paid for certain expenses and other acquisitions during the period.

31
Q

What are the two primary sources of increases to Owner’s Equity in a business?

A

1) Investments of cash or other assets by owners
2) Earnings from profitable operation of the business (Net Income)

32
Q

How do decreases in Owner’s Equity primarily occur within a business?

A

1) Payments of cash or transfers of other assets to owners.
2) Losses from unprofitable operation of the business.

33
Q

What is the general definition of a Short Term Liability?

A

Short Term Liabilities are generally due within one year.

34
Q

What is the general definition of a Long Term Liability?

A

Long Term Liabilities are generally due in more than a year. Long Term Liabilities are shown separately in the balance sheet, after the listing of all short term liabilities.

35
Q

What category of liability is created by purchase of an asset on account?

A

Accounts Payable

36
Q

What type of an account is created by the sale of an asset on account?

A

Accounts Receivable

37
Q

What occurs when an account receivable is received?

A

An increase occurs in Cash and a decrease of the same value occurs in Accounts Receivable.

This transaction converts one asset into another of equal value. There is no change in the amount of total assets.

38
Q

What occurs when a payment is made on a liability?

A

Cash and Accounts Payable are reduced by the same amount in order to leave the total of assets and the totals of liabilities plus owner’s equity in balance.

39
Q

What happens when cash is paid for an asset and no liability is incurred?

A

Cash is reduced by the required amount and a new appropriate asset class is created for the same amount.

40
Q

What happens when an asset is purchased using cash and financing?

A

An asset is created with the appropriate description, cash is reduced by the required amount, and a Notes Payable Liability is created.

41
Q

What happens when revenue is earned?

A

Earning of revenue represents creation of value and it also represents an increase in Owner’s Equity.

Cash is increased and Owner’s Equity is increased in the same amount.

42
Q

What happens when payment of expenses occurs in order to earn revenue?

A

Cash is decreased.

Owner’s Equity (in the form of Retained Earnings) is reduced in the same amount.

43
Q

What are two characteristics of Net Income?

A

Net Income does not consist of any cash or any other specific assets.

Net Income is a computation of the overall effects of many business transactions on Owner’s Equity.

44
Q

What happens when Income is earned?

A

As Income is earned, either an asset is increased or a liability is decreased.

45
Q

How does Net Income relate to Owner’s Equity?

A

Net Income represents an increase in Owner’s Equity.

Net Income has no direct relationship to the types or amounts of assets on hand.

46
Q

Where are changes in Owner’s Equity resulting from profitable or unprofitable operations reflected?

A

In the Retained Earnings, which is the balance of the Owner’s (or Stockholder’s) Equity account.

47
Q

What is the nature of dividends?

A

Dividends are not expenses.

Dividends are direct reductions of Retained Earnings.

48
Q

What is the relationship of Net Income to Dividends?

A

Earning Net Income causes the balance of the Retained Earnings account to increase.

Distributions of this Income to shareholders are called Dividends.

Dividends reduce both Total Assets and Owner’s Equity.

49
Q

What are two ways to describe Net Income?

A

Net Income is the excess of revenues over expenses.

Net Income is equal to revenue minus expenses.

50
Q

What occurs when expenses exceed revenue?

A

A Net Loss.

51
Q

What is a Trial Balance?

A

A Trial Balance is a proof of equality between debit and credit balances.

52
Q

How is a Trial Balance displayed?

A

A Trial Balance is a two-column schedule listing the names and balances of all the accounts in the order in which they appear in the ledger.

The Trial Balance includes both Balance Sheet and Income Statement accounts.

Financial Accounting 2503-41 (8 decks)

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