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Financial Accounting > Exam 1 > Flashcards

Exam 1 Flashcards

1
Q

Accounting equation

A

Assets=Liabilities+Equity

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2
Q

Expanded accounting equation

A

Assets=Liabilities+Contributed Capital +Retained Earnings
Assets=Liabilities+Common Stock-Dividends+Revenue-Expenses

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3
Q

Return on assets

A

ROA=net income/average total assets

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4
Q

Profit margin

A

PM=net income/net sales

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5
Q

Debt ratio

A

DR=Total liabilities/total assets

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6
Q

Current ratio

A

CR=current assets/current liabilities

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7
Q

Identify internal users

A

Managers

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8
Q

Identify external users

A

Shareholders, lenders, external auditors, nonmanagerial employees, regulators

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9
Q

Sarbanes-Oxley Act

A

Requires managers and auditors of companies whose stock is traded on an exchange to document and verify internal controls

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10
Q

Characteristics of a Corporation & LLC

A

Corporation: 1 or more shareholders, additional corporate income tax, limited liability, separate entity, indefinite business life
LLC: 1 or more members, no additional business income tax, rest same as corp

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11
Q

Measurement Principle (Cost Principle)

A

Accounting information is based on actual cost. Actual cost is considered objective.

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12
Q

Revenue Recognition Principle

A
  1. Recognize revenue when goods or services are provided to customers and
  2. at an amount expected to be received from the customer.
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13
Q

Expense Recognition Principle (Matching Principle)

A

A company records its expenses incurred to generate the revenue reported.

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14
Q

Full Disclosure Principle

A

A company reports the details behind financial statements that would impact users’ decisions in the notes to the financial statements.

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15
Q

Going-Concern Assumption

A

The business is presumed to continue operating instead of being closed or sold.

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16
Q

Monetary Unit Assumption

A

Transactions and events are expressed in monetary, or money, units.

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17
Q

Time Period Assumption

A

The life of a company
can be divided into time periods, such as months and years.

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18
Q

Business Entity Assumption

A

A business is accounted for separately from other business entities, including its owner.

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19
Q

3 types of business activities

A

Operating, investing, and financing

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20
Q

Calculate Net income and Net Loss

A

On income statement, subtract expenses from revenues and get either net income or net loss, which you put into retained earnings

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21
Q

Source documents

A

Source documents identify and describe transactions entering the accounting system.

Examples:
• Bills from suppliers
• Sales receipts
• Checks
• Purchase orders
• Payroll records
• Bank statements

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22
Q

Chart of accounts

A

A list of all ledger accounts with an ID number assigned to each account

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23
Q

9 steps in the accounting cycle

A
  1. Analyze transactions
  2. Journalize
  3. Post to ledger
  4. Prepare unadjusted trial balance
  5. Adjusting entries and post
  6. Prepare adjusted trial balance
  7. Prepare financial statements
  8. Close accounts
  9. Prepare post-closing trial balance
24
Q

Normal balance

A

Increase debit for assets, expenses, and dividends
Increase credit for liabilities, capital stock, retained earnings, and revenue accounts

25
Q

Account balance

A

The difference between the increases and decreases in an account (difference between debits and credits)

26
Q

T-account

A

Represents a ledger account and is used to show the effects of transactions

27
Q

Posting process

A
  1. Identify transactions and source documents
  2. Analyze the transaction using the accounting equation
  3. Record the journal entry
  4. Post the entry to general ledger
28
Q

3 types of trial balances

A

Unadjusted, adjusted, and post-closing

29
Q

Which trial balance do we prepare financial statements for?

A

Adjusted trial balance

30
Q

Order of financial statement preparation

A
  1. Income statement- net income
  2. Statement of retained earnings- retained earnings+net income-dividends
  3. Balance sheet- assets, liabilities, common stock and retained earnings
  4. Statement of cash flows
31
Q

Income statement

A

Add up all revenues and expenses from trial balance and subtract them to get net income/net loss

32
Q

Statement of Retained Earnings

A

Retained earnings from start of period + net income/- net loss - dividends= retained earnings end of period

33
Q

Balance sheet

A

Total assets= total liabilities and equity (common stock+retained earnings)

34
Q

Statement of Cash Flows

A

+- operating CF
+- investing CF
+- financing CF
= change in cash

35
Q

Fraud triangle

A

Opportunity- envisions a way to do without getting caught
Rationalization- fails to see criminal nature or justifies action
Pressure- mush have some pressure to do it

36
Q

Unearned revenue

A

Cash received in advance of providing products and services.
Debit liability and credit revenue

37
Q

Deferrals

A

Paid or received cash before recognized

38
Q

Accruals

A

Paid or received cash after recognized

39
Q

Deferral of expense

A

Prepaid
Adjusting entry:
Debit expense (increase)- understated
Credit asset (decrease)- overstated

40
Q

Deferral of revenue

A

Unearned revenue
Adjusting entry:
Debit liability (decrease)- overstated
Credit revenue (increase)- understated

41
Q

Accrued expense

A

Salaries/interest expense
Adjusting entry:
Debit expense (increase)- understated
Credit liability (increase)- understated

42
Q

Accrued revenue

A

Accounts receivable
Adjusting entry:
Debit asset (increase)- understated
Credit revenue (increase)- understated

43
Q

What happens if you don’t post specific adjusting entry?

A

If you forget to credit revenue, it’s understated, which makes net income understated, which makes equity understated, etc

44
Q

Calculate interest

A

Principal amount owed x Annual interest rate x days/360

45
Q

Straight line depreciation

A

Asset cost-salvage value/useful life

46
Q

Asset

A

Resource a company owns or controls

47
Q

Liability

A

Creditor’s claims on assets

48
Q

Equity

A

Owner’s claim on assets

49
Q

3 most common accounts:

A

Cash, amounts payable, amounts receivable

50
Q

Closing process

A

Resets revenue, expenses, and dividends to zero
Identify accounts for closing, record and post closing entries, and prepare post-closing trial balance

51
Q

Temporary accounts

A

Revenues, expenses, dividends, income summary

52
Q

Permanent accounts

A

Assets, liabilities, common stock, retained earnings

53
Q

Classified Balance Sheet Assets

A

Current assets, long-term investments, plant assets, and intangible assets

54
Q

Classified Balance Sheet Liabilities and Equity

A

Current liabilities, long-term liabilities, and equity (common stock and retained earnings)

55
Q

Closing Entries

A
  1. Close revenue accounts (debit revenues and credit income summary)
  2. Close expense accounts (debit income summary and credit expenses)
  3. Close income summary account (debit income summary and credit retained earnings)
  4. Close dividends account (debit retained earnings and credit dividends)

Financial Accounting (4 decks)

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