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ACT 210 > EXAM 1 > Flashcards

EXAM 1 Flashcards

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1
Q

Purpose of financial information

A

Provide inputs for decision making

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2
Q

Accounting

A

Communication and recording of financial information (business transactions) to users of information to make decisions

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3
Q

Financial accounting

A

Communicates to EXTERNAL users

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4
Q

External users

A

People outside the business organization who use accounting information

banks, investors, customers, suppliers, general public

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5
Q

Managerial accounting

A

Communicates to INTERNAL users

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6
Q

Internal users

A

People within a business organization who use financial information

owners, managers, employees

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7
Q

Short-term assets

A

Expected to be converted to cash within a year

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8
Q

Long-term assets

A

Those NOT expected to be converted to cash within a year

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9
Q

What is included in a classified balance sheet?

A

Current assets
Long-term investments
PPE
Current liabilities
Long-term liabilities
Stockholder’s Equity

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10
Q

Order current assets in which they are expected to convert to cash (liquidity)

A

Cash
Investments
Receivables
Inventories
Prepaid Expenses

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11
Q

What is the order of financial reports?

A
  1. Income statement
  2. Stockholder’s Equity
  3. Balance sheet
  4. Statement of cash flows
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12
Q

What steps make up the accounting cycle?

A

During the year:
Record and post external transactions

End of year:
Record and post adjusting entries
Prepare financial statements
Record and post closing entries

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13
Q

Trial balance

A

List of all accounts and their balance at a particular rate

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14
Q

Revenue recognition principal

A

Revenues recorded when EARNED

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15
Q

Expense recognition principal

A

Expenses are recorded when INCURRED

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16
Q

Adjusting journal entries

A

Happen on the last day of the period
Each entry impacts at least one income statement account (a revenue or expense account) and one balance sheet account (an asset-liability account) but NEVER IMPACTS CASH

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17
Q

When is cash received or paid (deferral)?

A

BEFORE the revenue/expense is recognized or benefit is received

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18
Q

When do we recognize revenue? (deferred)

A

When we receive cash

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19
Q

When do we recognize expenses? (deferred)

A

When we give cash

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20
Q

4 types of adjustments

A

Deferred expense, deferred revenue, accrued expense, accrued revenue

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21
Q

Accrual

A

Cash LATER

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22
Q

Which accounts are permanent?

A

All accounts that appear on the balance sheet, including retained earnings

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23
Q

Which accounts are temporary?

A

Revenues, expenses, and dividends

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24
Q

What are the 3 types of accounts we close out at the end of the period?

A

Revenues, expenses, dividends

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25
Q

Liabilities

A

Creditors’ claims to a corporation’s resources

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26
Q

Balance sheet equation

A

Assets = Liabilities + Stockholders’ Equity

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27
Q

Net income/loss equation

A

Revenues - expenses

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28
Q

Receiving cash from an account receivable

A

Increases one asset and decreases another asset

29
Q

Stockholder’s Equity

A

Common stock + retained earnings

30
Q

Stockholder’s equity layout

A

Beg. balance
Issuance of C. stock
Add: Net income for the period
Less: Dividends
Ending balance

31
Q

Liabilities

A

The amount owed to creditors

32
Q

Balance sheet

A

Assets
Liabilities
Owner’s equity

33
Q

Income statement

A

Revenues
Expenses
Net income/loss

Over a period of time

34
Q

Net loss

A

Expenses > revenue

35
Q

Net income

A

Revenue > expenses

36
Q

Sole proprietorship

A

Simple to establish
Owner controlled
Tax advantages

37
Q

Partnership

A

Simple to establish
Shared control
Broader skills and resources
Tax advantages

38
Q

Corporation

A

Easier to transfer ownership
Easier to raise funds
No personal liability

39
Q

Financing activities

A

Raising the funds to start the business

40
Q

Investing activities

A

Buying resources (assets)

41
Q

Operating activities

A

Generating income (profit) via sales and services

42
Q

How does revenue and expense affect stockholder’s equity?

A

Revenues INCREASE

Expenses DECREASE

43
Q

Dividends are NOT…

A

an expense

44
Q

Financial statements provide information that…

A

is useful to investors and creditors in making decisions

helps predict cash flow

tells us about the company’s economic resources, the claims to its resources, and the changes in those resources and claims

45
Q

Which statement is prepared as of a specific date?

A

Balance sheet

46
Q

Accounting is…

A

the language of business

47
Q

The rules of financial accounting are…

A

Generally Accepted Accounting Standards (GAAP)

48
Q

Who is GAAP established by?

A

Financial Accounting Standard Board (FASB)

49
Q

Which financial statement is for the CURRENT PERIOD?

A

Income statement

50
Q

Which financial statement is for a SPECIFIC POINT IN TIME?

A

Balance sheet

51
Q

When expenses increase…

A

Retained earnings decrease
Net income decreases

52
Q

When dividends increases…

A

Retained earnings decreases

53
Q

Asset exchange transaction

A

Asset: no change
Liability: no change
Stockholder’s Equity: no change

54
Q

Prepaid expense normally carries a ____ balance and is reported in the ____.

A

Debit; Balance sheet

55
Q

“Prepaid”

A

Asset

56
Q

Unearned revenue

A

Liability

57
Q

Accounts receivable

A

Asset

58
Q

Investments + Securities

A

Asset

59
Q

Research + Development

A

Expense

60
Q

When revenue increases…

A

Retained earnings increases
Net income increases

61
Q

Which accounts are listed in a post-closing trial balance?

A

Assets, liabilities, equity

62
Q

The balance of retained earnings in the adjusted trial balance…

A

Equals the balance of retained earning at the beginning of the accounting period

63
Q

Financial statements are prepared from which trial balance?

A

Adjusted trial balance

64
Q

Adjusting entries

A

Allows for proper application of the revenue recognition principle (revenues) or expense recognition

65
Q

Is equipment a current or non-current asset?

A

Non-current asset

66
Q

When do we recognize revenue? (accrual)

A

When we provide a service or sell a product

67
Q

When do we recognize expense? (accrual)

A

When we use up a resource

68
Q

Deferral

A

Cash FIRST

ACT 210 (1 decks)

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