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acct > exam 1 > Flashcards

exam 1 Flashcards

1
Q

Accounting

A

System of maintaining company records & communicating info to decision makers

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2
Q

Managerial accounting

A

Accounting info provided for internal users

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3
Q

Financial accounting

A

Accounting info provided for external users

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4
Q

2 functions of financial accounting

A
  1. Measure business activities
  2. Communicating info to external users
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5
Q

Financial activities

A

Transactions company has w investor & creditors, activities that relates to non current liability and equity
• borrowing from them

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6
Q

Investing activities

A

Transactions that relates to non current asset

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7
Q

Operating activities

A

Transactions relate to purchasing good, manufacturing product, n selling product
•ex: rent, salaries, utilities, taxes

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8
Q

Coporation

A

Company that is legally separate from its owners

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9
Q

Limited liabilities

A

Protect owners from being personally responsible of company debts or liability

• corporation organization

• ex: if company goes down, owners wont lose their houses or cars

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10
Q

Sole partnership

A

Business owned by one person
• no limited liability

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11
Q

Partnership

A

Business owned by 2 or more
• no limited liability

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12
Q

Asset

A

Total resources of a company

•ex: resources, supplies, inventory for sales, building, land

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13
Q

Liabilities

A

Amount owned to creditor

•claims that must be paid by specific date

•ex: borrowing money

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14
Q

Stockholder equity

A

Owner claim to resources

• claim arise from 2 primary source
1. Contributions by owner themselves
2. Net resources generated by company operations

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15
Q

Accounting equations

A

Asset = liabilities + stockholder equity

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16
Q

Revenue

A

Money from selling/providing product and services to customers

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17
Q

Expenses

A

Cost of providing product & services

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18
Q

Net income

A

Revenue - expenses

•revenue > expenses

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19
Q

Net loss

A

Revenue < expense

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20
Q

Dividend

A

Distribution of net income to owners

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21
Q

Financial statement

A

Written records published by the company to provide info for external users

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22
Q

Income statement

A

reports the company revenue & expenses over period of time, shows profitability

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23
Q

What is in income statement?

A

• revenue
• expenses
•net income

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24
Q

Statement of stockholder equity

A

Shows the total value that belongs to owners

•stockholder equity = common stock + retained earning

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25
Q

Common stock

A

amount invested by stockholder when purchase share of stock

•external

•beginning stock + new issuance = ending stock

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26
Q

Retained earning

A

Profits earned by a company that have not been paid to stockholders
•internal

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27
Q

What is in stockholder equity?

A

• common stock
•retained earnings

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28
Q

Balance sheet

A

Statement that present financial position of the company

•assets = liabilities + equity

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29
Q

What is in a balance sheet

A

•asset
•liability
•equity

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30
Q

Statement of cash flow

A

Record amount of cash and cash equivalent entering and leaving the company

•report cash transactions from
1. Operating
2. Investing
3. Financing

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31
Q

Operating cash flow

A

Cash receipts & cash payment for transaction involving revenue n expenses

• income from customers, rent, salaries

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32
Q

Investing cash flow

A

Cash purchase/selling of assets and investment

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33
Q

Financing cash flow

A

Cash transaction w lenders such as borrowing & repaying money
Stockholder issuing stock & paying dividend

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34
Q

Generally accepted accounting principle
(GAAP)

A

Rules of financial accounting
• all companies use the same rule (universal)
• help investors accurately compare info w other companies

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35
Q

Financial accounting standard board (FASB)

A

Financial accounting reporting standard in the US

•based on CONCEPTUAL FRAMEWORK

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36
Q

Conceptual framework

A

Theory of accounting that provides an underlying foundation for development of accounting standard

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37
Q

International accounting standard board
(IASB)

A

Develop single set of global accounting standards

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38
Q

Securities & exchange commission (SEC)

A

Act had powers to required companies that publicly trade stock to prepare periodic financial statement for distribution to investor & creditor

•1933

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39
Q

Auditors

A

Individual (not employee) hired by company to help ensure management is free of error & applied GAAP

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40
Q

Public company accounting oversight board (PCAOB)

A
  1. Useful to investor & creditor in making decision
  2. Help predict cash flow
  3. Tells about economic resources, claim to resources, & change in resources
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41
Q

Ethics

A

Moral system that evaluate right & wrong

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42
Q

Sarbanes-Oxyley Act (SOX)

A

Created to improve auditor-client relations, internal control, and increase corporate executive accountability

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43
Q

Public accounting

A

Professional service firm that focus on: auditing, tax preparation, & business consulting
• multiple clients

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44
Q

Private accounting

A

Provide accounting services to the company that hired you

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45
Q

Accounting cycle

A

Set of procedures used to accomplish 2-step measurement and communication process

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46
Q

External transactions

A

Transactions between company and separate company or individual

• selling to customers, purchasing supplies, paying salaries, borrowing money

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47
Q

Step 1 of measuring external transactions

A

Use source document to identify accounts affected by external transactions

• ex: sales invoice, bills, contracts

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48
Q

Account

A

record all transactions for a particular items

  • asset account
  • liability account
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49
Q

Chart of account

A

List of all accounts names used to record transaction

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50
Q

Step 2 of measuring external transaction

A

Analyze impact of the transactions on the accounting equations

(Basically record info that affect financial position of the company)

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51
Q

Step 3 of measuring external transaction

A

Assess whether the impact of external transactions results in debit or credit to an account balance

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52
Q

Debit

A

Left side

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53
Q

Credit

A

Right side

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54
Q

DEALOR

A

Dividend (D)
Expenses (D)
Assets (D)
Liability (C)
Owner equity (C)
Revenue (C)

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55
Q

Step 4 of measuring external transaction

A

Record transactions in a journal using debit & credit

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56
Q

Journal

A

Provide a chronological (list in order) record of all transactions affecting the firm

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57
Q

Journal entry

A

Record of business transaction

Format:
Date Debit Credit
Account name Amount
Account name Amount

• total debit = total credit
• debit first

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58
Q

Step 5 of measuring external transaction

A

Post transaction to the general ledger

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59
Q

Posting

A

Process of transferring the debit & credit info from journal to individual accounting in general ledger

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60
Q

General ledger

A

Provides a collections of each account w individual transaction and total account balance

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61
Q

T-account

A

Simplified from of general ledger

Format:

    Account name ———————————-
                 |
                 |
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62
Q

Step 6 of measuring external transaction

A

Prepare trial balance

• trial balance check for error

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63
Q

Trial balance

A

List of all account & their balances at particular date

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64
Q

Accounting cycle

A
  1. Record & post external transactions (during period)
  2. Record & post adjusting entries
    (Measuring process)
  3. Prepare financial statement
    (Reporting process)
  4. Record & post closing entries
    (Closing process)
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65
Q

Accrual

A

Increase overtime

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66
Q

Measurement process

A

Record and post adjusting entries

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67
Q

Accrual-basis accounting

(Measurement process)

A

Record transactions as they occur even if payment haven’t been made

• asset - at the time resources are obtained
• liabilities - at the time obligation occur
• revenue - at the time good/service are provided
• expenses - at the time cost are used

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68
Q

Revenue recognition principle

A

Record revenue in the period that good & service are provide not when payment is received

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69
Q

Cash-basis accounting

(Measurement process)

A

Record transaction only at time cash is received or paid

• NOT PART OF GAAP

70
Q

Accrual vs cash basis

A

Timing differences

71
Q

Adjusting entries

(Measurement process)

A

Entries at end of period used to update balances of revenue & expenses and change in asset n liability that occurred during period but not recorded

72
Q

Accrued expenses

A

Expenses that business incur but haven’t paid

*ex: this period employee salaries will not be paid until the next period

ill pay you on tuesday for today lunch

  • liability
73
Q

Accrued revenue

A

Occur when a company provide good & services, generating rights to receive cash from customers

74
Q

Prepaid expenses

A

Pay cash ti get asset that is not used until later

75
Q

Depreciation (debit)

A

Gradual reduction in value of an asset overtime
Due to:
• use
• wear
• passing time

Ex:
$100 in supplies
$ 20 lost in value due to used over time (depreciation)
—————
$ 80

76
Q

Accumulated deprication

A

Accumulated reduction in value of an asset over time

• credit
• new supplies = $100000
• using supplies over time = $50000
(Caused a decrease in supply value cuz it has been used)

77
Q

Book value

A

Asset original cost

78
Q

Deferred revenue

A

Company receive cash in advance but product/service will be provided in the future

79
Q

When are adjusting entry needed?

A
  1. Cash flows or obligations (action) occur before revenue or expense activity
  2. Cash flow occur after revenue or expense activity
80
Q

When are adjusting entry not needed?

A
  1. Transaction that does not involve revenue or expenses (activity w owner)
  2. revenue or expenses transaction being record at the same time as cash flow
81
Q

Adjusted trial balance

A

List of all account balance after adjustment from adjusting entries have been made

82
Q

Operating cycle

A

Average time it takes to provide service to customers and collect payment

83
Q

Classified balance sheet

A

Groups asset & liabilities into current & long term categories

84
Q

Current (asset) (liability)

A

Asset: liquidity, how fast it can be convert into cast. Provide benefit within next yr
Liability: due within 1 year

85
Q

Long term (asset) (liability)

A

Asset: provide benefit for more than 1 yr
Liability: due in more than 1 yr

86
Q

Reporting process

A

Prepare financial statement

87
Q

Closing process

A

Record & post closing entries

88
Q

Permanent account

(Closing process)

A

account are carried to the next cycle, balance doesn’t get reset to 0

• asset
• liability

89
Q

Temporary account

(Closing process)

A

Account balance that maintained for a single period and then closed and reset to 0

• revenue
• expense
• dividend

90
Q

Closing entries

A

Transfer balance of all temp account to balance of retained earning account

91
Q

Posting closing trial balance

(Closing process)

A

List of all account & their balances at a particular date after updating account balance to closing entries

92
Q

2 reason for incorrect financial statement

A
  1. error
  2. fraud
93
Q

fraud

A

a person intentionally deceives another for personal benefit

94
Q

occupational fraud

A

Employee purposely misusing employer resources for personal benefit

95
Q

2 source of occupational fraud

A
  1. misuse of company resources
  2. financial statement manipulation
96
Q

fraud triangle

A

3 elements present for fraud
1. opportunity
2. motivation
3. rationalization

97
Q

opportunity

(fraud triangle)

A

situation allow the fraud to occur

98
Q

motivation

(fraud triangle)

A

feel the need to commit fraud

99
Q

rationalization

(fraud triangle)

A

justification for deceptive act by the person committing fraud

100
Q

internal control

A

company plant to
1. safe guard the company asset
2. improve accuracy & reliability of accounting info

101
Q

sarbanes-oxley act

A

Established a guidelines that relate to auditors, client relationships, n internal control procedures

102
Q

effective internal control

A

build wall to prevent misuse of company fund

103
Q

strong internal control

A

allow investor to have higher reliance on financial statement

104
Q

committee of sponsoring organization (COSO)

A

dedicated to improving the quanlity of financial reporting

105
Q

who designed framework for internal control

A

committee of sponsoring organization

106
Q

control environment

(components of internal control)

A
  • set ethical tone of the company
  • attitudes and action affect environment
107
Q

risk assessment

(components of internal control)

A
  • consider internal n external risk factors
108
Q

internal risk example

A

unsafe lighting
faulty projector
unsanitary restroom

109
Q

external risk example

A

economic slowdown
covid 19

110
Q

control activities

(components of internal control)

A
  • set policies n procedures used to protect company assets

2 type
1. preventive
2. detective

111
Q

preventive

A

designed to keep errors n fraud from happening

112
Q

separation of duties

(preventives)

A

separate task among employees

113
Q

physical control

(preventives)

A

physical control over assets

ex: locks, cameras

114
Q

proper authorization

(preventives)

A

Higher up approve documents and big transactions

115
Q

employee management

(preventives)

A

provide employees w appropriate guidance

116
Q

e-commerce controls

(preventives)

A

be aware of online bullying, selling informations, and online communications

117
Q

detective control

A

detect/investigate errors or fraud that already occurred

118
Q

reconciliation

(detective)

A

management should check that amount of physical assets match with accounting record

119
Q

performance review

(detective)

A

compare actual performance against expected performance

120
Q

audits

(detective)

A

have auditors asses internal control procedures to detect deficiencies or fraud

121
Q

monitoring

(components of internal control)

A

monitor internal activities n report deficiencies

122
Q

limitation of internal control

A
  • collusion
  • top level employee who have the ability to cheat internal control
  • internal control doesn’t ensure company success
123
Q

responsibility for internal control

A

top executive take final responsibility for their company success

124
Q

collusion

A

2 people working together to cheat internal control

125
Q

cash

A

currency, coins, balances in saving and checking account

126
Q

cash equivalent

A

Short term investment that have a due/expire date no longer than 3 months

ex:
money market fund
treasury bills
certificate of deposits

127
Q

cash n check control

A
  1. make list of cash/check received w payer name n amount
  2. 1 employee deposit cash/check
  3. another employee record n verify cash receipts
  4. accept debit n credit to limit cash amount
128
Q

credit card control

A

provide additional control by reducing direct cash handlement

129
Q

credit card

A

lend money to card holder n pay later

130
Q

debit card control

A

provide control for cash receipts

131
Q

debit card

A

direct withdraw from cardholder bank when used

132
Q

cash disbursement control

A

help prevent unauthorized payment and ensure proper recording

  1. make all disbursements through check, debit, or credit
  2. authorize expenditures before purchase
  3. check should have serial number and signed by authorized employee
  4. compare debit/credit card statement with receipts
  5. set purchase limit
  6. separation of duties
133
Q

cash disbursement

A

payment made from cash account

134
Q

bank reconciliation

A

match bank account cash balance with company cash balance

135
Q

cash vs bank reconciliation

A

timing differences

136
Q

why do we need bank reconciliation

A

error can be accidentally or intentionally made by company or bank

137
Q

bank (CR?)

A

increase = credit
decrease = debit

ex:
company deposit cash
- company sees that as a debit (increase) to cash asset
- bank sees it as a credit to account (bcuz bank asset is not increasing, but increasing bank liability (bank is keeping money for the company))

company withdraw cash
- company pov: credit to cash assets
- bank pov: debit to account (lessening bank liability)

138
Q

step 1 of bank reconciliation

A

reconcile the bank cash balance
- determine which cash transactions have been recoded by the company but not yet by the bank

139
Q

deposit outstanding

A

Money received and recorded in the company book but not recorded in the bank book.
- add to bank statement if haven’t been recorded

140
Q

cash book (company book)

A

Journal that contains what a business think it has in the bank

141
Q

bank statement

A

cash receipts n withdrawals a business think it made over a period of time

142
Q

outstanding checks

A

company writes a check but that check has not been cashed in or recorded on the bank statement
- subtract from company bank balance

143
Q

causes that requires bank reconciliation

A
  1. timing differences
  2. errors
144
Q

step 2 of bank reconciliation

A

reconcile company cash balance
- determine which transactions have been recorded by the bank but not by the company

145
Q

step 3 of bank reconciliation

A

Update company cash account

146
Q

NSF check

A

check received from customer, but the customer’s account does not have enough fund to be withdraw

147
Q

purchase card

A

company-issued credit or debit card for employees to make purchases on behalf of the company

148
Q

petty cash fund

A

small amounts of cash kept on hand to pay for minor purchases

149
Q

petty cash custodian

A

employee responsible for the fund

150
Q

restricted cash

A

cash that is not available for current operations
- cash set aside for emergency

151
Q

four basic assumption of GAAP

A
  1. economic entity
  2. monetary unit
  3. periodicity
  4. going concern
152
Q

economic entity assumption

A

business economic entity (transactions) is separated from its owner

153
Q

monetary unit assumption

A

unit or scale of measurement (in dollar) is used to measure financial statement element

154
Q

periodicity assumption

A

divide economic life of a business into period
- ex: report financial position or cash flow in intervals (months or year)

155
Q

going concern assumption

A

company is financially stable to stay in business for the future periods

156
Q

decision usefulness

A

ability of information to be useful in decision making

useful info requires
1. relevance
2. faithful representation

157
Q

relevance

(fundamental qualitative characteristic)

A

accounting information that has confirmatory value or predictive value

158
Q

materiality

(relevance)

A

reflect impact of financial accounting information on investor and creditor decision

159
Q

faithful representation

(fundamental qualitative characteristic)

A

accounting information that is complete, neutral, and free from error

160
Q

completeness

(faithful representation)

A

include all information necessary for faithful representation

161
Q

neutrality

(faithful representation)

A

unbiased information

162
Q

free from error

(faithful representation)

A

best available information

163
Q

comparability

A

ability to see similarities and differences from 2 business activities

164
Q

verifiability

A

information is reliable and accurate

165
Q

timeliness

A

information that is already available to allow for decision process

166
Q

understandability

A

user must understand information within the context of decision they are making

167
Q

consistency

A

use of similar accounting procedures over time

168
Q

cost constraints

A

information only provided when benefits of doing so exceed the cost

169
Q

retained earning equation

A

beginning retained earning + net income - dividend

170
Q

confirmatory value

A

info that provide feedback on past activities

171
Q

predictive value

A

info that helps predict future outcome

acct (3 decks)

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