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Introductory Financial Accounting > Exam > Flashcards

Exam Flashcards

1
Q

Define Accounting

A

Accounting is the systematic process of recording, summarizing, and presenting financial information to users. More simply, it is the language of business.

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2
Q

Transaction

A

An economic event is recorded in chronological order to provide a complete record of all the activities of a business.

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3
Q

Account

A

A record that shows the increases and decreases of an asset, a liability,
or equity (which includes revenues and expenses).

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4
Q

Accounting Cycle

A

The process of compiling and recording data for all the transactions
and select economic events that take place during an organization’s
operating period.

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5
Q

Accounting Equation

A

An equation showing that the total of all the organization’s assets
equals the sum of the organization’s liabilities and the owner’s equity.

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6
Q

Accounting Information System (AIS)

A

A system that is responsible for recording and processing financial
transactions, and for reporting their effects on the financial position
of the organization.

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7
Q

Accounting Standards for Private Enterprises (ASPE)

A

A set of standards developed by the Accounting Standards Board (ASB) that is used by most private entities for financial reporting.

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8
Q

Accounts Payable (A/P) days outstanding

A

A measure of the average number of days it takes a company to
pay its suppliers. A higher number of days could be indicative of
difficulty making payments.

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9
Q

Accounts Payable (A/P) turnover

A

A measure of how quickly accounts payable are paid; that is, how many times, on average, payables are paid during the year. In general, the higher the accounts payable turnover rate, the more
quickly payments are made.

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10
Q

Accounts Receivable

A

A receivable that arises out of a credit sale transaction from the
normal course of business and is typically short term and unsecured.
Accounts receivables are also known as trade accounts receivable
or trade receivables.

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11
Q

Accounts Receivable (A/R) turnover

A

A ratio that measures how quickly accounts receivable are
collected.

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12
Q

Accrual

A

An accounting entry that reflects events or transactions in the
period in which they occur, even if the cash receipts and payments
occur in different periods.

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13
Q

Accrual-based Accounting

A

Under this accounting system, events are recorded when they occur rather than when the cash flow is affected.

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14
Q

Accrued Expense

A

An expense that has been incurred but has not yet been paid or
recorded at the period end. Also known as accrued liabilities.

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15
Q

Accrued Revenue

A

Revenue that has been earned but not yet invoiced or paid

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16
Q

Adjusted Trial Balance

A

A trial balance that is prepared after the adjusting journal entries
have been recorded and posted.

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17
Q

Adjusting Journal Entries

A

Journal entries that are needed to accrue transactions in the general
journal at period end.

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18
Q

Aging of Accounts Method

A

A method used to determine a loss allowance that is calculated as
a percentage of aged accounts receivable outstanding at year end.
This is also known as the balance sheet approach.

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19
Q
A
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20
Q

Allowance for Doubtful Accounts (AFDA)

A

A balance sheet contra account that reduces accounts receivable
balances to their current present value of future expected cash
inflows.

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21
Q

Amortization

A

The process of expensing long-lived assets. Also known as
depreciation.

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22
Q

Amortized Cost

A

The cost of an investment, plus or minus adjustments for any
purchase discounts or premiums associated with the purchase of
the investment.

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23
Q

Amortized Cost (notes receivable)

A

The initial fair value, plus cumulative adjustments for interest, minus payments made (and any reduction for impairment).

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24
Q

Arrears (dividends)

A

Dividends on cumulative preferred shares that should be paid to
preferred shareholders in a particular year, but have not yet been declared.

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25
Q

Articles of Incorporation

A

A legal document submitted to the provincial or federal government
which establishes a business within Canada.

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26
Q

Asset

A

An economic resource controlled by the entity as a result of past
transactions and from which future economic benefits may be
obtained.

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27
Q

Asset Life

A

The estimated length of time that the asset will last.

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28
Q

Asset Management Ratios

A

Ratios that provide information about how fast cash is flowing into
or out of the organization and how efficiently the organization is
managing its asset resources.

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29
Q

Asset Retirement Obligation

A

The costs of dismantling and removing PP&E and restoring the site on which it is located.

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30
Q

Asset Turnover

A

A ratio that indicates how efficiently assets are utilized to generate
sales.

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31
Q

Authorization

A

The process of giving someone permission to do or have something.

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32
Q

Authorized Share Capital

A

Determines the classes of shares the corporation may issue, and the
maximum amount of each class of share that can be issued.

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33
Q

Available for Use

A

The asset is ready to be used for its intended purpose by the
business.

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34
Q

Average Accounts Receivable (A/R) Collection Period

A

A measure of the effectiveness of the business in collecting its
accounts receivables. It calculates an approximation of the number
of days that credit customers are taking to pay their accounts. The
average collection period is also known as the accounts receivable
days outstanding.

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35
Q

Bad Debt

A

An accounts receivable that cannot be recovered.

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36
Q

Bookkeeping

A

The recording of economic events for a business.

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37
Q

Financial Statements

A

A written report of the combined impact of a business’s financial transactions.

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38
Q

Users

A

Organizations or individuals who use financial statements and other financial information to make informed decisions. Users can be internal or external.

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39
Q

Internal Users

A

Users who work for the organization.

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40
Q

External Users

A

Users who do not work for the organization.

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41
Q

Financial Accounting

A

The process of measuring the financial performance of an organization using standard conventions to create a set of financial statements.

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42
Q

Management Accounting

A

The process of taking financial information and non-financial information from a business and using it to make short-term and strategic, long-term decisions to help the business reach its goals.

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43
Q

Generally Accepted Accounting Principles (GAAP)

A

Standard conventions for preparing financial statements. In Canada, GAAP includes International Financial Reporting Standards (IFRS) and Accounting Standards for Private Enterprises (ASPE), as well as standards for not-for-profit organizations, pension plans, and government entities.

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44
Q

Cost Accounting

A

The recording and tracking of costs used in the manufacturing process.

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45
Q

For-profit business

A

A business that exists to generate profit.

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46
Q

Publicly Accountable Enterprise

A

A company that is traded on a public stock exchange.

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47
Q

Private Enterprise

A

A company that is not traded on a public stock exchange.

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48
Q

Manufacturing Business

A

Businesses that transform raw materials into finished goods, which are then sold for profit.

49
Q

Merchandising Business

A

For-profit businesses that purchase goods from suppliers to resell to customers (retail businesses).

50
Q

Service Businesses

A

Businesses that provide services to customers (no physical product is transferred).

51
Q

Not-for-profit Organization

A

A mission-based organization that furthers a social cause.

52
Q

Government Entity

A

An entity that provides services to the general public, funded by taxpayers.

53
Q

Proprietorship

A

A business owned by one person.

54
Q

Capital

A

Financial resources to operate and grow a business.

55
Q

Unlimitied Liability

A

A business owner is personally responsible for all debts of the business, without any limit on the amount they may be required to pay.

56
Q

Separate Business Entity Concept

A

A business must have its own record of revenues, expenses, assets, and liabilities that is separate from that of its owner.

57
Q

Partnership

A

A business structure made up of two or more individuals, corporations, trusts, or partnerships that contribute cash, other assets, and/or services to the business, and share in the management and profits of the company.

58
Q

Partner

A

An individual who shares ownership of a partnership, and is jointly responsible for profits and losses.

59
Q

Limited liability partnership

A

A partnership in which each partner is only responsible for the debts and obligations of the business up to the amount of their capital contribution.

60
Q

Corporation

A

A business that is organized as a separate legal entity.

61
Q

Shareholders

A

The owners of a corporation who have the right to participate in profits through dividends and increases in the value of shares.

62
Q

Shares

A

Transferrable units that represent ownership of a corporation. Shares can be common or preferred.

63
Q

Common Shares

A

Shares that entitle the holder to one voting right in the event of a shareholder vote.

64
Q

Preferred Shares

A

Ownership units of a corporation that provide fixed income to the shareholders.

65
Q

Public Corporation

A

A corporation whose share are traded on a stock exchange.

66
Q

Private Corporation

A

A corporation whose shares are not traded on a stock exchange.

67
Q

Limited Liability for Shareholders

A

Shareholder losses are limited to their investment in the shares.

68
Q

Internal Auditor

A

As suggested by the name, internal auditors are employees of the organization they audit. Internal auditors generally audit the internal controls of the organization, which are policies and procedures that allow the organization to reach its goals and protect its assets.

69
Q

International Financial Reporting Standards (IFRS)

A

A set of global standards developed by the International Accounting Standards Board (IASB) that is used for financial reporting. Publicly accountable enterprises must apply IFRS, while private entities can elect to follow IFRS if desired.

70
Q

Qualitative Characteristics of Financial Information

A

Attributes that make financial information useful and relevant to users, and that it is accurate and trustworthy. Such attributes are Understandability, Relevance, Reliability, and Comparability.

71
Q

Cost constraint

A

A pervasive constraint that ensures that the value of information provided is greater than the cost of providing it. Also known as the cost-benefit principle.

72
Q

Financial Reporting

A

Financial reporting translates the activities of the business into dollars and then uses that information to prepare financial statements. The main objective of financial reporting is to provide users with useful and relevant information about an organization’s financial performance, financial position, and cash flows. Financial reporting helps users make informed decisions about the organization, such as investing, lending, or conducting business with it.

73
Q

Recognition

A

The process of recording items in the financial statements.

74
Q

Balance sheet

A

A statement that presents assets, liabilities, and equity accounts as at a specific date. Also known as the statement of financial position.

75
Q

Deferred revenue

A

Payments received from customers in advance for services that have not been performed or goods that have not been delivered. Deferred revenue is also known as unearned revenue.

76
Q

Liability

A

A debt owed by the business, which must be paid or settled in the future (with assets or services). An obligation of an organization arising from past transactions, the settlement of which may result in the outflow of economic benefits in the future.

77
Q

Measurement

A

The process of placing a monetary value on elements recognized in the financial statements.

78
Q

Historical cost

A

Provides monetary information about a financial element that reflects the price paid when the financial element transaction originally occurred.

79
Q

Economic entity assumption

A

Under this assumption, financial statements report only activities of the business, and not activities of the owners or other businesses.

80
Q

Proprietary Assumption

A

Under this assumption, a business’s results are considered from the owner’s perspective; if all assets are used to pay any debts or liabilities, the residual would belong to the owner or owners of the business.

81
Q

Going-concern Assumption

A

Under this assumption, a business with a going concern is expected to continue to operate for the foreseeable future, specifically to be able to use the benefits from the recorded assets and to pay off the liabilities. This assumption is vioalted when insolvency becomes a likely outcome.

82
Q

Time-period Assumption

A

Under this assumption, reporting performance in smaller periods, such as yearly, monthly, or quarterly, will provide sufficient information about the performance of a business to support decision-making.

83
Q

Cash-based accounting

A

Under this accounting system, revenues are recorded when collected and expenses are recorded when paid.

84
Q

Conservatism

A

Estimates attempt to ensure that assets, revenues, gains, liabilities, expenses, and losses are not overstated or understated.

85
Q

Representational faithfulness

A

The accounting information appropriately reflects the substance of the economic events that occurred.

86
Q

Debt covenant

A

A condition imposed by a lender with restrictions that must be met by the borrower.

87
Q

Unqualified audit opinion

A

An opinion provided by an external auditor that financial statements present fairly, in all material respects, the financial performance and position of the organization in accordance with generally acceptable accounting principles.

88
Q

Governance

A

The system of rules, practices, and processes by which an organization is directed and controlled.

89
Q

Gross margin

A

A ratio that measures the percentage of each sales dollar that remains after recovering the cost of goods sold. It measures the ability of the business to sell goods for more than they cost to make or purchase.

90
Q

Gross profit

A

A calculated amount equal to net sales less cost of goods sold.

91
Q

Profit margin

A

A ratio that measures overall profitability after all expenses, including cost of goods sold, operating and financing expenses, and taxes. It is income or loss measured as a percentage of net sales.

92
Q

Economic event

A

The transfer of control of an economic resource from one party to another party.

93
Q

Journalizing

A

The process of recording transactions as journal entries.

94
Q

General journal

A

A record of accounting transactions in chronological (date) order.

95
Q

Posting

A

The process of transferring information from the general journal to the general ledger.

96
Q

General ledger (GL)

A

A ledger ordered by account number that contains a separate record for each account that details all entries to that account during the period, as well as the ending balance.

97
Q

Subsidiary ledger

A

A ledger that contains details of the specifics of a particular general ledger balance (for example, accounts receivable). Also called a subledger.

98
Q

Prepaid expense

A

A cost that is paid for in cash and recorded as an asset before it is used or consumed.

99
Q

Contra account

A

An account that has the opposite normal balance to its related account.

100
Q

Closing entries

A

Entries made at the end of the accounting period to transfer the revenue, expense, and drawings/dividends account balances to owner’s capital/retained earnings.

101
Q

Permanent accounts

A

Accounts that carry balances forward period over period, such as assets, liabilities, and owner’s capital/share capital/retained earnings.

102
Q

Temporary accounts

A

Accounts that contain accounting information that relates to only one accounting period, including all income, expenses, and drawings/dividends accounts.

103
Q

Current asset

A

Cash or other assets that will either be converted to cash, used up, or sold within one year, or one operating cycle, of the balance sheet date.

104
Q

Current liability

A

An obligation that is due or expected to be settled within one year, or one operating cycle, from the balance sheet date.

105
Q

Operating cycle

A

The length of time it takes for the organization to purchase or construct inventory, sell it on account, and collect the proceeds from the customer.

106
Q

Income statement

A

A statement that reports a company’s performance over a period of time. Also known as the statement of comprehensive income or statement of profit or loss and other comprehensive income

107
Q

Multiple-step income statement

A

An income statement presenting a number of subtotals to calculate net income (for example gross profit, income from operations).

108
Q

Single-step income statement

A

An income statement that presents total revenues and total revenues. Total expenses are deducted from total revenues to calculate net income.

109
Q

Comprehensive income

A

Concept under IFRS that includes profit or loss and other comprehensive income (OCI).

110
Q

Other comprehensive income

A

Concept under IFRS that includes items that are not allowed to be included in profit or loss and are therefore presented separately. Generally, other comprehensive income (OCI) contains certain gains and losses that have not yet been realized.

111
Q

Convertible shares

A

A feature that allows preferred shares to be converted into a specified number of common shares.

112
Q

Retained earnings

A

The corporation’s cumulative profits (net of losses) that have not been distributed by way of dividends to the owners (shareholders).

113
Q

Redeemable or retractable shares

A

A feature that allows preferred shares to be either redeemed by the corporation or retracted by shareholders for a specified price.

114
Q

Non-trade receivable

A

Any amount due to an organization unrelated to selling goods and providing services.

115
Q

Net realizable value (NRV)

A

The net amount that an organization expects to collect from an asset.

116
Q

Percentage of credit sales method

A

A method used to determine bad debt expense as a percentage of credit sales. This is also known as the income statement approach.

117
Q

Notes receivable

A

A claim for which formal agreement is issued in order to settle the receivable.

118
Q

Straight-line method

A

A method used to calculate interest revenue or interest expense based on recording an equal amount over the term of the financial asset or liability.

119
Q

Effective interest rate method A method used to calculate interest revenue or interest expense for a financial asset or liability, based on the rate inherent in the financial asset or liability.

A

Introductory Financial Accounting (1 decks)

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