Exam 2 (Chapters 2,3,7, & 13)

Question 1

Assets

Answer 1

Are the resources owned by a company from which future economic benefits are expected.

Question 2

Liabilities

Answer 2

(referred to as debts) Are obligations of an entity arising from past transactions, the settlement of which may result in the transfer or use of assets

Question 3

Owner’s Equity

Answer 3

Is ownership right to the owners of the entity in the assets that remain after deducting the liabilities

Question 4

Revenues

Answer 4

(referred to as sales) Represents the dollar amount of assets consumed (or liabilities incurred) or services used in the process of generating revenues

Question 5

Transactions

Answer 5

An exchange between two parties or some other economic event that affects a company’s assets, liabilities or owners’ equity

Question 6

Income Statement

Answer 6

(referred to as a profit and loss statement or statement of operations) Summarizes a company’s revenues and expenses and can be expressed mathematically as Revenues - Expenses = Net Income

Question 7

Balance Sheet

Answer 7

(referred to as statement of financial position) Summarizes a company’s assets, liabilities and owner’s equity and can be expressed mathematically as Assets = Liabilities + Stockholders’ Equity

Question 8

Retained Earnings Statement

Answer 8

Reports the changes that occurred in retained earnings for the period and can be expressed mathematically as BGN retained earnings + Net income - Dividends = END retained earnings

Question 9

Statement Of Cash Flow

Answer 9

Shows the entity’s sources and uses of cash related to operating activities, investing activities, and financing activities

Question 10

Operating Activities

Answer 10

Include cash inflows and outflows related to the production and sale of products or services

Question 11

Investing Activities

Answer 11

Include cash inflows and outflows related to buying or selling long-term assets

Question 12

Financing Activities

Answer 12

Include cash inflows and outflows related to the entity’s owners or long-term creditors such as a bank

Question 13

Depreciation

Answer 13

The process of allocating the cost of a long-term asset over its useful life; the systematic periodic transfer of the cost of a fixed asset to an expense account during its expected useful life

Question 14

Accumulated Depreciation

Answer 14

The sum of all of the previous depreciation amounts taken over the course of a long-term asset’s life

Question 15

Accounting Framework

Answer 15

Visual representation of the impact transactions have on a company’s balance sheet and/or income statement

Question 16

Master Budget

Answer 16

Includes the future operating plans of a company expressed in financial terms and is made up of individual detailed budgets

Question 17

Sales Budget

Answer 17

Estimates the quantity of sales

(Units Forecasted) x (Selling Price) = Total Sales

Question 18

Production Budget

Answer 18

Estimates the number of units to be manufactured to meet budget sales and desired inventory levels

Integrated with the sales budget to ensure that production and sales are kept in balance during the year

(Quantity Sold) - (BGN Inv.) + (END Inv.) = Purchases
→ (Purchases)(Cost per Unit) = Cost of Purchases

Question 19

Direct Labor Cost Budget

Answer 19

Estimates the direct labor hours and related cost needed to support budgeted production

Question 20

Direct Materials Purchased Budget

Answer 20

Estimates the quantities of direct materials to be purchased to support budgeted production and desired inventory levels

Integrated with the production budget to ensure that production is not interrupted during the year

Question 21

Factory Overhead Cost Budget

Answer 21

Estimates the cost for each item of factory overhead needed to support budgeted production

Integrated with the production budget to ensure that production is not interrupted during the year

Question 22

Cost Of Goods Sold Budget

Answer 22

Prepared by integrating the following budgets: Directed materials purchased budget, Direct labor cost budget, and Factory overhead cost budget

Question 23

Budgeted Income Statement

Answer 23

Prepared by integrating the following budgets: Sales budget, Cost of goods sold budget, and Selling and administrative expenses budget

Reflects the operating activities of the company

Question 24

Balanced Sheet Budget

Answer 24

Described and illustrated: Cash budget (financing activity) and Capital expenditures budget (investing activity)

Reflects the financing and investing activities

Question 25

Cash Budget

Answer 25

Estimates the expected receipts (inflows) and payments (outflows) of cash for a period of time Integrated with the various operating budgets Capital expenditures budget, dividends, and equity or long-term debt financing plans of the company affect the cash budget (BGN Cash Balance) + (Cash Receipts) - (Cash Disbursements) = END Cash Balance

Question 26

Capital Expenditures Budget

Answer 26

Summarizes plans for acquiring fixed assets Prepared for five to ten years into the future Integrated with the operating and financing budgets Affect the cash budget

Question 27

Standard Cost

Answer 27

A budget for the production costs of a single unit including the quantity of input as well as the cost of that input

Question 28

Budget Flow Chart

Answer 28

Sales Budget → Production Budget → DM, DL, OH Budget → "COGS" Budget → Budgeted Income Statement Sales Budget → Selling & Admin Expense Budget → Budgeted Income Statement

Question 29

Financial Statement Flow Chart

Answer 29

Income Statement → Retained Earning Statement → Balanced Sheet

Question 30

Accruals

Answer 30

Recognition of revenue when earned or expenses when incurred regardless of when cash is received or disbursed Activity → Cash

Question 31

Accrued Expenses

Answer 31

Expenses that have been incurred at the end of an accounting period but have not been recorded in the accounts

Question 32

Accrued Revenues

Answer 32

Revenues that have been earned at the end of an accounting period but have not been recorded in the accounts

Question 33

Deferrals

Answer 33

Delayed recordings of expenses or revenues Cash → Activity

Question 34

Prepaid Expenses

Answer 34

Items that are initially recorded as assets but are expected to become expenses over time or through the normal operations of the business

Question 35

Unearned Revenues

Answer 35

Items that are initially recorded as liabilities but are expected to become revenues over time or through the normal operations of the business

Question 36

Matching Concept

Answer 36

An accounting concept that requires expenses of a period to be matched with the revenue generated during that period Rev. → Exp.

Question 37

Objectives Of Budgeting

Answer 37

Planning, Directing, & Controlling

Question 38

Cash Receipts

Answer 38

Includes prior sales, current sales, investing activities, financial activities Is used in the cash budget and is added to the BGN cash balance Gain in money

Question 39

Cash Disbursement

Answer 39

Includes operating activities, investing activities, financing activities Is used in the cash budget and is subtracted from the total cash to find the END cash balance Lose in money