Final Exam - Fairchild Flashcards
What is the primary mechanism used to allocate resources in the United States?
open market
Difference between financial and managerial accounting:
FINANCIAL - external users (ex. investors, creditors, lawyers, financial analysts)
MANAGERIAL - internal users (ex. managers, employees who work within a business)
GAAP
Generally Accepted Accounting Principles
FASB
Financial Accounting Standards Board
Retained Earnings
increase in the business commitments to its stockholders
Dividend
the distribution of assets generated through earnings
accounting equation:
assets = liabilities + equity
Common Stock
specific commitments made to investors
Liabilities
what we “owe”
Assets
what we “own”
Equity
what is “ours”
Investors
provide financial resources in exchange for ownership interests in businesses
Creditors
lend financial resources to businesses (bank)
Market:
group of people organized to exchange items of value
Revenue
economic benefit a company obtains from providing goods and services to its customers
Expense
economic sacrifice a business incurs in the process of generating revenue
General Ledger
a means for keeping record of a company’s total financial accounts
Liquidation
the process of selling off a company’s inventory, typically at a big discount, to generate cash
How does the balance sheet work?
total assets balance with liabilities plus equity
What is the statement of changes in stockholders equity?
CS:
bb
+
-
EB
and
RE:
bb
+
-
EB
What is the statement of cash flows?
how a company obtained and used cash during the accounting period (Financing, Investing, Operating activities)
What is in a temporary account?
revenue, expenses, dividend
Accrual
do service BEFORE cash
Deferral
do service AFTER cash
How do you find the interest?
interest = principle x rate x time
How do you calculate the depreciation?
cost - salvage/life
How do you calculate the percentage change?
new - old/old
Accounts Receivable
receive money in the future
Accounts Payable
paying money in the future
Normal Balance Account
whichever side the plus sign is on with debits and credits
FOB
Freight On Board
Shipping Point
BUYER PAYS for shipping
Destination Point
SELLER PAYS for shipping
How do you find the NI?
Sales Revenue
<COGS>
-------------------------------
Gross Margin</COGS>
<operating>
--------------------------------
operating income
\+/- other <------------ (gains/losses)
--------------------------------
pre tax
<tax>
--------------------------------
Net Income
</tax></operating>
Financial Leverage
use debt to buy more assets
Period Costs
the period when selling and administrative costs are incurred
Perpetual Inventory
account is adjusted continually throughout accounting period
Gains
difference between sales price and cost of land
How do you find the common size?
divide everything by sales
Financial Activity
debt, equity
Operating Activity
current assets
Investing Activity
long term assets
What are the requirements for double entry accounting system?
debit and credit
Balance of Account
total assets - total liabilities
What is posting?
reflects accounts balances immediately after closing entries were posted
What is the purpose of a journal?
provides chronological of business transactions
What is the purpose of closing entries?
to move all year 2 temporary accounts into RE
FIFO
first in, first out
LIFO
last in, first out
FIFO advantages and disadvantages:
ADVANTAGES:
- higher NI
- higher inventory
DISADVANTAGES:
- higher taxes
- lower inventory turnover
LIFO advantages and disadvantages:
ADVANTAGES:
- lower taxes
- higher inventory turnover
DISADVANTAGES:
- lower NI
- lower inventory
What is a direct write-off method?
an accounting method by which uncollectible accounts receivable are written off as bad debt (debit BDE (bad debt expense) credit AR)
What is the allowance method?
an estimated amount set aside to account for future expenses, potential losses, or reductions in asset values (debiting bad debt expense, crediting allowance for uncollectible accounts)
Net Realizable Value
amount of receivables a company estimates it will actually collect
Internal Controls
policies and procedures used to provide reasonable assurance that the objectives of an enterprise will be accomplished (ex. control environment, risk assessment, control activities, information and communication, monitoring)
Accounting Controls
designed to safeguard company assets and ensure reliable accounting records
Administrative Controls
concerned with evaluating performance and assessing the degree of compliance with company policies and public laws
Unqualified Opinion
most favorable opinion, auditors believe financial statements are in compliance with GAAP without material qualification, reservation or exception
Adverse Opinion
1 or more departures from GAAP are so FS don’t present a fair picture of company’s status
Qualified Opinion
company’s FS are in compliance with GAAP but auditors have reservations about something in the statements
DM (debit memo)
decreasing
CM (credit memo)
increasing
Petty Cash
small amount of cash
Reconcile
come back into agreement
Gross Pay
what employees earn before taxes
Net Pay
what employees earn after taxes
Solvency
ability to repay liabilities in the long run
What is the inventory turnover ratio?
inv.
What is the markup on cost ratio?
COGS
What is the markup on sales ratio?
sales
what is the operating cycle?
Cash
AR Inv.
Current Assets
within a year
Long Term Assets
more than a year
PE (price to earnings) ratio:
earnings per share
What is APIC (additional - paid - in - capital)?
difference between book value and market value
What are capital assets?
short term assets
What is goodwill?
good name of a company
What is a tangible asset?
you can touch the idea of the asset
What is an intangible asset?
you can’t touch the idea of the asset (ex. copywright, patent, trademark, goodwill)
What do we use with tangible assets?
depreciation (SL, UOP, DDB)
What do we use with intangible assets?
amortization (SL)
What do we use with natural resources?
depletion (UOP)
Operational Assets are
long term assets
Face Value
amount paid on the maturity of the bond
Stated Interest Rate
this is the interest rate applied to the interest payments made to bond holders
What is the nature of AR?
it is a current asset
What is the nature of ADA?
it is a contra asset, because it reduces the amount of an asset, in this case the AR
Notes Payable (NP)
a written promise made by the business to pay a debt, usually involving interest, in the future
Net Loss
when expenses are greater than revenue
Salary Payable
what you owe employees but have not yet paid
How do you find NRV?
A/R
<ADA>
------------
NRV
<ADA>
</ADA></ADA>
