Financial Accounting Final Exam Flashcards
When is it appropriate to use special ID method
Companies will use special ID inventory methods when it is important to track specific inventory. This occurs at places with high-value items such as jewelry places
Are FIFO and LIFO used with periodic and perpetual inventory systems or just one
FIFO and LIFO can be used as both perpetual and periodic inventory systems
During rising prices which method results in the highest COGs, Net income, Lowest cogs, net income
When prices are rising LIFO produces the lowest net income and Cogs, and FIFO produces the highest net income and COGs
During falling prices which method results in the highest COGs/net income and the lowest cogs and net income
When prices are falling the best method to use would be FIFO
What are tangible plant assets or PP&E or fixed assets
Tangible plant assets are assets that have a useful life of more than one year and are used in the operation of a business. An example of this would be a building, equipment, machinery, ETC
What costs can be incurred while acquiring an asset
Examples of costs that can be incurred from acquiring an asset would be the price of the asset itself, installation fees, delivery fees, potentially the cost of financing if needed,
Revenue expenditures
Revenue expenditures can also be called operating expenses, they are costs incurred from day to day to activities. Examples include salaries, wages, utilities, rent, advertising, and COGS
Capital expenditures
Capital expenditures refer to funds that are used to purchase, fix, or maintain plant assets.
Depreciation
Depreciation is the process of allocating the price of an asset over the course of its useful life, this is done to account for the decline of value over time
Accumulated depreciation
Accumulated depreciation that has been added up on a fixed asset over the course of its useful life
Residual Value
Residual value refers to the estimated value of a fixed asset at the end of its useful life
Book value
Book value is the net value of a firm’s assets found on its balance sheet
Straight line depreciation method
A depreciation method where you divide the cost of an asset by its estimated useful life. (Cost of asset-Salvage value)/EUL
Why do companies use half year convention rules
Companies use this method because it is considered to be a more accurate reflection of the amount of depreciation that actually took place considering it is broken up into half years
Half year convention depreciation
Liabilities
Liabilities debts or obligations that a company or individual owes to others
Short term vs long term liabilities
Short-term liabilities are debts or obligations that are going to be paid within a year or less
What is a bond
A bond is a loan made by an investor to a borrower (typically a government corporation) the borrower agrees to a specific interest rate until they pay back the principal amount
Why do companies finance using bonds
Bonds can provide a predictable and stable source of funding for projects, they can obtain money at low-interest rates, issued in various allowances and maturities.
Pros and Cons of financing with debt
Pros of financing with debt
Interest paid on debt is tax-deductible
A quick source of funds and easy to access
For companies with good cashflow its relatively low risk
Cons of financing with debt
Create financial obligations
Can create potential bankruptcy
interest rates can be high for some companies
When is the account “Paid in capital” used
Paid-in capital is used when a company receives money in exchange for stock
What does a stocks par value mean
Par value is the face value of a share of a stock which is determined by the company, usually from 0.01-1.00
What does a stock’s market value mean
The value that the stock is trading for on the market at the time
Legal Captial
The amount of money that a company has to keep legally as a minimum level of equity
Paid in capital
amount of money a company has received in exchange for shares
Retained earnings
Profits a company earns that goes back into the business to finance other operations
Earned Captial
A portion of the company’s equity that is generated from its operations and financial performance
Treasury stock
Stock that a company has repurchased from its shareholders
Can you record basic common stock transactions, declarations of payment, dividends
Yes
Basic rights of common stock holders
Rights to receive dividends
Right to vote on corporate decisions
Right to sell or transfer shares
Basic rights of preferred stockholders
Right to receive fixed dividends
Receive dividends before common stockholders
Vote on certain matters
Financing with equity
Pros of financing equity
Does not create financial obligations
The company can use the proceeds to expand
Strong balance sheet and health capital structure
