Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Accounting > GAAPs etc > Flashcards

GAAPs etc Flashcards

1
Q

Business entity concept

A

The accounting for a business or organization is kept separate from the personal affairs of its owner, other business or organization.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Going concept concern

A

Assumes that a business will continue to operate unless it is known otherwise

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Time period concept

A

Accounting takes place over specific time periods known as fiscal periods. The fiscal periods should be equal length when used to measure the financial progress of the business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Monetary Unit Assumption

A

Accounting measures and reports the results of economic activities in terms of a stable monetary unit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Principle of conservatism

A

Te accounting for a business should be fair and reasonable. The results should not overstate nor understate the affairs of the business.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Objectivity principle

A

The accounting will be recorded on objective evidence. Different people looking at the evidence will arrive at the same value for the transaction.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Revenue recognition convention

A

Revenue should be taken into account at the time the transaction is completed.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Expense recognition convention

A

Expenses are recorded when benefit is used up to generate revenue.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Matching principle

A

Each expense related to revenue earned must be recorded in the same accounting period as the revenue it helped them earn.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Consistency principle

A

Accountants should apply the same methods and procedures from period to period. When changes are made, they must be explained clearly on the financial statements.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Materiality principle

A

Accountants are required to use GAAPs except when to do so would be expensive or difficult and where it makes no real difference o the decisions of users of financial statements.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Full disclosure principle

A

Any and all information that affects the full understanding of a company’s financial statements must be included with the financial statements.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Why do we need accounting?

A
  • accurately record and report finances
  • assess financial positions and make educated decisions
  • hold accountable to shareholders, etc
  • record day to day financial activities to find trends
  • summarize and report information in financial statements for analysis and decision making
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Who uses accounting?

A
  • shareholders
  • CEO ans CFOs
  • financial decision makers
  • consumers
  • trade unions
  • creditors
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Define sole proprietorship

A

-you are sole owner of the business and are personally responsible for debts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Advantages of sole proprietorship

A
  • easy and inexpensive to start
  • direct control of decision making
  • tax advantages
  • all profits go to you directly
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Disadvantages of sole proprietorship

A
  • unlimited liability
  • higher tax bracket if business is profitable
  • lack of continuity if you need to be absent
  • difficult to raise capital on your own
  • limited talent pool
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Define partnership

A

Business owned by two people, often for service type businesses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Advantages of partnership

A
  • easy to start up
  • start up costs shared
  • equal share in management, less workload
  • skill sets increase
  • possible tax advantages
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Disadvantages of partnership

A
  • unlimited liability
  • hard to find suitable partner
  • possible conflict with partner
  • lack of continuity if either one needs to be absent
  • held responsible for the decisions your partner makes
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Corporation

A
  • a separate legal entity that is owned by its shareholders

- accountable under federal law

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Advantages of corporation

A
  • limited liability
  • ownership is transferrable
  • continuous existence
  • easier to raise capital
  • possible tax advantages
  • specialized management team
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Disadvantages of corportation

A
  • closely regulated
  • more expensive
  • extensive corporate records required
  • possible conflict between shareholders and board of directors
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

GAAP are what

A

Generally Accepted Accounting Principles that make sure companies are reporting fair data

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What is the fundamental accounting equation?

A

Assets = Liabilities + Owners Equity

Assets- Liabilities = Owner’s Equity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Define assets

A

Items of value owned by a business or person

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Define liabilities

A

-debts of a business or person

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Define owners equity

A

A person’s net worth. AKA Capital, net worth, or retained earnings

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Define balance sheet

A

A formal report or statement that shows the financial position of the business on a certain date. Does not include temporary accounts.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

In what order to do you list asset accounts on the balance sheet?

A

Short term: Order of liquidity. Cash first, then accounts receivable, then prepaid rent and the like, then supplies
Long term: Longest life first. Land, building, equip.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

In what order do you list liabilities on the balance sheet?

A

In order of maturity date, shortest first.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Define transaction:

A

An exchange of things of value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Define debit

A

The left hand side of an account. Increases assets, decreases liabilities and owner’s equity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Define credit

A

The right hand side of an account. Increases owner’s equity and liabilites, decreases assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Define ledger

A

A group of accounts. Can be either on paper or digital.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

Define double entry accounting

A

For each transaction two or more accounts must be affected. Debits must equal credits.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Define revenue

A

Amount earned from the sale of goods and services

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

Define Expenses

A

The cost of items or services to run the business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

Net income/loss

A

The difference between revenue and expenses. Changes owner’s equity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

In what order are revenues listed?

A

From greatest revenue to least

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

In what order are expenses listed?

A

In the order they appear in the general ledger

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

When do we use the drawings account?

A
  • withdrawing cash
  • removing merchandise for personal use
  • taking equipment for personal use
  • using company funds for personal expenses
  • when paying themselves
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

Why do we need separate accounts for revenue and expense?

A

To provide us with financial information. We can track how we are spending and earning money. Want to be able to read off accounts in general ledger to create balance sheet and income statement.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

What order do accounts go in the trial balance?

A

As they appear in the general ledger.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

Where do dollar signs go?

A

-first figure of every column and beside the final total in both sections

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

What is the journal used for?

A

Recording transactions in a chronological order with both debit and credit and an explanation as to what transaction occurred.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

What is the numbering system for accounts?

A 
100-199 Assets
200-299 Liability
300-399 Owner's Equity
400-499 Revenue
500-599 Expenses
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

What do we write in the ledger posting reference column?

A

The page number of the journal that the transaction was written on with a J before it.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

What do we write in the journal posting reference?

A

The number from the ledger account.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

How do you open ledger accounts?

A

Fill in information and write “opening entry” in the particulars.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

How do you forward amounts once you’ve finished a page of the ledger?

A

Record the normal information, then write “Forwarded” in the particulars and write the balance and put a check in the PR. On the previous page write “Forwarded” in the particulars.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
52
Q

Source documents relate to which GAAP?

A

Principle of Objectivity

53
Q

Define source document

A

Any business form that serves as the original source of information that a transaction has occurred.

54
Q

What control procedure is related to source documents?

A

All documents are pre numbered and must be accounted for. There must be a copy of all source documents on file and available to anyone that has authority to check company records

55
Q

What are cash sales slips?

A

Used whenever a cash sale is made. On copy given to customer, one used in accounting department, one kept in a file that contains record of all cash sales.

56
Q

What are sales invoices?

A

Used when purchases are made on credit. Terms should be on the sales invoice. 2 copies go the the customer, 3 goes to accounting department of seller, 4 is kept in sales department records.

57
Q

What are purchase invoices?

A

The bill received when you purchase something on credit.

58
Q

What are bank source documents?

A

Used when the bank makes changes to your account. They are opposite. A bank credit memo increases the customer’s account, a bank debit memo decreases the customer’s account.

59
Q

What is the work sheet?

A

A tool that accountants use to help organize their data to help create the financial statements.

60
Q

What is a report form balance sheet?

A

Does not break down assets or liabilities. Includes statement of owner’s equity.

61
Q

What is a classified balance sheet?

A

Lists items into special categories to provide us with more information about the company when looking at the financial statements. We categorize the asset section into current and fixed assets. We categorize liabilities into current and long term.

62
Q

Define current assets vs. fixed

A

Assets that will be turned into cash or consumed within one year. Fixed are more than one year.

63
Q

What is included as current assets?

A

Cash, accounts rec, supplies, government bonds, marketable securities, and prepaid expenses.

64
Q

What is the diff. between long term and current liabilities?

A

Current are paid within a year.

65
Q

What do we debit when we pre-pay an expense?

A

Prepaid whatever expense. (Later just debit whatever expense as you use the prepaid up. you don’t touch prepaid whatever expense again)

66
Q

Why do we make adjustments?

A

So the balance sheets show as accurately as possible the value of our stuff. This follows the Revenue Recognition Principle, Matching Principle, Principle of Materiality, and Principle of Conservatism

67
Q

How do we record supplies used?

A

On sum at the end of the month. Debit supplies expense. Subtract amount we have from amount we had.

68
Q

How do we adjust for unearned revenue?

A

Debit Unearned Revenue, credit whatever Revenue account.

69
Q

What are accrual adjustments?

A

These have not been recording yet in the accounts, and could be revenues that were earned but not paid or billed yet, or expenses that were incurred.

70
Q

What do you write as an explanation when services are done on credit?

A

“To accrue revenue earned but not billed or collected”

71
Q

How do you adjust for owing interest but not having to pay it until a certain time?

A

Debit Interest expense, credit interest payable. Write “To accrue interest on note payable”. Later debit both interest payable and note payable.

72
Q

How do you record salaries that are split between months?

A

Debit Salary Expense for the amount earned per the time period, credit Salary Payable. Write “to record accrued salaries”. Later when you pay debit both salary payable and salary expense.

73
Q

In what order do you do the accounting process?

A

Journalize, post to ledger, do trial balance, do adjustments, do trial balance, do rest of statements, close and post accounts, do post-closing trial balance.

74
Q

What are expenses?

A

Any cost to a business that helps generate revenue.

75
Q

What is depreciation?

A

The assignment of costs, or the division of initial cost of the fixed asset over the life of the asset.

76
Q

What is and Accumulated Depreciation account?

A

Contra-asset. Has a credit value and decreases the value of fixed assets.

77
Q

What is straight line depreciation?

A

The asset decreases by the same amount every year, whether a percent or an equal division of its life span.

78
Q

How do you record amortization?

A

Debit amortization expense, credit accumulated depreciation.

79
Q

What is declining balance?

A

Depreciation is largest towards the beginning ang becomes smaller over time. Never reaches 0. Take percent of end balance.

80
Q

What does declining balance mean when it come to income tax?

A

Have to use the declining balance method. Revenue Canada sets out the maximum rates of depreciation. Refer to as the capital cost allowance.

81
Q

What is bad debt?

A

Allowing for customers who will not pay. Uses the Allowance for Doubtful Accounts, a contra asset.

82
Q

How do you record bad debt?

A

First: Debit Bad Debt Expense, credit Allowance for doubtful accounts “to allocate for bad debt for the period”. When sure will not be paid:

Debit Allowance for Doubtful Accounts and credit Accounts Receivable “to remove A/R that will not be paid”

83
Q

What is COGS?

A

Cost of Goods Sold. The total cost for the merchandise that we have sold in a fiscal period. Sales minus COGS gives gross profit.

84
Q

What are operating cycles?

A

The time it takes for cash to come back as cash when producing revenue. Longer for merchandising operations.

85
Q

What type of account is merchandise inventory?

A

Current asset.

86
Q

What are perpetual inventory systems?

A

Inventory and COGS are recorded continuously via barcodes and scanners. Gives strong internal control of inventory, which is crucial to success. Allows to avoid aging merchandise and know when company is running low on stock. Still have to do physical inventory at least once a year.

87
Q

What are periodic inventory systems?

A

Records stuff at end of accounting period. Have to do a physical inventory. Cheaper.

88
Q

How do you calculate COGS?

A

Beginning inventory + cost of goods purchased = cost of goods available for sale

Cost of goods available - ending inventory = cost of goods sold.

89
Q

How do we record purchase of merchandise?

A

Debit merchandise inventory, credit accounts payable

90
Q

What are the accounts that summaries your subsidiary ledgers?

A

Control accounts

91
Q

How do taxes affect merchandising companies?

A

PST is only paid by final customer. GST is paid when purchasing items for resale. Offset in retail price.

92
Q

What does FOB mean?

A

Free on board point

93
Q

What is the diff between FOB shipping point and FOB destination?

A

S: Buyer accepts ownership of merchandise when placed on carrier by seller. They pay for costs and damages.

D: Seller is responsible until it arrives at the seller

94
Q

For a buyer how is FOB shipping point recorded?

A

Debit Merchandise Inventory, credit Cash

95
Q

How do you record returned goods (buyer)?

A

Debit Accounts payable, credit merchandise inventory

96
Q

What does 2/10, n/30 mean?

A

2% off if paid within ten days Payment due in 30.

97
Q

How do you record purchase discounts?

A

Debit accounts payable, credit merchandise inventory and cash

98
Q

How do you record selling merchandise?

A

Two entries.

Debit Accounts Receivable, credit sales

Debit Cost of Goods Sold, credit merchandise inventory

99
Q

Sales tax is what?

A

A liability until it is paid to the government.

100
Q

Sales Returns and Allowances

A

A contra asset account used by merchandising companies.

101
Q

How does a seller record returned merchandise?

A

Debit Sales Returns and Allowances, Credit Accounts Rec.

Debit Merchandise Inventory, Credit Cost of Goods Sold

102
Q

How do you record returned merch if it cannot be resold?

A

Debit Loss from Damaged Goods, credit Cost of Goods Sold

103
Q

How do sellers record sales discounts?

A

Debit cash, sales discount. Credit Accounts Receivable.

104
Q

How do you record a loss of inventory?

A

Debit cost of goods sold, credit merchandise inventory.

105
Q

Why do we close accounts?

A

To prepare the revenue and expense accounts for the next accounting period by reducing them to a zero balance and to update the owner’s equity account

106
Q

How do you close accounts?

A

Debit all revenue accounts, credit income summary.

Debit income summary, credit all expense accounts.

Debit (or credit) income summary, credit (or debit) capital

Debit drawings account, credit capital

107
Q

What do you write in the particulars of ledger posts?

A

Adjustments: “Adjusting Entry”
Close: “Closing Entry”
Close to income summary: “To close revenue/expenses”
Close income summary: “Closing Entry”, “Net income/loss” in capital
Close Drawings: “Drawings” in capital

108
Q

What are the steps of a multistep income statement?

A
  1. Net sales
  2. Gross profit
  3. Income from operations
  4. Non-operating activities
  5. Net income
109
Q

What is a non-operating activity?

A

Non-recurring or short term. Items recorded at net amount.

110
Q

Internal control

A

The process that management designs and implements to help an organization acheive reliable financial reporting, effective and efficient operations, and compliance with relevant laws. Prevents employees from stealing.

111
Q

What are the principles of internal control?

A
  1. Authorization
  2. Segregation of duties
  3. Documentation procedures
  4. Safegaurding assets and records
  5. Independent verification
  6. Other control
112
Q

What are control activities?

A

Policies and procedures that help to ensure management’s directions are followed. Response to potential risk.

113
Q

What is authorization?

A

Establishment of responsibility. Specific employees responsible for specific tasks, no overlap

114
Q

What is segregations of duties?

A

The work of one employee should be the basis for monitoring the work of another. Responsibility for related activities assigned to different people, accounting for assets separate from person with physical custody

115
Q

What are documentation procedures?

A

Give accountants evidence of transactions and events. Adding signatures helps keep track of who was involved.

116
Q

What is safegaurding assets and records?

A

Physical controls. Safes, alarms, time clocks

117
Q

What is independent verification?

A

Performance review with no bias. Should be done on surprise basis. Internal auditors may be hired by a company to make sure their control procedures are being followed.

118
Q

What is bonding employees?

A

Getting insurance protection if the employee were to steal from the company. Insurance company does screening and rejects risky applicants. Less likely to steal because insurance company will prosecute offenders.

119
Q

Why rotate employees duties?

A

Deter them from stealing. Harder for them to cover up their work.

120
Q

What is reasonable assurance?

A

Internal controls should not cost more than the expected benefit. Human factor means they will never be perfect.

121
Q

What are cash control procedures?

A
  1. Separation of duties
  2. Immediate listing of cash receipts
  3. Daily cash proof
  4. Daily deposit of cash
  5. Payment by cheque
  6. Petty cash procedures
  7. Periodic Audit
  8. Bank Reconciliation
122
Q

What is immediate listing of cash receipts

A

All cash should be recorded as soon as it is received. Any cancelled sales slips should be marked void and kept on file.

123
Q

What is daily cash proof

A

Each day supervisor should balance the cash against source documents.

124
Q

What is daily deposit of cash?

A

Each day cash should be deposited in bank. No large amounts at any one time.

125
Q

What is payment by cheque?

A

All cash payments done by cheque requiring 2 signatures and kept in a safe location.

126
Q

What are petty cash procedures?

A

Used for small purchases. One person responsible for petty cash fund. Collect receipts and are in charge of cash disbursements. Replenish when running low.

127
Q

What is a bank reconciliation?

A

Bank and business keep separate accounts. May not match due to time lags. Person who does should have no other cash related duties.

128
Q

How do you adjust NSF cheques?

A

Debit A/R, credit cash

Accounting (2 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions