Brainscape's Knowledge GenomeTM

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


See full index

Wharton Accounting > Introduction to Financial Accounting > Flashcards

Introduction to Financial Accounting Flashcards

1
Q

What is accrual accounting?

A

Accounting recognition of revenues and expenses tied to business activities, not to cash flows.

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

What are adjusting entries?

A

Internal transactions that update account balances in accordance with accrual accounting prior to the preparation of financial statements.

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

What are differed revenues & expenses?

A
  • Update existing account balances to reflect current accounting values
  • Cash flow in past; record revenue/expense now
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are accrued revenues & expenses?

A
  • Create new account balances to reflect unrecorded assets or liabilities
  • Record revenue expense now; cash flow in future
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What type of balance does a contra asset have?

A

Credit balance

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

What type of balance does an expense have?

A

Debit balance

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

What is goes on the income statement?

A

Revenue - Expenses over a given period of time (i.e. 1 quarter, 1 year, 5 years)

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

What are the five major parts and two minor parts of the accounting cycle?

A 
1 - analyze transactions
2 - journalists & post
3 - adjusting entries
    a - unadjusted trial balance
4 - financial statements 
    b - adjusted trial balance
5 - closing entries
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

How do we close entries?

A

We zero out the expense and revenue accounts and transfer their balances to retained earnings.

Cr. Retained earnings
Dr. Revenue

Dr. Retained earnings
Cr. Expense

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

What is the difference between temporary and permanent accounts?

A

Temporary Accounts

  • accumulate the effects of transactions for a period of time only
  • revenue and expense accounts
  • closed out to retained earnings at the end of the period

Permanent Accounts

  • Accumulate the effects of transactions over the entire life of a business
  • balance sheet accounts (assets, liabilities, contributed capital, retained earnings)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What does the income statement format consist of?

A

REVENUE (or Sales)

  • Cost of goods sold

GROSS PROFIT

  • Operating (SG&A) Expense

OPERATING INCOME

  • Interest, Gains and Losses

PRE-TAX INCOME

  • Income tax expense

NET INCOME

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

What does the balance sheet format consist of?

A

ASSETS
Current assets
Non-current assets
(Ordered by liquidity)

LIABILITIES
Current liabilities
Non-current liabilities 
Stockholder's equity
(Ordered by liquidity)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What happens in an adjusted trial balance?

A
  • summarize balances in each account after adjusting entries
  • used to make financial statements
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

How should you prepare financial statements?

A
  • prepare income statement first
  • then use net income to update retained earnings and to prepare balance sheet
  • finally, compete the statesmen of cash flows and statement of stockholders equity.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

The balance sheet only lists what type of accounts?

A

Permanent accounts

  • assets
  • liabilities
  • contributed capital
  • retained earnings

NOT

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

Why must we close entries before we prepare the balance sheet?

A

Because the balance sheet only lists permanent accounts. When we close entries we are zeroing out all temporary account in order to prepare the balance sheet.

17
Q

What does the statement of cash flows consist of?

A

Operating cash flows
Investing cash flows
Financing cash flows

18
Q

What are operating cash flows?

A

Transactions related to providing goods and services to customers and to paying expenses related to generating revenue (i.e. “Income statement activities)

19
Q

What are investing cash flows?

A

Transactions related to acquisition or disposal of long-term assets

20
Q

What are financing activities?

A

Transactions related to owners or creditors

21
Q

Which business activities require the indirect or the direct method of accounting when prepare the statement of cash flows?

A

Operating

  • indirect
  • direct
  • both are allowed but indirect is required. If you do direct method, you must also do indirect.

Investing
- direct

Financing
- direct

22
Q

What is the essential thing to keep in mind when preparing the statement of cash flows?

A

We are only accounting for transactions involving the cash account. The cash flow statement is an adjustment of the income statements involving the removal all non-cash accounts.

23
Q

What does EBITDA stand for?

A

Earning before interest, taxes, depreciation and amortization.

24
Q

What is the definition of free cash flow?

A

Operating cash flow minus cash for long-term investments.

25
Q

How is free cash flow disclosed?

A

Companies often disclose cash flow using their own custom definition, not the FASB definition.

26
Q

Why does the change in balance sheet numbers often not equal the number on the SCF?

A

Because some of the numbers on the balance sheet involve non-cash accounts and are therefore not listed on the SCF.

Wharton Accounting (3 decks)

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