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Accounting 201 > Midterm 1 > Flashcards

Midterm 1 Flashcards

1
Q

Accounting

A

A system of maintaining records of a company’s operations and communicating that information to decision makers

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2
Q

Managerial accounting

A

Info that is provided for internal users (managers)

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3
Q

Financial accounting

A

Provided to external users

- what we focus on

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4
Q

Functions of financial accounting

A
  1. Measure business activities of a company

2. Communicate those measurements to external parties for decision making purposes

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5
Q

Investors

A

Want to make good decisions related to buying and selling stock

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6
Q

Creditors

A

Make decisions related to lending money to the company

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7
Q

Corporation

A

Company that is legally seperated from its owners

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8
Q

An advantage stockholders have

A

Double taxation

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9
Q

Limited liability

A

Prevents stockholders from being personally responsible for the financial obligations of the corporation
- they only lose their investments not their personal assets

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10
Q

Sole proprietorship

A

Business owned by 1 person

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11
Q

Partnership

A

Owned by 2+ persons

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12
Q

Assets

A

The resources of the company

Ex: cash and equipment

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13
Q

Liabilities

A

Amounts owed to creditors

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14
Q

Stockholders equity

A

Owners claims to resources

Common stock + retained earnings

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15
Q

Basic accounting equation

A

Assets = liabilities + stockholders equity

- must always be in balance

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16
Q

Value of a company

A

Total resources - amounts owed to creditors

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17
Q

Revenues

A

Amounts earned from selling products or services to customers

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18
Q

Expenses

A

Cost of providing goods and services

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19
Q

Net income

A

Revenues - expenses

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20
Q

Net loss

A

If expenses exceed revenues

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21
Q

Dividends

A

Cash payments or stockholders

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22
Q

Income statement

A

A financial statement that reports the company’s revenues and expenses

  • company name
  • title of financial statement
  • time period covered
  • 3 captions are : revenue, expenses, net income
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23
Q

Statement of stockholders equity

A

Summarizes the changes in stockholders equity over an internal of time
2 components: common stock and retained earnings

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24
Q

Common stock

A

amount stockholders have in the company

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25
Q

Retained earnings

A

Cumulative amount of net income earned over the life of the company that has been kept in the business rather than as dividends

Revenues- expenses- dividends
Or
Net income - dividends

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26
Q

What are dividends considered

A

A distribution of net income NOT expenses

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27
Q

balance sheet

A

Presents the financial position of the company on a particular date
- shows assets, liabilities, and S. equity

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28
Q

accounts receivable

A

Money expected to receive in the future

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29
Q

Statement of cash flows

A

Measures activities involving cash receipts and cash payments over an interval of time

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30
Q

3 categories of cash transactions

A

Operating cash flows
Investing cash flows
Financing cash flows

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31
Q

Operating cash flows

A

Cash receipts and cash payments for transactions involving revenues and expenses

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32
Q

Investing cash flows

A

Cash transactions for the purchase and sale of investments and productive long term assets

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33
Q

Financing cash flows

A

Cash transactions with lenders, such as borrowing money and repaying debt, and with stockholders such as issuing stock and paying dividends

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34
Q

Change in cash

A

Operating cash flows + investing cash flows + financing cash flows

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35
Q

What best explains a company’s stock price performance

A

Their net income

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36
Q

GAAP

A

generally accepted accounting principles

Rules of financial accounting all companies use

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37
Q

auditors

A

Makes sure financial statements are being prepared in compliance with the rules

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38
Q

accounting cycle

A

The full set of procedures used to accomplish this two step measurement/ communication process

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39
Q

External transactions

A

Transactions the firm conducts with a seperate economic entity
Ex: selling products to a customer, purchasing supplies from a vendor, paying salaries, borrowing from bank

40
Q

Internal transactions

A

Events that affect the financial position of the company but do not include an exchange with a seperate entity
Ex: using the supplies on hand, earning revenues after receiving cash in advance from a customer
** recorded at end of the period

41
Q

Account

A

Summarizes all transactions related a particular item over a period of time
- asset accounts, liability accounts, SE accounts

42
Q

Chart of accounts

A

A lit of all account names used to record transactions of a company

43
Q

Revenue recognition principle

A

Companies record revenue at a time EARNED even if it’s not paid right away

44
Q

DEALOR

A 
d- dividends
E- expenses
A- assets
L- liabilities
O- owners equity
R- revenues
45
Q

Rules of DEALOR

A

RIGHT SIDE: (DEA)
- debit means increase and credit means decrease

LEFT SIDE: (LOR)

  • debit means increase
  • credit means increase
46
Q

journal

A

Provides a chronological record of all transactions affecting a firm

47
Q

journal entry

A

Used to describe the format for recording a transaction

  • debits must equal credits
  • credits are indented
48
Q

General ledger

A

All accounts used to record the company’s transactions

49
Q

Posting

A

The processing of transferring the debit and credit information from the journal to individual accounts in the general ledger

50
Q

T account

A

A simplified form of a general ledger account with space at the top for the account title and two sides for recording debits and credits

51
Q

Trial balance

A

A list of all accounts and their balances at a particular date, showing that total debits = total credits

52
Q

Accrual basis accounting

A

Record revenues when we EARN them (revenue recognition) and record expenses with related revenues (expense recognition)

  • more accepted in major companies
53
Q

matching principle

A

Companies report expenses in the same period as the revenues they help to generate

54
Q

Cash basis accounting

A

Record revenues at the time we receive cash and expenses at the time we pay cash

55
Q

during the year we

A

Record/post external transactions

56
Q

At the end of the year we

A

Record/post adjusting entries
Prepare financial statements
Record/post closing entries

57
Q

adjusting entries

A

To record events that have occured but that we have not yet recorded

58
Q

Two categories of adjusting entries

A

Deferrals (prepayments): prepaid expenses, unearned revenues

accruals: accrued expenses, accrued revenues

59
Q

Prepaid expenses

A

The cost of assets acquired in one period that will be expenses in a future period

  • adjusting entry includes a debit to an expense account and a credit to an asset account
60
Q

Depreciation

A

The process of allocating the cost of an asset to expense over the assets useful life

61
Q

Contra account

A

An account with a balance that is opposite to that of its related accounts
- accumulated depreciation account

62
Q

Book value

A

Original cost - accumulated depreciation

63
Q

unearned revenues

A

When a company receives cash in advance from a customer for products or services to be provided in the future

  • adjusting entry includes a debit to the liability account and a credit to a revenue account
64
Q

accruals

A

the opposite of prepayments

- occur when the cash flow occurs after either the expense is incurred or the revenue is earned

65
Q

accrued expense

A

When a company has a cost but hasn’t yet paid cash or recorded an obligation to pay for that cost, it should still record the cost as an expense and also a liability for the amount

66
Q

accrued Revenue

A

When a company has earned revenue but hasn’t yet received cash or recorded the amount receivable, it should still recorded the revenue and asset for the amount expected to be received

67
Q

when will we not require an adjusting entry

A

Transaction in which we receive cash at the same time we earn revenue or pay cash at the same time we incur an expense

68
Q

accounts payable

A

Gonna pay it in the future

69
Q

adjusted trial balance

A

A list of all accounts and their balance after we have updates account balances for adjusting entries

70
Q

Classified balance sheet

A

Groups a company’s asset and liabilities accounts into standard categories: current assets (provide benefit within a year and listed in order of liquidity)
Long term assets: provide benefit in more than 1 year

71
Q

Liquidity

A

How quickly it is converted to cash

72
Q

Operating cycle

A

The average time it takes to provide a service to a customer and then collect the customers cash

73
Q

Temporary accounts

A

TRED : revenues, expenses, dividends

- we will keep them for each period and then transfer balance to the retained earnings

74
Q

Permanent accounts

A

PALS: assets, liabilities, SE
all accounts that appear in the balance sheet
- we carry forward their balances from period to period

75
Q

Closing entries

A

Transfer the balances of all temporary accounts to the balance of the retained earnings

76
Q

Post closing trial balance

A

A list of all accounts and their balance at a particular date after we have updated account balances for closing entries

77
Q

Occupational fraud

A

The use of ones occupation for personal enrichment through the deliberate misuse of the employers resources.

78
Q

Fraud triangle

A

3 elements for fraud: motive, rationalization, and opportunity

79
Q

Internal controls

A

A company’s plan to safeguard the company’s assets and improve the accuracy and reliability of accounting info

80
Q

Sarbanes Oxley act

A

Established guidelines to reform public company accounting and investor protection

81
Q

Components of internal control

A

Monitoring
Control activities (preventative and detective)
Risk assessment
Control environment

82
Q

Preventative controls

A 
Separation of duties
Physical controls
Proper authorization
Employee management
E commerce controls
83
Q

Detective controls

A

Reconciliations
Performance reviews
Audits

84
Q

Collusion

A

When 2 or more people act in coordination to circumvent internal controls

85
Q

Cash

A

Currency, coins, and balances in savings and checking accounts as well as items acceptable for deposits

86
Q

Cash equivalents

A

Short term investments that have a maturity date no longer than 3 months from the date of purchase
Ex: money market funds, treasury bills, certificates of deposit

87
Q

What do a company’s purchases with a credit card go under

A

Accounts payable

88
Q

Bank reconciliation

A

Matches the balance of cash in the bank account with the balance of cash in the company’s own records

89
Q

When do timing differences occur

A

When the company records transactions either before or after the bank records the same transaction

90
Q

Deposits outstanding

A

Cash receipts of the company that have not been added to the banks record of the company’s balance

91
Q

Checks outstanding

A

Checks the company has written that have not been subtracted from the banks record of the company’s balance

92
Q

NSF checks

A

Customers checks written on nonsufficient funds, bad checks

93
Q

Petty cash funds

A

Where comps is keep a small amount of cash on hand for minor expenses

94
Q

Statement of cash flows

A

How investors know a company’s cash inflows and outflows related to operating activities, investing activities, and financing activities

95
Q

Earnings quality

A

The ability of current net income to help us predict the future performance of a company

96
Q

Financial statements

A

Periodic reports published by the company for the purpose of providing info to external users

  • what investors base their decisions on buying and selling stocks
  • income statement
  • statement of stockholders equity
  • balance sheet
  • statement of cash flows

Accounting 201 (2 decks)

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