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Financial and Managerial Accounting > Midterm > Flashcards

Midterm Flashcards

1
Q

Characteristic of most Preferred Stock

A

Preference as to dividends
Preference as to assets in the event of liquidation
No voting power

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2
Q

Assume an accounted closed the Dividends account by debiting Income Summary and crediting Dividends. What is the effect on net income and retained earnings?

A

Net income is understated and the balance in Retained Earnings is correct NEEDS EXPLANATION

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3
Q

How do Sales, expenses, and dividends get closed in Income summary?

A

Credit sales, Debit expenses, and dividends are not closed to income summary

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4
Q

Net Income end of month adjustment

A

Subtract expenses, even accrued expenses like interest, add revenues - even if they are unearned

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5
Q

A revenue transaction results in all of the following

A

An increase in assets
An increase in owners equity
A positive cash flow at any time

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6
Q

A debit balance in the income summary indicates

A

Net Loss

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7
Q

A credit balance in the income summary indicates

A

Net Profit

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8
Q

What happens to shareholder equity during a stock split?

A

NOTHING

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9
Q

Number of shares used to calculate EPS

A

Yearly Weighted Average of COMMON Stock Shares

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10
Q

Equation for EPS

A

(Net Income - Monies owed and attributed to Preferred Stockholders) / Weighted Average of Common Stock

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11
Q

When do Dividends become a liability?

A

On the date of declaration

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12
Q

Percentage change in Net Income

A

Current year net income / Previous year net income

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13
Q

Current Ratio

A

Current Assets / Current Liabilities

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14
Q

Working Capital

A

Current Assets - Current Liabilities

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15
Q

From the Adjusted Trial Balance we can prepare (in order)

A

Income Statement
Statement of Retained Earnings
Balance Sheet

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16
Q

The Income Statement compares these 2 categories

A

Revenue and Expenses (Revenue - Expenses = Net Income)

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17
Q

Statement of Retained Earnings Equation

A

Retained Earnings at beginning of the period + Net Income (from Income Statement) - Dividends = Retained Earnings at the end of the period

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18
Q

Dividends reduce these two categories

A

Assets and Owners Equity (Not an expense!)

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19
Q

Statement of Retained Earnings does …

A

Summarizes the changes in retained earnings resulting from business operations during the period

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20
Q

Balance Sheet lists…

A

Assets, Liabilities, and Stockholder Equity

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21
Q

A classified balance sheet…

A

Groups the accounts into sub categories

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22
Q

Current Assets are…

A

Assets that can be converted to cash within a short time

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23
Q

Current Liabilities are…

A

Debt that a company is expected to satisfy soon

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24
Q

Temporary (Nominal) accounts…

A

Only 1 accounting period
balance of beginning of next period should be 0
balances are transferred to retained earnings at end of period
includes revenues, expenses, and dividend accounts

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25
Q

Permanent (real) accounts

A

Continue to exist in the next accounting period
Includes assets, liabilities, and equity accounts

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26
Q

Closing is the process of…

A

Transferring the balance of nominal accounts into the Retained Earnings account through closing entries

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27
Q

This account is what Revenue and Expenses are closed out to at the end of the accounting period

A

Income Summary

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28
Q

Income Summary gets closed to this account

A

Retained Earnings

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29
Q

Closing Entries in Order

A
  1. Close rev accounts to Income Summary
  2. Close expense accounts to Income summary
  3. Close Income summary to Retained Earnings
  4. Close dividends to Retained earnings
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30
Q

How to close a revenue account to Income Summary

A

Debit the revenue account and credit income summary

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31
Q

How to close an expense account to Income Summary

A

Credit the expense account and debit Income summary

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32
Q

Assuming a positive net income, how to close Income Summary to retained earnings

A

Debit Income Summary and Credit Retained Earnings

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33
Q

Assuming a negative net income, how to close Income Summary to retained earnings

A

Credit Income Summary and Debit Retained Earnings

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34
Q

How to close dividends to Retained earnings

A

Credit dividends and debit retained earnings

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35
Q

Net Income % = …

A

Net Income / Total Revenues

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36
Q

Return on Equity = …

A

Net Income / Average Stockholders Equity

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37
Q

Financial Accounting info is for…

A

external parties who have an interest in a company

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38
Q

Managerial Account info is for…

A

internal use by Management

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39
Q

primary objective of accounting

A

provide info that is useful in making decisions

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40
Q

Information Systems can consist of

A

personnel, procedures, technology, and records to develop and communicate information

41
Q

Internal control is a process that…

A

provides reasonable assurance that the organization is producing reliable financial reports

42
Q

5 components of internal control

A
  1. Control environment
  2. Risk assesment
  3. control activities
  4. Information and communication
  5. Monitoring Activites
43
Q

Sarbanes-Oxley Act of 2002

A

securities law designed to improve the effectiveness of corporate financial reporting through enhanced accountability

44
Q

External users of accounting information

A

Owners
creditors
investors
labor unions

45
Q

Objectives of External Financial Reporting

A

Cash Flow prospects
Return OF investment
Return ON investment

46
Q

Objectives of Financial Reporting

A

Provide info useful in making investment decisions
assessing amount, timing, and uncertainty of future cash flows
info about enterprises resources, claims to resources, and how both change over time

47
Q

Financial Statement is…

A

monetary declaration of what is believed to be treu

48
Q

Balance Sheet is…

A

shows where company stands in financial terms (Assets, Liabilities, and Equity)

49
Q

Income Statement is…

A

Shows details of the companies profit related activities (Revenues - Expenses)

50
Q

Statement of Cash flows is…

A

shows details of cash related activites

51
Q

These orgs establish accounting principles

A

SEC, Financial Accounting Standards Board (FASB), and International Accounting Standards Board (IASB)

52
Q

Professional Organizations

A

AICPA, IMA, IIA, AAA, COSO

53
Q

Assets

A

Economic resources that are owned and used by a firm and are expected to benefit future operations

54
Q

Cost Principal

A

We record the original amount the business entity paid to acquire the asset, not the market value. Example: Land

55
Q

Going-Concern Assumption

A

Assumption the buisness will operate in the forseeable future

56
Q

Objectivity Principle

A

describes an assets evaluation that are factual and verifiable

57
Q

Stable-Dollar Assumption

A

money is stable over time

58
Q

Liabilities

A

financial obligation or debts. Negative cash flow

59
Q

Owner’s Equity

A

Owner’s claim on the assets of the business

60
Q

Owner’s Equity Increases when

A

More investment
Earnings from profit

61
Q

OE Decreases when

A

Dividends
Net Loss

62
Q

Accounting Equation

A

Assets = Liabilities + Owner’s Equity

63
Q

Types of Firms

A

Sole Proprietorship
Partnership
Corporation

64
Q

This type of account is increased by debits

A

Assets and Expenses

65
Q

This type of account is increased by credits

A

Liability, Owners Equity, Capital Stock, Retained Earnings, and Revenues

66
Q

Double Entry Accounting

A

Every transaction affects at least 2 accounts, with an equal dollar amount of debits and credits

67
Q

Revenue is…

A

Price of goods sold and services rendered

68
Q

Realization Principle

A

Revenue should be recognized at the time goods are sold or services rendered

69
Q

Expenses are…

A

cost of the goods and services used up in the process of earning revenue

70
Q

Accrual Accounting

A

Revenue is recognized in the period in which it is earned

71
Q

Cash Based Accounting

A

Revenue is recognized when cash is collected

72
Q

Steps when revenue is earned

A

Debit Cash, Credit Revenue

73
Q

Steps when wages are paid

A

Debit Wages Expense, Credit Cash

74
Q

Steps when utilities are paid

A

Debit Utilities Expense, Credit Cash

75
Q

Steps when advertising is paid

A

Debit Advertising Expense, Credit Cash

76
Q

Steps when expense is taken on credit

A

Debit Expense, Credit Accounts Payable

77
Q

Supplies that will be used are paid

A

Debit Supplies, Credit Cash

78
Q

Revenue is earned, but will be paid over time

A

Debit Accounts Receivable, Credit Revenue

79
Q

Transaction for declaring and paying dividends

A

Debit Dividends, Credit Cash

80
Q

Elements of a trial balance

A

lists assets, liabilities, retained earnings, income statement accounts, revenue and expese accounts. DEBITS = CREDITS

81
Q

Outcome of converting assets to expenses

A

Increase Expenses - Decrease net Income
Decrease Assets - Decrease Owners’ Equity

82
Q

Outcome of converting liabilities to revenue

A

Increase Revenue - Increase Net Income
Decrease Liabilities - Increase Owner’s Equity

83
Q

Outcome of Accruing Unpaid Expenses

A

Increase Expenses - Decrease Net Income
Increase Liabilities - Decrease Owners Equity

84
Q

Outcome of Accruing Uncollected Revenue

A

Increase Revenue - Increase Net Income
Increase Assets - Increase Owner’s Equity

85
Q

Using Supplies

A

Debit Supplies Expense, Credit Supplies

86
Q

Purchasing pre-paid asset

A

debit unexpired asset, credit cash

87
Q

Depreciation Expense Equation

A

Cost of Asset / Estimated Useful life

88
Q

Contra account

A

separate but related account that offsets or is a deduction from a companion account (Has a balance opposite of companion account)

89
Q

Depreciation Expense steps

A

Debit Depreciation Expense, Credit Accumulated Depreciation

90
Q

Depreciation and Balance Sheet

A

Subtract the accumulated depreciation from the assets value in the balance sheet

91
Q

Unearned Revenue

A

When receiving contract:
Debit Cash, Credit Unearned Revenue
As time passes:
Debit Unearned Revenue, Credit Earned Revenue

92
Q

Unpaid Expenses (Example Wages)

A

For accrual period:
Debit Wages Expense, credit Wages Payable

When the bill comes due:
Debit Wages Expense, Debit Wages Payable, Credit Cash

93
Q

Interest Equation

A

Interest = Principle * Interest Rate * Fraction of a Year

94
Q

Interest that is paid is a(n) _______, Interest that is received is a(n) ______.

A

Expense, Revenue

95
Q

Income Taxes

A

Accruing:
Debit Income Taxes Expense, Credit Income Taxes Payable

96
Q

Steps in accounting cycle

A
  1. Journalize transactions
  2. Post to ledger
  3. Prepare a Trial Balance
  4. Make period ending adjustments
  5. Prepare a trail balance
  6. Prepare financial statements
  7. Journalize and post closing entries
  8. Prepare after closing trial balance
97
Q

An after closing trial balance shows…

A

Assets, Liabilities, and Owners Equity after the closing process. Only reflects permanent accounts. WILL NOT SHOW RETAINED EARNINGS OR DIVIDENDS

98
Q

True or False: Comparative financial statements refers to a presentation whereby the financial statement amounts for more than one accounting period appear side by side in vertical columns.

A

True

99
Q
A

Financial and Managerial Accounting (1 decks)

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