Module 1 - Exam 1 Study Deck Flashcards
Within the United States, the dominant body in the primary development of accounting principles is the
Financial Accounting Standards Board (FASB)
Which of the following organizations has not been instrumental in the development of financial accounting standards in the United States?
a. All of them
b. SEC
c. IASB
d. FASB
c. IASB
What is the objective of financial reporting?
Provide information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors
Which one of the following is NOT a Fundamental Qualitative Characteristic?
a. Faithful Representation
b. materiality
c. Relevance
d. All of the above
materiality
Which of the four GAAP assumptions does the following situation speaks to? Forray Inc does not record CEO’s Ferrari (luxury sports car) on its balance sheet.
a. Monetary Unit Assumption
b. Periodicity Assumption
c. Economic Entity Assumption
d. Going Concern Assumption
c. Economic Entity Assumption
Assumptions for the GAAP: Identify all economic events with a particular economic activity. The economic activities of the individual should be separate form the economic activities of the employee
Economic Entity Assumption
Assumptions for the GAAP: Need a unit or scale of measurement ($USD)
Monetary Unit Assumption
Assumptions for the GAAP: Provide information of an enterprise at regular time periods. Economic Activities should be seperable based on time of occurance.
Periodicity Assumption
Assumptions for the GAAP: Business entity will continue to operate indefinitely. In the absence of information to the contrary, a business entity will assume to be operable for the near future
Going Concern Assumption
The accounting equation can be stated as:
Assets = Liabilities + Stockholder’s Equity
What is the expanded Components of Stockholder’s Equity?
Stockholders Equity = Revenues - Expenses = Net Income. Net Income - Expenses = Stockholders Equity
An economic resource of an entity is:
An asset.
Four Financial Statements in a row talked about in Module 1:
Income Statement, Stockholder’s Equity Statement, Balance Sheet, and Statement of Cash Flows
The balance in retained earnings at the end of the year is determined by retained earnings at the beginning of the year:
Plus net income, minus dividends.
Liabilities are reported on the
balance sheet
Which of the following is INCORRECT about general ledger:
a. General ledger is the step after general journal
b. General ledger is where you can find all the T accounts
c. General ledger is prepared before trial balance
d. The debits and credits information on the general ledger is different from that of general journal
d. The debits and credits information on the general ledger is different from that of general journal
An accounting record in which lists all the increases and decreases in each account in one place is called the
a.ledger
Which of the following account has a balance whereby credits normally exceed debits?
b. Unearned revenue
What would be the following accounts’ usual balance?
- Prepaid rent 2. Dividends
- Debit 2. Debit
Correct order of initial steps of accounting cycle
Analyzing, journalizing, posting
Expenses have what effect on the accounting equation?
Decrease stockholders’ equity.
LSUS Company recorded journal entries for the issuance of common stock for $200,000, and the payment of salaries expense of $105,000. What is the net effect of these entries on stockholders’ equity?
a. increase of $95,000
Mary Parker Co. invested $15,000 in ABC Corporation and received common stock in exchange. Mary Parker Co.’s journal entry to record this transaction would include a:
C. Debit to investments.
A purchase on account would be recorded by:
Credit liabilities
Incurring an expense for advertising on account would be recorded by:
Debit an expense, credit a liability
Scottsdale paid $12,000 for 12 months’ rent in advance. How should Scottsdale record this transaction?
c. Debit Prepaid Rent for $12,000; credit Cash for $12,000.
Which of the following is a key feature of the double-entry accounting system?
a. All cash-based accounting transactions
b. Single-sided journal entries
c. Ignoring the impact of transactions on equity
d. Equality of total debits and total credits
d. Equality of total debits and total credits
On July 1st, Annie Sanders purchased a pair of climbing shoes on account (she will pay next month). How would this be recorded in Annie Sanders’ accounts on July 1st.
d. Debit assets; credit liabilities
If a company’s liabilities are $25,000 and its equity is $50,000, what are its assets?
b. $75,000
Ann wishes to invest in Howdy, Inc., a public company. Before investing, she wants to analyze the company’s operating expense to revenue ratio. Which of the following financial statements should be used for the necessary information?
a. Statement of Cashflows
b. Income Statement
c. Statement of Shareholders’ Equity
d. Balance Sheet
b. Income Statement
_________________ and _________________ are the two fundamental qualities that make accounting information useful for decision making
Relevance and Faithful Representation
Information that helps users confirm or correct prior expectations has _________ ____________
confirmatory Value
______________ enables users to identify the real similarities and differences in economic events between companies
Comparability
Information is _________________ if omitting it or misstating it could influence decisions that users make on the basis of the reported financial infomratino.
material
______________ means that a company cannot select information to favor one set of interested parties over another
Neutrality
Corporations must prepare accounting reports at least yearly due to the ____________________ assumption
periodicity
Financial Statement that reports the company’s revenues and expenses over an interval of time. Shows whether the company was able to generate enough revenue to cover the expenses of running the business
Income Statement
If Revenues>Expenses then
Net Income
If Revenues<Expenses then
Net Loss
Financial Statement that summarizes the change of stockholder’s equity over an interval of time
Statement of Stockholder’s Equity
Two components of Stockholder’s Equity
Common Stock + Retained Earnings
Give me retained earnings broke out
Retained Earnings = Revenue - Expenses = Net Income. Net Income - Dividends = Retained Earnings
Financial statement that presents the financial position of the company on a particular date
Balance Sheet
What is the Balance Sheet summarized by?
The basic Accounting Equation. Assets = Liabilities + Stockholders Equity
What is the order you should prepare these statements because the information from the previous one feeds the other?
Income Statement, Statement of Stockholder’s Equity, Balance Sheet, Statement of Cash Flows.
What information feeds into the next in the order previously discussed?
Net income from the income statement feeds into the Statement of Stockholder’s Equity. You use that to calculate retained earnings. Retained Earnings feeds into the balance sheet and helps calculate total liabilities and equity…. Your assets from the balance sheet also feeds into the statement of cash flows.
an information system that identified, records, and communicates the economic events (transactions) of an organization to interested users. The Language of business.
Accounting
Two accounting categories applicable to this course:
Financial Accounting and Managerial Accounting
Type of accounting Category that measures business activities of a company and communicates those measurements to external parties for decision-making purposes.
Financial Accounting
Type of accounting category that deals with the methods accountants use to provide information to an organization’s internal users; that is, its own managers
Managerial Accounting
What do external users use accounting information for?
Investors decide whether to invest in stock and creditors decide whether to lend money
SEC
Securities and Exchange Commission
FASB
Financial Accounting Standards Board
GAAPS
US Generally Accepted Accounting Principles
A government agency which governs the FASB
SEC
A private organization that makes the GAAP
FASB
What is the main purpose of accounting. Which information should it provide?
It should provide information that is useful to investors and creditors in making investment and lending decisions
Two Fundamental Qualitative Characteristiscs
Relevance and Faithful Representation
Two constraints of the Financial Framework
Materiality and Cost
Basic Accounting Equation
Assets = Liabilities + Stockholder’s Equity
A company’s resources
Assets
A company’s claim to those resources
Liabilities and Stockholders Equity
a resource with economic value that an economic entity owns or controls with the expectation that it will provide a future benefit
Asset
Quantity of value that an economic entity owes. More technically, it is value that an entity is expected to deliver in the future to satisfy a present obligation arising from past events
Liabilities
The remaining assets available to shareholders after all liablities are paid
Stockolder’s equity
Money due to us by other people
Accounts Receivable (A)
Money loaned out to other people and they need to pay us back
Notes Receivable (A)
What we intend to sell to others
Inventory (A)
Prepaid future insurance
Prepaid Insurance (A)
Prepaid Future Rent
Prepaid Rent (A)
Something that its useful lifespan tends to last more than a year
Equipment (A)
Economic Resources that we own (buildings)
Buildings (A)
Economic Resources that we own (Land)
Land (A)
We have received prodcuts or services from other people and we need to pay them
Accounts Payable (L)
We have received money from other people and we need to pay them
Notes Payable (L)
Stockholder’s initial investment into the company. What they paid to invest into our company
Paid in Capital (SE)
Profits not paid out to shareholders that the company keeps
Retained Earnings (SE)
the amounts earned from selling products or services
Revenue
Costs of manufacturing products or providing services
Expenses
Who claims the profits of the company?
Stockholders claim all profits because they are owners of the company, so the profits are rightfully theirs.
Money Paid out to shareholders
Dividends
Profit after all expenses and dividends are paid out
Retained Earnings
Debit is on the ______ and credit is on the _____ of the t-chart account
Left, Right
Assets are on the _____ and Liabilities and Stockholders Equity are on the ______-
left, right
What is an increase in an asset?
Debit
What is an increase in a liability or stockholders equity?
Credit
What is a decrease in an asset?
credit
What is a decrease in a liability or stockholder’s equity?
debit
What are the exceptions to stockholder’s equity in the t-chart accounts?
Expenses and dividends are subtracted from stockholder’s equity, so they are opposites of the way SE acts in a T-chart. These items act as assets in this regard.
In which order do financial activities take place in order to start up a company?
Financing, Investing, Operating
The process of transferring the debit and credit information from the journal to individual accounts in the general ledger
posting
A group of all the T-accounts
General Ledger
Periodic reports published by the company for the purpose of providing information to external users
Financial Statements
An external source of stockholder’s equity that is provided by investors and not by the business generating any money
Common Stock
