Necessities

Question 1

Accounting Cycle (JLT AF CP)

Answer 1

DURING PERIOD

• journal
• Ledger
• Trial Balance
• End-of-period spreadsheet is prepared

END OF ACCT PERIOD

• Adjusting entries (journalized and posted to ledger)
• Adjusted trial balance
• Financial Statements are prepared

YR END
Closing entries are journalized and posted to ledger
Post-closing trial Balance
(JLTAFCP)

Question 2

Financial Accoutning

Answer 2

Reporting information to external users (investors, creditors, employees, government, suppliers)

Question 3

Managerial Accoutning

Answer 3

For internal managerial purposes

Question 4

NYSE

Answer 4

actual place of exchange of stocks and bonds

Question 5

Pro’s accrue

Answer 5

Amateurs cash basis

Question 6

Accrual vs Chash

Answer 6

Accrual recognizes things when they occur and cash recognizes them when the outlow occurs. Accrual provides a more accurate picture of the business

Question 7

SEC

Answer 7

Securities and Exchange Commision, has the authority to set accounting standards for companies, but has delegated the task to the private sector, like the FASB (financial accounting standards board), who created GAAP

Question 8

Conceptual Framework

Answer 8

Acct is not rules based but rather principles based.

CF provides underlying foundation for accounting standards

Question 9

Objective of financial reporting

Answer 9

provide useful information to capital providers

Question 10

Decision-usefulness

Answer 10

to be useful, information must make a difference in the decision process

Question 11

Qualitative Characteristics of Financial reporting

Answer 11

Relevance (predictive value, confirmatory value, materiality)
 faithful representation (Completeness, neutrality, free from error)

Comparability to previous years (Consistency by using the same methods as previous), verifiability, timeliness, understandability

Question 12

Materiality

Answer 12

makes an effect on decisions

Question 13

Conservatism

Answer 13

Be conservative

Question 14

Key constraint

Answer 14

Cost effectiveness

Question 15

Underlying Assumptions

Answer 15

• -Going concern
• -Economic Entity-events are tied to one economic entity
• -periodicity- can be divided into periods for timely information
• -Moneetary assumption principle–always measured in a consistent currency

Question 16

Recognition and Measurement Concepts

Answer 16

–General recognition criteria: Probability of future economic benefit, measurability
–Revenue recognition
–Expense recognition:matching- expenses recognized in the period they are incurred
–Historical Cost– Measure things on their original recorded value
–Net realizable value– measure assets on what they can be converted into.
Current Cost

Question 17

Full disclosure

Answer 17

notes, parentheticalism, supplemental schedules and tables.

Question 18

Acct equation

Answer 18

assets= liabilities + owners’ equity

Question 19

Four Financial statements

Answer 19

Income statement (rev-exp=net income),

balance sheet,

Statement of retained earnings, Cash flow

Question 20

Why say a double entry system?

Answer 20

because it always affects both sides of the equation

Question 21

Adjusting entries

Answer 21

adjusting things used up to give the most accurate information. Typically show reasoning as well.

Question 22

How can you tell if adjustments have been made?

Answer 22

look at last period’s amounts. They should be different.

Question 23

When are adjusting entries necessary

Answer 23

Prepayments (aka deferrals), accruals, and estimates

Common adjusting entries:

• -Supplies/Supplies Expense
• -Rent Expense/Prepaid Rent
• -Depreciation Expense/Accum Depreciation
• -Unearned Revenues
• -Salaries Expense/Salaries Payable
• -Interest receivable/Interest Revenue
• -bad debt expense/allowance for uncollectible accounts

Question 24

What is a reversing entry?

Answer 24

Optional entries that remove the effects of some of the adjusting entries made at the end of the previous period to simplify journal entries made in new period. If this happens, be sure to post the first day of the new period
NOTE: Balance in accounts afterward must be identical

Question 25

On the balance sheet (statement of financial position), what is listed first?

Answer 25

Most liquid and most current

Question 26

APR

Answer 26

Annual Percentage Rate Nominal----simple over the whole year effective-- APR---- compound over the whole year.

Question 27

Lien (leen)

Answer 27

legal claim on somebody's property: the legal right to keep or sell somebody else's property as security for a debt

Question 28

What is the most common form of corporate debt?

Answer 28

bonds

Question 29

When is interested typically paid for a bond

Answer 29

semiannually

Question 30

Describe a bond indenture

Answer 30

Normally the issuer is not in a business relationship with each issuer, rather they are in contact with a trustee, who is in charge of the individual relationships with the bondholders

Question 31

What is the main determinant of bond price?

Answer 31

the lower the risk of the company issuing the bond, the higher the price of the bonds

Question 32

to determine a interest rate

Answer 32

imputing the interest rate

Question 33

Depreciation computation

Answer 33

Depreciable cost (which is cost - salvage) x depreciation annual rate = deep for the year

Question 34

Depreciation: ant received at end of an asset life

Answer 34

Salvage value (residual value, scrap value)

Question 35

Straight line method for depreciation

Answer 35

rate= 1/useful life in years

Question 36

Units of production for depreciation

Answer 36

Units produced this year/EST units produced over life

Question 37

Double declining balance

Answer 37

(Book value of asset at beginning of year) x (2/useful life in years) = depreciation expense for the year NOTE: DDB multiplies against the BOOK VALUE (which is hist cost- accumulated depreciation) not depreciable cost (which is hist-salvage) Salvage value is only used to know when to stop depreciating

Question 38

Tax method of depreciation

Answer 38

Macros Historical cost x IRS decimal (which is on a tax table)= depreciation this year NOTE: residual value is ZERO when using MACRS

Question 39

What is a depreciation convention?

Answer 39

The IRS assumes you bought your asset in the middle of the first year, therefore you only get to depreciate half of the cost for the first year to simply depreciation.

Question 40

Change in accounting estimates and isn't this against the consistency principle?

Answer 40

Allows businesses to change estimates (such as useful life or salvage value in depreciation) to more accurately convey current information. Allows for no retroactive changes, but uses new estimates in the current and future years. THIS DOES NOT WORK FOR CHANGING DEP methods, for that is against the consistency/comparability principle, which states you must use the same PROCESSES each year to compare it to last's.

Question 41

calculating effective interest

Answer 41

[1+(I/n)]^n - 1= r Where n = number of periods

Question 42

Early retirement (early extinguishment of a debt) usually results in:

Answer 42

a loss or a gain

Question 43

To capitalize something

Answer 43

to record the cost as an asset on the balance sheet rather than an expense and be able to amortize or (depreciate) on a long term basis.

Question 44

who grades your cpa exam

Answer 44

AICPA (American institute of Certified public accountants)