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accounting > Necessities > Flashcards

Necessities Flashcards

1
Q

Accounting Cycle (JLT AF CP)

A

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)

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2
Q

Financial Accoutning

A

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

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3
Q

Managerial Accoutning

A

For internal managerial purposes

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4
Q

NYSE

A

actual place of exchange of stocks and bonds

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5
Q

Pro’s accrue

A

Amateurs cash basis

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6
Q

Accrual vs Chash

A

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

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7
Q

SEC

A

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

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8
Q

Conceptual Framework

A

Acct is not rules based but rather principles based.

CF provides underlying foundation for accounting standards

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9
Q

Objective of financial reporting

A

provide useful information to capital providers

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10
Q

Decision-usefulness

A

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

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11
Q

Qualitative Characteristics of Financial reporting

A 
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

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12
Q

Materiality

A

makes an effect on decisions

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13
Q

Conservatism

A

Be conservative

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14
Q

Key constraint

A

Cost effectiveness

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15
Q

Underlying Assumptions

A
  • -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
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16
Q

Recognition and Measurement Concepts

A

–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

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17
Q

Full disclosure

A

notes, parentheticalism, supplemental schedules and tables.

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18
Q

Acct equation

A

assets= liabilities + owners’ equity

19
Q

Four Financial statements

A

Income statement (rev-exp=net income),

balance sheet,

Statement of retained earnings, Cash flow

20
Q

Why say a double entry system?

A

because it always affects both sides of the equation

21
Q

Adjusting entries

A

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

22
Q

How can you tell if adjustments have been made?

A

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

23
Q

When are adjusting entries necessary

A

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
24
Q

What is a reversing entry?

A

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

25
Q

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

A

Most liquid and most current

26
Q

APR

A

Annual Percentage Rate

Nominal—-simple over the whole year

effective– APR—- compound over the whole year.

27
Q

Lien (leen)

A

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

28
Q

What is the most common form of corporate debt?

A

bonds

29
Q

When is interested typically paid for a bond

A

semiannually

30
Q

Describe a bond indenture

A

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

31
Q

What is the main determinant of bond price?

A

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

32
Q

to determine a interest rate

A

imputing the interest rate

33
Q

Depreciation computation

A

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

34
Q

Depreciation: ant received at end of an asset life

A

Salvage value (residual value, scrap value)

35
Q

Straight line method for depreciation

A

rate= 1/useful life in years

36
Q

Units of production for depreciation

A

Units produced this year/EST units produced over life

37
Q

Double declining balance

A

(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

38
Q

Tax method of depreciation

A

Macros
Historical cost x IRS decimal (which is on a tax table)= depreciation this year

NOTE: residual value is ZERO when using MACRS

39
Q

What is a depreciation convention?

A

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.

40
Q

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

A

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.

41
Q

calculating effective interest

A

[1+(I/n)]^n - 1= r

Where n = number of periods

42
Q

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

A

a loss or a gain

43
Q

To capitalize something

A

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.

44
Q

who grades your cpa exam

A

AICPA (American institute of Certified public accountants)

accounting (17 decks)

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