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Financial Accounting > NEW Exam 1 > Flashcards

NEW Exam 1 Flashcards

1
Q

The Accounting Cycle

A
  1. Record data necessary to do our accounting
  2. Determine whether we need to record a transaction
  3. Journalize it
  4. Summarize into t-accounts/ledger
  5. Create unadjusted trial balance
  6. Post adjusting entries
  7. Adjusted Trial Balance
  8. Create financial statements
  9. Post closing entries
  10. Post-close Trial Balance
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2
Q

Assets

A

Resources of the firm

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3
Q

Liabilities

A

Future sacrifice of assets

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4
Q

Stockholder’s Equity

A

Everything else (Assets - Liabilities)

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5
Q

Defer

A

Payment for a good or service that has not yet been delivered

Not immediately reported

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6
Q

Accrual

A

The good/service was performed but the money hasn’t come yet

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7
Q

Two Primary Principles that apply to accrual accounting

A

Revenue Recognition and Expense Recognition

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8
Q

Revenue Recognition

A

Revenues are recorded when earned, not necessarily when cash is received

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9
Q

Expense Recognition

A

Expenses are recorded in the same period as the revenue to which they relate.

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10
Q

What is the income statement and what does it involve

A

Measures of profitability

Operating versus non-operating

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11
Q

What is the statement of stockholders’ equity and why is it a thing

A

Transactions that affected the equity accounts during the year

Difficult for investors/ creditors to understand why equity amounts change

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12
Q

What is a balance sheet and what does it involve

A

Fundamental Accounting Equation (A = L + SE)

Current and non-current assets and liabilities

Assess liquidity and solvency

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13
Q

Purpose of the statement of cash flows

A

Organize cash in-flows and out-flows into operating, investing, and financing

Provides context that helps investors/ creditors understand the other financial statements - > accruals are subject to manipulation

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14
Q

What do you do in Step 9 of the accounting equation

A

Reset temporary accounts to zero to get ready for the next accounting period

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15
Q

Financial Accounting

A

summarizing economic transactions (of a firm) to create useful
information, external parties: investors and creditors

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16
Q

2 Fundamental Characteristics of Useful Information

A

Relevance and Faithful Representation

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17
Q

Relevance (Def. and includes)

A

capable of making a difference in a user’s decision Predictive or Confirmatory Material

(Predictive, Confirmatory, Material)

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18
Q

Faithful Representation (Def. and includes)

A

summarizing economic phenomena in words and numbers

(Neutrality, Completeness, Free from error)

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19
Q

Predictive

A

Information is useful in predicting the future

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20
Q

Confirmatory

A

Provides feedback on prior evaluations/predictions

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21
Q

Material

A

Important enough to matter

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22
Q

Neutrality

A

Without bias

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23
Q

Completeness

A

All necessary information is depicted

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24
Q

Free from error

A

There are no errors or omissions in the description of the phenomenon

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25
Q

4 Enhancing Characteristics

A

1) Timeliness
2) Comparability
3) Verifiability
4) Understandability

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26
Q

Timeliness

A

Having information available to be capable of influencing their decisions

27
Q

Comparability

A

Information is comparable if it helps evaluate information across firms or over time

28
Q

Verifiability

A

Different, knowledgeable observers would reach similar conclusions

29
Q

Understandability

A

Information can be understood when diligently reviewed by reasonably informed users

30
Q

4 Financial Reporting Assumptions

A

1) Economic Entity
2) Going concern
3) Monetary Unit
4) Periodicity

31
Q

Economic Entity

A

Entities are separate from their owners

32
Q

Going Concern

A

Firm is expected to continue operating/not go bankrupt

33
Q

Monetary Unit

A

Economic activities reported in dollars

34
Q

Periodicity

A

Time is cut into reportable units

35
Q

4 Accounting Principles

A

1) Revenue Recognition
2) Expense Recognition
3) Measurement Principles
4) Full Disclosure

36
Q

Measurement principles

A

Historical Cost
Fair Value – Investments

37
Q

Full Disclosure

A

All relevant and necessary information for the understanding of a company’s financial statements must be included in public company filings.

38
Q

Things that are debited

A

Assets
Expenses
Dividends

39
Q

Expenses occur when

A

A company pays a 3rd party for a service

40
Q

Dividends occur when

A

A business distributes cash to its owners

41
Q

Things that are credited

A

Equity
Liabilities
Revenue

42
Q

Easy way to remember accounting equation

A

DEA LER

43
Q

Revenue is

A

Money generated from normal business operations

44
Q

Adjusting entries are necessary under

A

Accrual Accounting

45
Q

Accrued interest=

A

Face Value * interest rate * Length of time (X/12)

46
Q

Expense accounts are

A

Contra Equity

47
Q

Accumulated Depreciation is a

A

Contra Asset

48
Q

Allowance for doubtful accounts is a

A

Contra Asset

Money that won’t be collected

49
Q

Cost Constraint

A

Costs to report information are justified by the benefits of reporting that information

50
Q

Income Statement Format

A

Sales Revenue
-Cost of goods sold
—————————–
(Gross Profit)

(Total Operating Expenses)

(Operating Income (GP-TOE))

[Other Revenues & Gains]

[Other Expenses & Losses]

(Income Before Taxes (OI + OR&G - OE&L))
-Income Tax Expense
—————————–
Net Income

51
Q

Ending Retained Earnings Formula

A

Beginning Retained Earnings + Net Income - Dividends

52
Q

Statement of Stockholders’ Equity Format

A

Beginning Balance
Net Income
Dividends
Issuance of Common Stock
—————————–
Ending Balance

53
Q

Net Income increases

A

Retained Earnings

54
Q

Dividends decrease

A

Retained Earnings

55
Q

Balance Sheet format

A

-Current Assets
-Long-term assets
-Current Liabilities
-Long-term Liabilities
-Equity

56
Q

Operating

A

“normal” things to do in our business

57
Q

Investing

A

Inflows or outflows related to investments, generally long-term in nature

58
Q

Financing

A

Raising capital for our firm, issuing or repaying debt or common stock

59
Q

3 Types of Activities

A

Operating, Investing, Financing

60
Q

3 Step process to perform closing entries

A

Close Revenues
Close Expenses
Close Dividends

61
Q

How to close revenues

A

Debit Revenue
Credit Retained Earnings

62
Q

How to close Expenses

A

Debit Retained Earnings
Credit Expenses

63
Q

How to close dividends

A

Debit Retained Earnings
Credit Dividends

64
Q

Cost of goods sold is an

A

Expense

Financial Accounting (3 decks)

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