Vocabs Flashcards
Asset. When a business pays for goods and services that will be received in the near future.
PrePaid expenses
Retained Earning Equation?
Beg RE + Net Income -Dividends
payments like rent that will happen in a regularly scheduled cadence.
Fixed expenses
Formal policies related to management’s philosophy, assignment of responsibilities, and organizational structure.
Control Environment
A complete record of the financial transactions over the life of a company.
General ledger (GL)
Record revenues when cash is received Record expenses when cash is paid
Cash Basis
Investors Creditors Taxing authorities Customers Labor unions Regulatory agencies
External users
CASH transaction involving REVENUE and EXPENSE during the period.
Operating activities
Refer to increase in liabilities / stockholders equity
Credit
Stockholders’ Equity
residual resources for stockholders (owners)
expenses, like labor costs, that may change in a given time period.
Variable expenses
cost of producing revenue
Expenses
The revenue or expense expected to be generated through business activities (sales, manufacturing, etc.) over a period of time.
Cash flow (CF)
An accounting entry where there is either an increase in assets or a decrease in liabilities on a company’s balance sheet.
Debit (DR)
Checks Outstanding
Checks the company has written that have not been subtracted from the BANK’s record of company’s balance
small amount of cash kept on hand to pay for minor purchases
Petty cash fund
Control Environment
Formal policies related to management’s philosophy, assignment of responsibilities, and organizational structure.
amounts owed (debt)
Liabilities
Risk assessment
Identifies Analyzes factors that prevent objectives from being achieved
Deposits outstanding
are cash receipts of the company that have not been added to the bank’s record of the company’s balance
Posting
Process of transferring the debit and credit information from the journal individual accounts in the general ledger
list of all accounts names used to record transactions of a company
Chart of accounts
An asset class is a group of securities that behaves similarly in the marketplace. The three main asset classes are equities or stocks, fixed income or bonds, and cash equivalents or money market instruments.
Asset classes
Detective controls
Reconciliations Performance reviews Audits
Asset. It’s a long term asset, a machine used for producing a product or service. It has a specific design and purpose.
Equipment
What is Revenue?
sales of goods and services
Assets and stockholder’s equity to decrease. (Cash, Retained Earnings) due to?
Salaries expense for current period
Reconciliations Performance reviews Audits
Detective controls
Control activities
Policies and procedures ensuring management directives executed
Checks the company has written that have not been subtracted from the BANK’s record of company’s balance
Checks Outstanding
used to describe the format for recording a transaction.
Journal Entry
What is a journal?
Provides a chronological record of all transactions affecting a firm
CASH investment in LONG-TERM ASSETS and INVESTMENT SECURITIES. When later sold also considered investing activities.
Investing activities
L = Liabilities O = Owners’ (Stockholders’) equity R = Revenues (and gains) Credit or Debit?
Credit
Providing service to customer for cash causes what?
Both asset and stockholder equity to increase. (Cash, Retained Earnings)
Checks Outstanding
are checks the company has written that have not been subtracted from the bank’s record of the company’s balance
payments to owners
Dividends
The process of allocating or spreading capital investments into varied assets to avoid over-exposure to risk.
Diversification
A set of rules and guidelines developed by the accounting industry for companies to follow when reporting financial data. Following these rules is especially critical for all publicly traded companies.
Generally accepted accounting principles (GAAP)
External users
Investors Creditors Taxing authorities Customers Labor unions Regulatory agencies
Cash Basis
Record revenues when cash is received Record expenses when cash is paid
D = Dividends E = Expenses (and losses) A = Assets Credit or Debit?
Debit
A financial asset or the value of a financial asset, such as cash or goods. Working capital is calculated by taking your current assets subtracted from current liabilities—basically the money or assets an organization can put to work.
Capital (CAP)
-those that will be converted to cash within one year. Typically, this could be cash, inventory or accounts receivable -are long-term and will likely provide benefits to a company for more than one year, such as a real estate, land or major machinery.
Assets (fixed and current) (FA, CA) Current Asset Fixed Asset
are checks the company has written that have not been subtracted from the bank’s record of the company’s balance
Checks Outstanding
Purchase of supplies promising to pay cash in the future causes what to increase?
Both asset and liabilities increases. ( Supplies Expense, Account Payable)
Asset. Money owed by the customer to the Company.
Accounts Receivable
Types of Debit?
D = Dividends E = Expenses (and losses) A = Assets
Operating activities
CASH transaction involving REVENUE and EXPENSE during the period.
Buying equipment from suppliers causes what?
One asset to increase an another asset to decrease. (Equipment, Cash)
a person intentionally deceives another person for personal gain or to damage that person
Fraud
One asset to increase an another asset to decrease. (Equipment, Cash) is a result of what?
Buying equipment from suppliers
Equation for Net Income?
Revenue - Expenses =
= Liabilities + Stockholders’ Equity
Asset
occur when the company records transactions either before or after the bank records the same transactions
Timing differences
An accounting entry that may either decrease assets or increase liabilities and equity on the company’s balance sheet, depending on the transaction. When using the double-entry accounting method there will be two recorded entries for every transaction: A credit and a debit.
Credit (CR)
are cash receipts of the company that have not been added to the bank’s record of the company’s balance
Deposits outstanding
all earnings over life of the company less payments to owners
Retained Earnings
A financial report that summarizes a company’s assets (what it owns), liabilities (what it owes) and owner or shareholder equity at a given time.
Balance sheet (BS)
Liabilities
amounts owed (debt)
business expenditures not directly associated with the production of goods or services—for example, advertising costs, property taxes or insurance expenditures.
Operation expenses
Both asset and liabilities increases in result of receiving what?
Cash
Refer to increase in asset?
Debit
The amount of money a company owes creditors (suppliers, etc.) in return for goods and/or services they have delivered.
Accounts payable (AP)
an incurred expense that hasn’t been paid yet.
Accrued expense:
Paying dividends causes
Assets and stockholder’s equity to decrease
purchase cards
company issued debit card or credit card that allows for authorized employees to make purchases on behalf of the company
What are the six accounts
assets, liabilities, stockholders’ equity, dividends, revenues, expenses.
Monitoring
formal procedures for reporting control deficiencies
Accounts
are used to accumulate dollar effect of similar transactions
Both asset and liabilities increases. ( Supplies Expense, Account Payable) due to what?
A promise of paying cash in the future
Refer to decrease in liabilities / stockholders equity
Debit
Identifies Analyzes factors that prevent objectives from being achieved
Risk assessment
A designation given to an accountant who has passed a standardized CPA exam and met government-mandated work experience and educational requirements to become a CPA.
Certified public accountant (CPA)
Act of two or more to circumvent internal controls
Collusion
Types of credit
L = Liabilities O = Owners’ (Stockholders’) equity R = Revenues (and gains) L = Liabilities O = Owners’ (Stockholders’) equity R = Revenues (and gains)
Receiving cash in advance causes what?
Both asset and liabilities to increase
Revenue - Expenses =
Net Income
In the most general sense, equity is assets minus liabilities. An owner’s equity is typically explained in terms of the percentage of stock a person has ownership interest in the company. The owners of the stock are known as shareholders.
Equity and owner’s equity (OE)
Errors
accidental errors in recording transactions or applying accounting principles
1) Adjust bank’s cash balance 2) Adjust company’s cash balance 3) Update the company’s cash account by recording items identified in the previous step
Steps for Bank reconciliation
Sarbanes-Oxley Act of 2002
-Applies to all companies that are required to file financial statements with the SEC -Established guidelines related to: -Internal control procedures -Auditor-client relations -legislation to improve the financial reporting environment -ceos have to sign the next to auditor
Collusion
Act of two or more to circumvent internal controls
Common Stock
investments by owners(external generated)
what are dividends?
payments to owners
investments by owners (external generated)
Common Stock
Provides a chronological record of all transactions affecting a firm
Journal
formal procedures for reporting control deficiencies
Monitoring
Cash Equivalents
short term investments that have a MATURITY date NO LONGER than THREE MONTHS from the date of purchase
Transactions
An event that has a financial impact on the business and can be measured reliably.
Steps for Bank reconciliation
1) Adjust bank’s cash balance 2) Adjust company’s cash balance 3) Update the company’s cash account by recording items identified in the previous step
Financing activities
Transactions designed to raise cash or finance business. BORROW MONEY or SELL STOCKS. (Liabilities and Stockholder EQ). CASH Outflow to repay debt and cash dividends to stockholders.
Paying salaries for the current period causes ?
Assets and stockholder’s equity to decrease. (Cash, Retained Earnings).
residual resources for stockholders (owners)
Stockholders’ Equity
Journal Entry
used to describe the format for recording a transaction.
accidental errors in recording transactions or applying accounting principles
Errors
Paying rent in advance causes what to happen on balance sheet
One asset increases (Prepaid Rent) another asset decreases (Cash)
Record revenues when earned Record expenses in period the benefit is received
Accrual Basis
the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employer’s resources
Occupational fraud
are used to accumulate dollar effect of similar transactions
Accounts
sales of goods and services
Revenue
Bank Recon: Checks outstanding
Subtracted from Bank Statement
Process of transferring the debit and credit information from the journal individual accounts in the general ledger
Posting
Borrowing by signing note causes what?
Both asset and liabilities increase
Timing differences
occur when the company records transactions either before or after the bank records the same transactions
Chart of accounts
list of all accounts names used to record transactions of a company
Expenses
cost of producing revenue
A business document in which all ledgers are compiled into debit and credit columns in order to ensure a company’s bookkeeping system is mathematically correct.
Trial balance
Petty cash fund
small amount of cash kept on hand to pay for minor purchases
A state where an individual or organization can no longer meet financial obligations with lender(s) when their debts come due.
Insolvency
Asset. The most liquid form of Asset a company can hold.
Cash
Accrual Basis
Record revenues when earned Record expenses in period the benefit is received
company issued debit card or credit card that allows for authorized employees to make purchases on behalf of the company
purchase cards
short term investments that have a MATURITY date NO LONGER than THREE MONTHS from the date of purchase
Cash Equivalents
Beg RE + Net Income - Dividends
Retained Earning
Bank Recon: Service Fee
General Ledger side
An event that has a financial impact on the business and can be measured reliably.
Transactions
A tax professional who represents taxpayers in matters where they are dealing with the Internal Revenue Service (IRS).
Enrolled agent (EA)
What accounts are in the statement of Shareholder Equity?
Common Stock, Retained Earnings.
Stockholder Equity includes
Common Stock + Retained Earnings
a simplified form of a general ledger account with space at the top for the account title and with two sides of recording debits and credits
T-Account
One asset increases (Prepaid Rent) another asset decreases (Cash) due to what?
Paying rent in advance
Fraud
a person intentionally deceives another person for personal gain or to damage that person
Investing activities
CASH investment in long-term assets and investment securities. When later sold also considered investing activities.
Bank Recon: Deposit Outstanding (cash receipts)
Added to Bank Statement
Transactions designed to raise cash or finance business. BORROW MONEY or SELL STOCKS. (Liabilities and Stockholder EQ). CASH Outflow to repay debt and cash dividends to stockholders.
Financing activities
Policies and procedures ensuring management directives executed
Control activities
Retained Earnings (internal generated)
all earnings over life of the company less payments to owners (internal generated)
T-Account
a simplified form of a general ledger account with space at the top for the account title and with two sides of recording debits and credits
Asset. Good or materials that is held by a company for the purpose of reselling for a profit.
Inventory
Occupational Fraud
the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employer’s resources
What are apart of income statement?
Revenue - Expenses = Net Income
Temporary Accounts
Dividends, Revenues and Expenses
Providing services to customer on account causes?
Both asset and stockholder equity increase. (Accounts Receivable, Retained Earnings)
The direct expenses related to producing the goods sold by a business. The formula for calculating this will depend on what is being produced, but as an example this may include the cost of the raw materials (parts) and the amount of employee labor used in production.
Cost of goods sold (COGS)
How to record a decrease in asset?
Credit the asset account
Service charge for $300 with a discount of 10%. Customer pays on the same day as service provided, record transaction.
Debit Cash and Sales Discount and Credit Service Revenue accordingly (270 cash, 30 discount, 300 Service Revenue)
Determining Book Value of an Asset
Original Cost of asset (without residual) - Current balance in Accumulated Depreciation
Return on Asset formula and usage
Net Income / Average Total Asset ((Beg Asset + End Asset) / 2)
Tells amount of net income generated for each dollar invested in assets
Profit Margin Formula and usage
Net Income / Net Sales
Ratio Indicates earning per dollar of sales
Asset Turnover Formula and usage
Net Sales / Average Total Assets
Measures sales per dollar of assets invested
What is impairment?
Occurs when the future cash flow generated for a long-term asset fall below its book value
What does higher profit margin analyze?
Indicates a company generates a higher net income per dollar of sales
What does a higher asset turnover analyze?
A company generates a higher sales volume per dollar of asset invested
