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Accounting > Lesson 2 & 3 (Transaction Analysis) > Flashcards

Lesson 2 & 3 (Transaction Analysis) Flashcards

1
Q

What is Accrual Accounting based on?

A

GAAP (Generally Accepted Accounting Principles)

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2
Q

The two foundation accounting principles as it relates to according transactions are?

A

Realization principle & Matching concept

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3
Q

The Realization Principle states?

A

when revenues should be recorded

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4
Q

What do you do when the earnings process is complete or virtually complete?

A

Record revenue

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5
Q

What do you do when There is reasonable certainty as to the collectibility of the asset to be received (usually cash)?

A

Record Revenue

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6
Q

The earnings process is considered complete when ?

A

When goods are sold or when services are performed

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7
Q

What is this a key point of?
It is not necessary to recieve cash in order to record revenue (i.e., sell goods to a customer who agrees to pay in the following month).

A

Key point of Realization Principle

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8
Q

What is this a key point of?
The receipt of cash does not always indicate that a revenue has been earned (i.e., a customer pays in advance for a service that will be performed later).

A

Key point of Realization Principle

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9
Q

What is this a key point of?
Record revenue independent of the exchange of cash.

A

Key point of Realization principle

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10
Q

What is this a key principle of ?
It is required that the receipt of cash be relatively assured in order to record revenue

A

Key point of Realization principle

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11
Q

The Realization principle states that you should recognize revenue when ?

A

When the product or service has been delivered to the customer and cash has been received or a receivable has been generated that has reasonable assurance of collectibility

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12
Q

The matching concept tells us ?

A

When we should record expenses

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13
Q

Record Expenses in ?

A

In the same accounting period that the related revenue is earned

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14
Q

The determining factor in the timing of recording expenses is the

A

generation of revenue and not the payment of cash

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15
Q

For most expenses, it is difficult to trace to a specific revenue so they are recorded when ?

A

When they are incurred

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16
Q

Cash accounting does not follow ?

A

GAAP

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17
Q

Record revenues when ?

A

Cash is received & Cash is paid

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18
Q

Accrual accounting must be used by all companies who sell ?

A

Securities(stock) to the public

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19
Q

Cash accounting can be used by any company who does not sell ?

A

Stock to the public
(also used by individuals to account for their personal finances)

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20
Q

If a company who does not sell stock to the public attempts to get a bank loan, they are typically required to present ?

A

Their financial statements using accrual accounting
(this is typically required bc cash accounting can be easily manipulated and thus leading to misleading financial statements)

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21
Q

Account definition ?

A

Place where all increases and decreases in financial statements items are recorded

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22
Q

We use what to analyze these accounts ?

A

T-account

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23
Q

Account name goes where on the T-account ?

A

The top (heading)

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24
Q

Debit goes where on the T-account ?

A

Left side

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25
Q

Credit goes where on the T-account ?

A

Right side

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26
Q

If debits are greater than credits, the account will have a ?

A

Debit balance

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27
Q

If credits are greater than debits, the account will have a ?

A

Credit balance

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28
Q

Increases for Asset & Expense will be on the ?

A

Debit side of account

29
Q

Increase of Liability, Equity, & Revenue will be on the ?

A

Credit side of the account

30
Q

Normal balance of an account is the same as what ?

A

Increases the account

31
Q

What Are economic events that require recording in the financial statements ?

A

Accounting transactions

32
Q

Transactions are recorded in the financial statements because they result in a change to ?

A

Assets, liabilities, and/or equity accounts

33
Q

All accounts of the company taken together is a ?

A

Ledger (think of ledger as all the T-accounts of the company)

34
Q

The place where all accounting transactions are initially recorded is a ?

A

Journal

35
Q

The means used to record transactions in the journal is the ?

A

Journal Entry

36
Q

I’m every Journal entry what must happen ?

A

The debits = credits

37
Q

Every transaction must be recorded with at least one debit and at least one credit with the total dollar debits always equaling the total dollar credits is what ?

A

Double-entry accounting

38
Q

The process of transferring debit and credit amounts from the journal to the ledger (i.e., transferring the amount i. the journal entries to the T-accounts is what ?

A

Postinf

39
Q

Posting to the t-account allows us to ?

A

Determine the ending balance in each account (something that would be very difficult to do by just looking at journal entries)

40
Q

I’m each entry you must have ?

A

at least one credit and at least one debit

41
Q

The process of identifying the specific effects of economic events on the accounting elements is what ?

A

Analyzing transactions

42
Q

What is recorded when you sell an asset other than inventory for more than its costs ?

A

A Gain

43
Q

selling price - cost = ?

A

Gain

44
Q

A gain is classified as a ?

A

Revenue account

45
Q

What is recorded when you sell an asset other than inventory for less than its costs ?

A

A Loss

46
Q

cost - selling price = ?

A

The Loss

47
Q

A loss is classified as an ?

A

Expense account

48
Q

What type of account is dividends ?

A

contra equity account (since it reduces equity)

49
Q

What equity account does dividends reduce ?

A

retained earnings

50
Q

Decreases on Assets and Expenses will be on what side ?

A

Credit side of the account

51
Q

Decreases for Liability, Equity, & Revenue go on what side ?

A

Debit side of the account

52
Q

What are these the basic steps of ?
1. Record transactions in the journal (use journal entries)
2. Post debit and credit amounts from the journal to the ledger (done to determine ending balance in each account).
3. Prepare a trial balance

A

The Accounting Cycle

53
Q

What is a list of accounts and their balances at a given time ?

A

Trial balance

54
Q

What is the primary purpose of a trial balance ?

A

Price debits = credits after posting

55
Q

What involves the examination of both the relationships among financial statement numbers and the trends in those numbers over time ?

A

Financial Statement Analysis

56
Q

What are these the purposes of ?
1. Use the past performances of a company to predict how it will do in the future
2. Evaluate the performance of a company with an eye toward identifying problem areas

A

Purposes of financial statement analysis

57
Q

What are relationships between financial statement amounts ?

A

Financial ratios

58
Q

Radio said user in decide if whether to ?

A

Invest in, or loan money to a company

59
Q

A single ratio by itself is not very ?

A

meaningful

60
Q

What are these examples of ?
1. Other companies that operate in the san industry (i.e., competitors)
2. Industry averages
3. Past years (trend analysis)

A

Typical benchmarks or comparison points

61
Q

All of these ratios are referred to as ?
1. Workimg capital
2. Current ratio
3. Acid-test ratio

A

Liquidity ratios

62
Q

What measures the short-term ability of the company to pay its debts as they come due ?

A

Liquidity ratios

63
Q

Liquidity ratios are meant for ?

A

Short term creditors such as bankers and suppliers

64
Q

Current assets - Current liabilities = ?

A

Working capital

65
Q

Current assets / Current liabilities = ?

A

Current ratios

66
Q

Working capital and current ratio both give a user a feel for the ?

A

Companies ability to pay its debts as they come due (working capital in form of a dollar amount and current ratio in the form of number of times)

67
Q

(Cash + Accounts Receivable) / Current liabilities = ?

A

Acid-test ratio

68
Q

What does the same as current ratio but more conservative estimate of the company’s liquidity by using only the most liquid current assets in the numerator.

A

Acid-test ratio

69
Q

The acid-test ratio is also known as the ?

A

Quick ratio

Accounting (13 decks)

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