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Accounting 229 > Final Review > Flashcards

Final Review Flashcards

1
Q

Materiality

A

the dollar magnitude of a transaction makes a difference in how it is recorded, does an error in any way affect the judgement of someone relying on the information

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2
Q

Historical Cost

A

assets are recorded at original cost (recorded at the amount we paid)

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3
Q

Economic Entity

A

business transactions are separate from the personal future of the owners

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4
Q

Monetary Unit

A

all information will be measured in its monetary unit

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5
Q

Going Concern

A

company will continue to operate into the foreseeable future without forced liquidation

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6
Q

Time Period Assumption

A

the long life of a company can be reported over a series of shorter time periods (makes it possible to prepare a income statement for a specific time period)

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7
Q

Consistency

A

allows comparison within a company from one accounting period to the next

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8
Q

Comparability

A

allows users to analyze 2 or more companies and look for similarities or differences, can compare to other companies because similar methods have been applied

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9
Q

Understandability

A

information should be comprehensible to those who are willing to spend time to understand it

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10
Q

Accounting Equation

A

Assets = Liabilities + SHE

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11
Q

Current Assets

A

cash
marketable security (short term investment)
A/R
Inventory
Supplies
Pre Paid Expenses

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12
Q

Current Liabilities

A

debts paid within a year
accounts payable
wages payable
interest payable
dividends payable
unearned revenue
short term notes
current maturities of long term debt
contingent liabilities

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13
Q

Long Term Liabilities

A

Notes Payable
Bonds Payable
Mortgage Payable

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14
Q

Long Term Assets

A
  1. Long term Investments (stocks and bonds)
  2. PP&E (plant property and equipment):
    Land, Buildings, equipment, furniture, vehicles, accumulated depreciation
  3. Intangible Assets
    Patents, Copyright, Trademark/Tradename, Franchises/licences, goodwill
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15
Q

SHE

A

2 parts: Common Stock and Retained Earnings

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16
Q

Contra Assets

A

Accumulated Depreciation reduces fixed assets
Allowance for doubtful Accounts (ADA) reduces accounts receivable

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17
Q

Contra Liability

A

discounts reduces the face value of note payable

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18
Q

Contra equity

A

Treasury stock

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19
Q

Current Ratio

A

CA/CL

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20
Q

Working Capital

A

CA-CL

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21
Q

Multi Step Income Statement

A

Revenue
- COGS
= Gross Profit
- operating expenses
=Income from Operations
+gain
-loss
+interest revenue
-interest expense
= income before taxes
- income tax
= Net Income

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22
Q

Statement of Retained Earnings

A

Beg RE
+Net income
-Dividends
= End RE

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23
Q

Statement of SHE

A

Beg SHE
+ New Stock
+ Net Income
- Dividends
= End SHE

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24
Q

Rules of Debits and Credits

A

debits must equal credits
debits to the left credits to the right

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25
Q

Normal Balance is debits

A

For assets, expenses, dividends, and losses their normal balance is Debits

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26
Q

DEAD

A

Debits increase Expenses Assets Dividends

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27
Q

CLEAR

A

Credits increase Liabilities, Equity, And Revenue

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28
Q

Normal Balance is Credits

A

for liabilities, equity, revenues and gains the normal balance is credit

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29
Q

Trial Balance

A

list all accounts and their ending balances to prove debits = credits

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30
Q

Accrual Accounting

A

cash comes later like accounts payable or accounts receivable

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31
Q

Revenue Recognition

A

record revenues when the earning process is complete
1. delivered the goods
2. performed the goods

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32
Q

Matching (expense recognition principle)

A

match expenses incurred with revenues earned in the same accounting period the expense helped generate the revenue

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33
Q

Purpose of Adjusting Entries

A

to update any unrecorded revenue and expenses at the end of the accounting period

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34
Q

“Deferred”

A

means you have received or paid cash in advance but will defer/put off recording revenues or expenses until it is earned (revenue) or used (expenses)

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35
Q

“Accrued”

A

means record the expense or revenue NOW along with the payable or receivable in order to follow matching and then you’ll pay cash or receive cash LATER

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36
Q

Closing entries

A

closing bringing to a zero balance all temporary accounts (revenues, expenses, dividends) and transfer their balances to Retained earnings

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37
Q

Journal entry to close Revenue

A

Revenues xx
Retained Earnings xx

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38
Q

Closing Entry for expenses

A

Retained Earnings xx
COGS. xx
Rent Exp. xx
Depr. Exp. xx
Ins. Exp. xx

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39
Q

Closing Entry for Dividends

A

Retained Earnings xx
Dividends. xx

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40
Q

Cash Equivalents

A

original maturity of 3 months or less, does not include stock, regardless of how long management intends to hold the investment

  • treasury Bill
  • commercial paper
  • money market funds
  • certificate of deposit
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41
Q

Bank Reconciliations

A

Balance per Bank
Balance per Books

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42
Q

Balance Per Bank

A

Balance per bank
+ Deposits In Transit
- Outstanding checks
+/- Bank errors
= true cash balance

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43
Q

Balance Per Book

A

Balance per Book
+ Notes Receivable
+ Interest Receivable
- services fees
- NSF checks
+/- book errors
= True cash balance

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44
Q

Debit Memos issued by bank

A

reduces the company’s cash account

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45
Q

Credit memos issued by bank

A

increases the company’s cash account

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46
Q

Net Sales Formula

A

Revenue
-Sales Return and Allowances
- Sales Discounts
= Net Sales

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47
Q

Gross Profit ratio

A

Gross Profit / Net Sales

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48
Q

Income Statement Method for Bad debt

A

% of credit sales
estimate = Bade Debt Expense

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49
Q

Balance Sheet method for Bad debts

A

% of A/R
estimate = End ADA

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50
Q

Impact on financial statements of recording BDE, writing off an A/R as uncollectible, collecting on a previously written off A/R

A

recording a BDE will credit A/R
if you write of an A/R you will credit A/R and debit ADA
if you collect on a previously written off A/R you debit A/R to reinstate it then credit ADA, then Credit A/R and debit Cash account

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51
Q

Direct Write off Method violates

A

the matching concept can only be used if the dollar amount of A/R is immaterial

52
Q

Notes receivable calculating interest/ maturity value

A

Maturity value = principle + Interest

MV= Princ. + ( Princ. x interest % x #months/12months)

Journal entry:
Issuance-
note receivable xx
Cash xx

Year end-
Int. receivable xx
Int. revenue xx

@ maturity
cash xx
Note receivable xx
Int. Rec. xx
Int. Revenue. xx. (only the remaining amount other amount in other entries)

53
Q

issuer of note

A

is the borrowers

54
Q

Periodic Inventory

A

uses a purchases account, records the sale when goods are sold but does NOT update COGS or inventory

to record purchase of inventory:
Purchases xx
Accounts Payable xx

To record sale of merchandise:
Cash xx
Sales revenue xx

55
Q

COGS formula

A

Beginning Inventory
+ Net Purchases
= Goods available for Sale
- ending inventory
= COGS

56
Q

To find net purchases

A

purchases
- purchase return and allowances
- purchase discounts
+ freight In
= net purchases

57
Q

Perpetual Inventory

A

keeps a running total of goods in inventory and updates COGS with every sale
requires 2 journal entries
1. record of sale
2. update inventory & COGS

to record purchase of inventory:
Inventory xx
Accounts Payable xx

to record sale of merchandise
1. Cash xx
Sales revenue xx

  1. COGS xx
    Inventory xx
58
Q

FOB Shipping Point

A

title transfers immediately at shipment

59
Q

FOB Destination

A

title transfers when it gets to final destination of buyer, whoever has legal title during shipping should include in ending inventory

60
Q

Inventory Cost Methods

A

LIFO and FIFO

61
Q

know how to find COGS using LIFO/FIFO

A

using LIFO/FIFO you will calculate the cost of each purchase and add all of that cost together

62
Q

theory of rising/falling prices and their effect on Net Income, Ending Inventory, COGS using LIFO/FIFO

A

FIFO effect on Net Income:
if prices are rising makes net income higher (overstated)
FIFO Ending Inventory:
assigns current cost to ending inventory (end Invt. =most recent purchases)

LIFO effect on Net Income:
in periods of rising prices net income is LESS (reduces income taxes)
matches current costs with current revenues

63
Q

Long term assets original cost

A

original cost includes all costs incurred to bring the asset into its productive capacity (cost to buy + legal fees to acquire + shipping + installation) dont include costs that are unusual

64
Q

Straight Line Depreciation

A

Cost - salvage/# of years life = depreciation expense

65
Q

Activity Method

A

step 1: cost per unit = Cost - salvage/# units or hours
step 2: Depr. expense= # units produces this year x cost per unit

66
Q

depreciation expense

A

is the amount recorded for the current year (on inc. stmt)

67
Q

accumulated depreciation

A

is the accumulation of all the depreciation taken over the assets life (on balance sheet as contra asset account)

68
Q

Book Value (BV)

A

cost - accumulated depreciation

69
Q

To find gain/loss on sale of fixed asset

A

Cost xx
- AD. (xx)
= BV xx

find how much cash it was sold for (FMV)
xx Cash (FMV)

find the difference between cash and BV thats your gain/loss

70
Q

Straight Line method (amortize)

A

cost / lesser of useful or legal life

71
Q

Interest bearing notes

A

Maturity value= principle + interest (principle x interest % x #months/ 12 months)

72
Q

Non interest bearing notes

A

notes issued at a discount, interest was taken out in advance

Cash proceeds= Principle - interest (principle x interest % x #months/ 12 months)

73
Q

Discount

A

is a contra liability account, the amount that will be transferred to interest expense over the life of the note

74
Q

Balance sheet CV

A

Note Payable xx (at FV)
- Discount xx
= Carrying Value xx (amount owed today)

75
Q

Lump sum payment

A

use PV of $1 Table
FV x PV of $1 = PV

  • carrying value increases over life of the note bc we owe for the equip. + Int.
76
Q

Interest Expense

A

Carrying Value (CV) x Interest rate

77
Q

Annuity

A

series of equal payments
use PVOA table
PMT x PVOA = PV

  • carrying value decreases over the life of the note because you’re making payments
78
Q

Coupon Rate

A

fixed rate of interest paid on face value of the bond, known as “face” rate
only ever use this rate to calculate pmts if its not given

79
Q

Market Rate

A

-the going rate of interest that borrowers /lenders are willing to accept on the day of the bond is sold (issued)

-also called effective rate or yield

-market rate locks in on date of issuance

80
Q

Term Bond

A

all bonds mature on the same date

81
Q

Callable Bonds

A

Corporations reserve the right to buy them back early at a stated right
use call price as a % of FV

82
Q

Bonds

A

are long term liabilities, appear on the balance sheet at their carrying value

83
Q

Carrying Value

A

represents the amount of debt actually owed on that balance sheet date

84
Q

Issuance of bonds 2 Promises

A
  1. Promise to pay lump sum of face value at maturity
  2. Promise to pay periodic interest payments during the life of the bond (use coupon rate only to find cash interest pmts)
85
Q

If Coupon rate = Market rate

A

sell at FV

86
Q

If Coupon rate < Market rate

A

sell at a discount (selling price is less than FV)

87
Q

If Coupon rate > Market rate

A

sell at a premium (selling price is higher than FV)

88
Q

Carrying Value for Premium/Discount

A

Premium:
CV = FV + unamortized premium

Discount:
CV = FV - Unamortized discount

89
Q

If bond sold at a discount

A

the CV will increase over its life until it reaches FV at maturity

90
Q

If bond sold at a premium

A

the CV will decrease over its life until it reaches FV at maturity

91
Q

Effects of Discounts

A
  1. a discount adds to the cost of borrowing ( ex. interest expense) bc you have to match the market rate which is more than the coupon rate, corporation receives less cash but has to pay back FV at maturity
  2. CV increases over the life of the bond until it reaches FV at maturity
  3. Amortization of discount increases interest expense because interest expense is based on CV, and CV grows with every interest period
92
Q

Effects of Premium

A
  1. premium reduces the cost of borrowing (matching with the market rate of interest) which represents you true cost to borrow and Market rate is less than coupon rate
  2. CV decreases over its life until it reaches FV at maturity
  3. Amortization of premium reduces interest expense each pay period bc CV is decreasing over the life
93
Q

to find total cost of borrowing

A
  1. compare difference of cash in and cash out = cost to borrow over the life of bond
  2. Total cash Paid in interest
    + Discount or - Premium
    = total cost to borrow
94
Q

Bond selling price

A

PV of face + PV of cash Interest pmts = selling price of the bond

95
Q

Interest Expense with mkt %

A

Interest expense = CV x Mkt. %

96
Q

Cash to repurchase a bond

A

cash to repurchase = FV x Call % (or Mkt. %)

97
Q

to find gain/loss on retirement

A

find the difference between the cash to repurchase and the CV

98
Q

Earned Capital vs Contributed Capital

A

earned capital is the # of assets that are earned and retained by the company (R/E) vs. Contributed capital is the amount that shareholders have given the company for stock (APIC, Common stock, preferred stock)

99
Q

what effects R/E

A

dividends and net income

100
Q

Authorized shares

A

total # of shares that can be sold by corporation

101
Q

Issued shares

A

total # of shares held by outside sources

102
Q

Outstanding stock

A

of shares held by outside sources
( # shares issued - # treasury stock = Outstanding stock)

103
Q

Treasury Stock

A

stock the company has reacquired
- carries a debit balance and reduces SHE

104
Q

what are the rights of common and preferred stockholders

A

Preferred Stock rights
1. Dividend preference- right to receive a dividend before common stockholders
2. liquidation preference- after creditors
3. NO voting rights

Common Stock rights:
1. voting rights- vote on major issues, vote for board of directors
2. Dividends- right to receive share of corporations earning as their return on investment ( after preferred Stockholders)
3. Liquidation- right to proportionate share of assets upon liquidation (after creditors and Preferred Stockholders)
4. Preemptive right- right to current stockholders to maintain their percentage of ownership by buying a proportional # of shares of any future issues

105
Q

Issuance of stock

A

if selling price > par
cash ( # of shares x selling price) xx
Common Stock xx
APIC/CS xx

106
Q

Stock issued for non cash asset

A

record at FMV of stock traded (1st choice) or appraised value of asset recorded

107
Q

Dividends

A
  • always decrease RE
  • preferred stockholders receive dividends before common stockholders
108
Q

Calculation of preferred dividend

A

of shares outstanding x par value x % return

109
Q

Calculation of common dividend

A

of shares outstanding * $ amount of dividend

110
Q

3 dates of cash dividend

A

Declaration-

Record-

Payment-

111
Q

Dividend Distribution

A

Pref dividend = #issued x par x % return

preferred shareholders get their dividends first, if cumulative must pay all unpaid dividends from prior years (dividends in arrears) + current years dividends before common shareholders get anything

112
Q

what do cash dividends reduce

A

R/E, Cash, SHE

113
Q

Treasury stock using the cost method

A

to purchase:
Treasury Stock xx
(# of shares x cost)
Cash xx
(# of shares x cost).

To sell treasury stock:
Cash xx
(# of shares sold x market price)
Treasury Stock xx
(# of shares x cost)
APIC- TS xx

114
Q

Total SHE

A

Total Contributed Capital
+ Retained Earnings
- Treasury Stock
= Total SHE

115
Q

to find total contributed capital

A

Pref. stock
+ Common Stock
+ APIC accounts
= Total Contributed Capital

116
Q

EPS

A

(Net Income - Pref. Dividends) / (weighted average CS outstanding)

117
Q

3 sections to cash flows

A

purpose is to show sources and uses of cash
1. Operating
2. Investing
3. Financing

118
Q

Operating Activities

A

Net Income
+ Depreciation Exp.
+ Amortization Exp.
+ loss on sale of PPE
+ decreases in all CA
+increases in all CL
- gain on sale of PPE
- increases in all CA
- decreases in all CL
= cash flow from operating

119
Q

Investing Activities

A

+ proceeds from sale of PPE
+ proceeds from sale of investments
- Purchase of PPE using CASH
- purchase of intangibles using CASH
= cash flow from investing

includes all changes in long term assets if the change involved cash in or out

120
Q

Financing activites

A

+ proceeds from issuing bonds payable
+proceeds from issuing stock for cash
- PMT of cash dividends
- PMT of L-T debt (principle only)
- purchase of Treasury Stock
= cash flow from financing

includes all changes in long term debt and SHE if the change involved a cash in or out

look for issued new debt or stock + retired long term debt - paid cash dividends

121
Q

what do u not include in cash flow statement

A

non cash transactions:
- Exchange land for Common Stock (or any asset other than cash)
- exchange L-T debt for fixed asset
- stock dividends

122
Q

Depreciable Base

A

Cost - salvage

123
Q

Selling Price/ Max price of bond

A

PV of $1 + PVOA

124
Q

Bond Retirement

A

FV
+/- discount/premium
= CV (what bond is worth)

FV x retirement % = cash paid

compare CV and Cash paid to find gain/loss

125
Q

to find change in cash

A

add cash flow operations + cash flow investing + cash flow financing

126
Q

statement of cash flows

A
  • focuses on the companys ability to generate cash internally, its management of CA and CL
  • compares cash at the beginning of the period to cash at the end of the period
  • definition of cash includes cash and cash equivalents (investments with original maturity dates of 3 months or less : Treasury bills, commercial paper, certificate of deposit, money market funds)

Accounting 229 (12 decks)

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