Chapters 1 - 5 Flashcards
(38 cards)
What is the formula for Gross Margin
Gross Margin = Sales Revenue - COGS
What is accrual accounting?
accrual accounting recognizes revenues and expenses in the period in which they occur, regardless of when cash is collected or paid
What are the 2 distinguishing features of accrual accounting?
- Accrual
2. Deferral
What is an accrual? What are some examples?
Describes a revenue or an expense event that is recognized before cash has been exchanged.
Some examples are Accounts Receivable on the Assets side and Accounts Payable on the Liabilities side
What is a deferral? What are some examples?
Describes a revenue or an expense that is recognized after cash has been exchanged.
Some examples are: prepaid accounts such as Prepaid Insurance or Prepaid Rent on the Assets side or Unearned Revenue Account on the Liabilities side.
What is NRV?
Net Realizable Value - represents the amount of receivables a company estimates it will actually collect. It is the face value less an allowance for doubtful accounts. (AR - Allowance for Doubtful Accounts = NRV)
What is the Allowance for Doubtful accounts?
A company’s estimate of the amount of uncollectible receivables.
What is the allowance method of accounting for uncollectible accounts?
The reporting of AR in the financial statements at net realizable value (NRV)
What does GAAP stand for?
Generally Accepted Accounting Principles and are the measurement rules for accounting established by FASB.
What are stakeholders? Give some examples.
The individuals and organizations that need information about a business. Some examples are lenders, government agencies, lawyers, employees and news reporters.
What are elements? Give examples.
The 10 categories that a financial statement is organized into. Examples are assets, liabilities, revenue, expenses, common stock, stockholder’s equity, dividends, and net income.
Detailed information about the elements is maintained in records commonly called what?
Accounts - such as cash, equipment, land, etc.
What is the accounting equation?
Assets = Liabilities + Stockholder’s Equity
What are they 3 ways that a business obtains assets?
- Acquire them from owners (stockholders)
- Borrow them from creditors
- Earn them through profitable operations
What is an asset source transaction?
A transaction that increases total assets and total claims (liabilities/stockholder’s equity)
What is an asset exchange transaction?
A transaction in which an asset increases and decreases therefore total assets are unaffected
It is October 1 and the company just received $10,000 cash that was put into the revenue account. How much is in the retained earnings account?
$0 - the money is held in the Revenue account until the end of the accounting period where it is then transferred to the Retained Earnings account, which is part of the process called closing the accounts (e.g. December 31, June 30, Sept 30).
Remember, there is no cash in the Retained Earnings account.
What is an asset use transaction?
A transaction that decreases the total amount of assets and to total amount of claims (liabilities or stockholder’s equity)
What is the historical cost concept?
It requires that most assets be reported at the amount paid for them (their historical cost) regardless of increases in market value.
What is a general ledger?
The complete collection of a company’s accounts.
What are the 4 Financial Statements?
- Income Statement
- Statement of Changes in Stockholder’s Equity
- Balance Sheet
4, Statement of Cash Flows
Which accounts are temporary and which ones are permanent?
Temporary: accounts on the income statement (e.g. revenue, expense, dividends)
Permanent: accounts on the balance sheet
What are some examples of inventory that would included under the Merchandise Inventory account?
- Price of good purchased
- Shipping and handling costs
- Transit insurance
- Storage costs
These are often called product costs.
What is the difference between the sales revenue and the cost of goods sold called?
Gross Margin or Gross Profit
