ACT 210 > EXAM 1 > Flashcards

EXAM 1 Flashcards

(68 cards)

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1
Q

Purpose of financial information

A

Provide inputs for decision making

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2
Q

Accounting

A

Communication and recording of financial information (business transactions) to users of information to make decisions

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3
Q

Financial accounting

A

Communicates to EXTERNAL users

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4
Q

External users

A

People outside the business organization who use accounting information

banks, investors, customers, suppliers, general public

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5
Q

Managerial accounting

A

Communicates to INTERNAL users

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6
Q

Internal users

A

People within a business organization who use financial information

owners, managers, employees

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7
Q

Short-term assets

A

Expected to be converted to cash within a year

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8
Q

Long-term assets

A

Those NOT expected to be converted to cash within a year

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9
Q

What is included in a classified balance sheet?

A

Current assets
Long-term investments
PPE
Current liabilities
Long-term liabilities
Stockholder’s Equity

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10
Q

Order current assets in which they are expected to convert to cash (liquidity)

A

Cash
Investments
Receivables
Inventories
Prepaid Expenses

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11
Q

What is the order of financial reports?

A
  1. Income statement
  2. Stockholder’s Equity
  3. Balance sheet
  4. Statement of cash flows
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12
Q

What steps make up the accounting cycle?

A

During the year:
Record and post external transactions

End of year:
Record and post adjusting entries
Prepare financial statements
Record and post closing entries

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13
Q

Trial balance

A

List of all accounts and their balance at a particular rate

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14
Q

Revenue recognition principal

A

Revenues recorded when EARNED

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15
Q

Expense recognition principal

A

Expenses are recorded when INCURRED

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16
Q

Adjusting journal entries

A

Happen on the last day of the period
Each entry impacts at least one income statement account (a revenue or expense account) and one balance sheet account (an asset-liability account) but NEVER IMPACTS CASH

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17
Q

When is cash received or paid (deferral)?

A

BEFORE the revenue/expense is recognized or benefit is received

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18
Q

When do we recognize revenue? (deferred)

A

When we receive cash

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19
Q

When do we recognize expenses? (deferred)

A

When we give cash

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20
Q

4 types of adjustments

A

Deferred expense, deferred revenue, accrued expense, accrued revenue

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21
Q

Accrual

A

Cash LATER

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22
Q

Which accounts are permanent?

A

All accounts that appear on the balance sheet, including retained earnings

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23
Q

Which accounts are temporary?

A

Revenues, expenses, and dividends

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24
Q

What are the 3 types of accounts we close out at the end of the period?

A

Revenues, expenses, dividends

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25
Liabilities
Creditors' claims to a corporation's resources
26
Balance sheet equation
Assets = Liabilities + Stockholders' Equity
27
Net income/loss equation
Revenues - expenses
28
Receiving cash from an account receivable
Increases one asset and decreases another asset
29
Stockholder's Equity
Common stock + retained earnings
30
Stockholder's equity layout
Beg. balance Issuance of C. stock Add: Net income for the period Less: Dividends Ending balance
31
Liabilities
The amount owed to creditors
32
Balance sheet
Assets Liabilities Owner's equity
33
Income statement
Revenues Expenses Net income/loss Over a period of time
34
Net loss
Expenses > revenue
35
Net income
Revenue > expenses
36
Sole proprietorship
Simple to establish Owner controlled Tax advantages
37
Partnership
Simple to establish Shared control Broader skills and resources Tax advantages
38
Corporation
Easier to transfer ownership Easier to raise funds No personal liability
39
Financing activities
Raising the funds to start the business
40
Investing activities
Buying resources (assets)
41
Operating activities
Generating income (profit) via sales and services
42
How does revenue and expense affect stockholder's equity?
Revenues INCREASE Expenses DECREASE
43
Dividends are NOT...
an expense
44
Financial statements provide information that...
is useful to investors and creditors in making decisions helps predict cash flow tells us about the company's economic resources, the claims to its resources, and the changes in those resources and claims
45
Which statement is prepared as of a specific date?
Balance sheet
46
Accounting is...
the language of business
47
The rules of financial accounting are...
Generally Accepted Accounting Standards (GAAP)
48
Who is GAAP established by?
Financial Accounting Standard Board (FASB)
49
Which financial statement is for the CURRENT PERIOD?
Income statement
50
Which financial statement is for a SPECIFIC POINT IN TIME?
Balance sheet
51
When expenses increase...
Retained earnings decrease Net income decreases
52
When dividends increases...
Retained earnings decreases
53
Asset exchange transaction
Asset: no change Liability: no change Stockholder's Equity: no change
54
Prepaid expense normally carries a ____ balance and is reported in the ____.
Debit; Balance sheet
55
"Prepaid"
Asset
56
Unearned revenue
Liability
57
Accounts receivable
Asset
58
Investments + Securities
Asset
59
Research + Development
Expense
60
When revenue increases...
Retained earnings increases Net income increases
61
Which accounts are listed in a post-closing trial balance?
Assets, liabilities, equity
62
The balance of retained earnings in the adjusted trial balance...
Equals the balance of retained earning at the beginning of the accounting period
63
Financial statements are prepared from which trial balance?
Adjusted trial balance
64
Adjusting entries
Allows for proper application of the revenue recognition principle (revenues) or expense recognition
65
Is equipment a current or non-current asset?
Non-current asset
66
When do we recognize revenue? (accrual)
When we provide a service or sell a product
67
When do we recognize expense? (accrual)
When we use up a resource
68
Deferral
Cash FIRST

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