Exam 2 Flashcards
(121 cards)
1
Q
Hierarchy Outside
A
Congress, people outside of this
SEC
FASB
2
Q
Hierarchy Inside
A
Board of Directors
CFO
Division Controllers
Accounting Clerks
3
Q
Definition of an Asset
A
Resources with probable future economic benefit obtained or controlled by a particular entity as a result of past transactions or events
4
Q
Assets on balance sheet
A
Not all assets are on a balance sheet.
To be recognized a resource must:
- meet the definition of an assets
- must be possible to measure its financial value reliably
5
Q
Wide Estimate
A
Lots of differing estimates.
Human capital, Patents, IP
6
Q
Average Estimate
A
Some differing estimates.
Computers, cars, Homes
7
Q
Tight Estimate
A
Few differing estimates.
Cash, CDs, Shares
8
Q
Judgment examples
A
Accounts receivable
Sales Returns
Depreciation
Impairment of Assets
9
Q
What does a Balance Sheet Look Like?
A
Full of estimates and judgments so it is like a x-ray that is fuzzy and blurry
10
Q
Accounting Cycle
A
- Identify and understand the business transaction
2. Analyze the transaction to determine its effect on the financial statements
11
Q
Accounts Rec
A
Balance Sheet
Asset
Debit
Real
12
Q
Bad Debt Exp
A
Income Statement
Expense
Debit
Nominal
13
Q
Sales Revenue
A
Income Statement
Revenue
Credit
Nominal
14
Q
Prepaid Ins. Exp
A
Balance Sheet
Asset
Debit
Real
15
Q
Tax Exp
A
Income Statement
Expense
Debit
Nominal
16
Q
Inventory
A
Balance Sheet
Asset
Debit
Real
17
Q
Accounts Pay
A
Balance Sheet
Liability
Credit
Real
18
Q
Cash
A
Balance Sheet
Asset
Debit
Real
19
Q
Insurance Exp
A
Income Statement
Expense
Debit
Nominal
20
Q
Unearned Rev
A
Balance Sheet
Liability
Credit
Real
21
Q
COGS
A
Income Statement
Expense
Debit
Nominal
22
Q
Notes Payable
A
Balance Sheet
Liability
Credit
Real
23
Q
Capital Stock
A
Balance Sheet
Owners Equity
Credit
Real
24
Q
Retained Earnings
A
Balance Sheet
Owners Equity
Credit
Real
25
Dividends
Debit
| Nominal
26
Service Rev
Income Statement
Revenue
Credit
Nominal
27
Allowance for Uncollectible
Balance Sheet
Contra-Asset
Credit
Real
28
Wage Expense
Income Statement
Expense
Debit
Nominal
29
Advertising Exp
Income Statement
Expense
Debit
Nominal
30
Wage Payable
Balance Sheet
Liability
Credit
Real
31
Interest Exp
Income Statement
Expense
Debit
Nominal
32
Real Account
Accounts from the beginning carried over each year
33
Nominal Account
Temporary Accounts
| Closed at the end of each accounting year
34
Adjusting Entries
Uncollectible/Bad Debt
Prepaid Insurance/ Insurance
Wages Payable/Wage Expense
35
Buy Insurance
Debit Prepaid
| Credit Cash
36
Adjust Insurance Used
Debit Insurance
Credit Prepaid
Debit both new amounts
37
Receive $ for consulting
Debit Cash
| Credit Unearned Service Revenue
38
Adjust Consulting Used
Debit Unearned Service Revenue
| Credit Service Revenue
39
Revenue Recognition
Timing of the reporting of a sale
| Revenue is reported when the performance obligation to the customer is satisfied
40
Accrued Wages
Debit Wage Expense
| Credit Wage payable
41
Notes Payable interest due and PAID
NO adjustment
Debit Interest Expense
Credit Cash
42
Notes Payable interest due and paid following year
Debit Interest Expense
Credit Interest Payable
When paid same as same time
43
Bad debt Percent of sales
Estimates bad debt expense directly
| Ending allowance amount is computed using arithmetic
44
Bad Debt Percent of ending accounts receivable
Estimate ending allowance amount directly
| Bad debt expense is computed using arithmetic
45
Bad Debt Journal entry
Debit Bad Debt Expense
| Credit Allowance for Bad Debts
46
Fill out Accounts receivable and Allowance for Bad Debt
A/R -
Left Side - Beg, Credit Sales End
Right Side - Collections, Write-off's
Allowance -
Left - Write-Off's
Right - Beg, BD Exp, End Bal
47
% of Credit Sales method
BD Exp - Credit Sales * %
BD End Bal - Beg Bal + BD Exp - Write-Off's
A/R - Beg + Cr Sales - (Collections + Write-off's) = End
48
% of Credit Sales Balance sheet
Ending AR bal - End Allow = Net AR
49
% or Aging of Accounts Receivable method
End - sum of % of each * Amount
50
% of Sales Revenue
% * Sales Revenue
51
Aging Of allowance
Ending Allow - Beginning Allow = Bad Debt
52
Which bad debt method is better?
Neither just two different ways
53
Take Home Pay
Take Home = Salary - FICA - FIT - SIT - United Way Contribution
54
Cost to Employ
Cost = Salary + FICA Match + FUI + SUI
55
Life Insurance through
Cost person
| None employer
56
Medical coverage
Overall = Withholds + cost to employer
57
Employer Contributed Retirement
No person
| Employer - Salary * % * liklyhood
58
After Retirement
No person
| Employer - ???
59
Fraud
Dishonesty in all its forms
60
Fraudulent Financial Reporting
Intentional misstatements or omissions of amounts or disclosures in financial statements to deceive financial statement users
61
Misappropriation of Assets
The theft of an entity's assets including embezzling, stealing, or causing an entity to pay for goods or services not received
62
Corruption
Using influence in a business transaction in a way that violates a duty to an employer in order to obtain a personal benefit
63
The Fraud Triangle
Perceived Pressure, Perceived Opportunity, Rationalization
64
Removing Opportunity
Internal Controls can reduce the opportunity for individuals
65
Internal Controls
Assets are physically safeguarded
Only authorized transactions occur
Complete and accurate records are kept
66
Primary Responsibility for preventing frauds
Management
67
External Auditors
CPA
Checks the books
Provide reasonable assurance that the financial statements are free of material misstatements
68
Journal Entry For building purchase
Debit Building
69
First monthly mortgage payment
Debit interest expense
Debit note payable
Credit cash
70
Building adjusting entry
Depreciation
71
Bond financing and pay
Debit cash Credit Long-term Debt
| Debit Interest exp Credit Cash
72
Stock financing and pay
Debit Cash Credit Capital Stock
| Debit div Credit Cash
73
Interest Amount
Ending balance * Monthly interest rate
74
Principle
Payment - interest
75
Differences to Investor
```
How certain are payments
Poor performance
Good performance
Voting rights
Income tax?
```
76
Differences to Company
```
How binding is Payment
Impact on balance sheet
Impact on income statement
Preference of owners
Corporate tax?
```
77
Long-Term Bond Liability
Mandatory Payment
Fixed Annual Payments amounts
100 repay
Among the first to get payed
78
Common Stock Equity
Option payments
Variable annual payments
Never repaid
Last to be paid
79
Preferred Stock Equity
Optional Payments
Fixed annual Payments
Never repaid
2nd to last paid
80
Mandatorily Redeemable Preferred stock Equity
Optional payments
Fixed amount
10 year Repayment
Near the last
81
Convertible Subordinated Debentures Liability, until converted
Mandatory payments
Fixed annual
10 year or exchange
Near the last
82
Difference between liability or equity
No clear line
83
Return on Equity (ROE)
Net Income / Stockholders' Equity
> 20% very good
10% to 20% normal
< 10% bad
84
DuPont Framework
ROE = net Income / Sales * Sales / Assets * Assets / Equity
85
DuPont Framework Profitability
Net Income / Sales
| Number of pennies of profit generated by each dollar of sales
86
DuPont Framework Efficiency
Sales / Assets
Number of dollars of sales generated by each dollar of assets
87
DuPont Framework Leverage
Assets/Equity
| Number of dollars of assets that can be purchased with each dollar of equity investment
88
Common-Size Statements
Divide by Sales for year
Expenses - # for each dollar of sales
Assets - # needed for one dollar of sales
89
What is the largest company
Need a criterion of the word largest what does it mean
90
Revenue Recognition Principle
Timing of revenues
| Recorded in the period in which they are earned
91
Matching Principle
Timing of Expenses
| Recognized in the period in which those costs provide benefit to the business
92
Closing Entries
Made at the end of an accounting period to accomplish:
1. Reset to 0
2. Update Retained earnings
93
Debit balance
Expenses
94
Credit balance
Revenue
95
Purchase of Inventory
Debit Inventory
| Credit Cash
96
Sales of Inbentory
Debit A/R
Credit Sales
Debit COGS
Credit Inventory
97
Missing inventory
Credit inventory
98
Inflation
LIFO:
High COGS
Low NI
Low Taxes
FIFO:
Low COGS
High NI
High Taxes
99
Deflation
LIFO:
Low COGS
High NI
HI Taxes
FIFO:
High COGS
Low NI
Low Taxes
100
Same in IN/DE flation
stable price
| no inventory left
101
Purchase Equipment
Debit equipment
| Credit cash / payments
102
Straight-Line Depreciation
Cost - Salvage / Years
103
Unit Method
Cost - Salvage / Units
104
Depreciation book entry
Debit Depreciation expense
| Credit accumulated deprecation
105
Gain or Loss
Sales - Book = Gain or loss
106
Intangible
Price / Years
107
Depletion Expense
Price / Unites * amount
108
Current Ratio
Current Assets / Current Liabilities
109
Acid / Quick Ratio
Selected Current Assets / Current Liabilites
110
Debt Ratio
Total Liabilities / Total Assets
111
Debt to Equity Ratio
Total Liabilities / Total Owners Equity
112
Accounts Receivable (A/R) Turnover
Net Credit Sales / Average balance of AR
Average balance - Beg + End / 2
113
Average collection
| Days Sales
365 / A/R Turnover
114
Inventory Turnover
COGS / Average Inventory
115
Average Inventory Holding
365 / Inventory Turnover
116
Earnings Per Share (EPS)
NI / # of shares
117
Book Value
Owners' Equity / # of shares
118
Price Earnings Ratio (P/E)
Market Price Per Share / EPs
119
NI as % of Investment
EPS / Market Share
120
End RE
Beg RE + NI - Div
121
Sheet
```
AP - CL
AR - CA
Capital Stock - OE
Cash - CA
COGS - EXP
Inv - CA
Long-term Debt - LTL
NI - Num
PPE - LTA
RE - OE
Sales - Rev
```
