Final Exam Flashcards Preview

Accounting > Final Exam > Flashcards

Flashcards in Final Exam Deck (63):
1

Current Liabilities

Debts that are due to be paid within one year or the operating cycle, whichever is longer

2

examples of current liabilities

accounts payable, accrued liabilities, current portion of long term debt, unearned revenue, collections for 3rd parties, short-term notes payable

3

contingent liabilities

uncertain or potential obligations that may give rise to liabilities, bu the timing and amounts are not sure

4

a contingent liability is probable and subject to reasonable estimation

must be recorded to financial statement

5

a contingent liability is reasonably possible

recorded as a footnote

6

a contingent liability is remotely possible

no required disclosure is needed

7

warranty liability

when goods are sold, a estimate of the amount of warranty costs should be recorded as an expense (offsetting credit goes to warranty liability account)
when work is performed debit warranty liability and credit cash

8

payroll

paychecks are usually reduced by a variety of taxes and other reductions

9

gross pay

total earnings of an employee

10

hourly employees

number of hours worked X hourly rate

11

salaried employees

flat amount for the period

12

net pay

gross earnings less applicable deductions

13

employer payroll

social security and medicare/medicaid tax amounts must be matched
also subject to unemployment tax (FUTA, SUTA), employers must carry workers compensation insurance

14

FUTA

federal unemployment tax

15

SUTA

state unemployment tax

16

payroll tax expenses

Social securty, Medicare/Medicaid, FUTA, SUTA

17

employee benefits expense

everything else

18

corporation

a legal entity with existence separate and distinct from its owners (stockholders

19

stock

financial instrument evidencing a person's ownership interest

20

Corporation Advantages

Mutual ownership, transfer-ability of ownership, perpetual existence, Limited liability

21

mutual ownership

capital can be drawn from many people, shareholders have voting rights

22

transfer-ability of ownership

stock is liquid/easily exchanged, shares may be "listed" on a stock exchange, IPO

23

IPO

Initial public offering (accompanied by regulatory registrations and filings, potential share holders are given a prospectus detailing corporate information)

24

perpetual existence

corporation can outlive its shareholders but may cease due to acquisitions, business failures, etc.

25

Limited liability

stockholders are not typically liable for debts and losses of the company beyond the amount of their investment

26

corporation disadvantages

double taxation, costly regulation

27

double taxation

corporate income is taxed, cash dividends received by shareholders are also taxed

28

costly regualtion

Securities and exchange commission (SEC) provides oversight in the USA, public companies prepare and file numerous documents, companies must have strong internal controls

29

typical common stock features

dividends, preemptive right, voting, proceeds from liquidation, periodic financial reports

30

preemptive right

option to buy a proportional part of any additional share that may be issued by the company

31

voting

right to vote on general governance matters

32

possible preferred stock features

preferred stock has a preferred position for dividends, absence of voting rights, liquidation preference, convertible

33

preferred stock has a preferred position for dividends

dividends are paid before common shares; often a % of stock's par value, more or less expected each period, cumulative

34

cumulative dividends

if the annual dividend requirement cannot be satisfied, it will become a dividend in arrears (dividends in arrears paid before common share dividends paid)

35

liquidation preference

usually paid-off after creditors but before common share holders

36

convertible

exchangeable for common stock at a pre-agreed ratio

37

par value

many states require stock to have a par or stated value, represents "legal capital" of the firm, separate accounts must be maintained for par and paid in capital in excess of par

38

Cash dividends

dividends are a matter of discretion, companies may aim for regular and increasing dividends, others may prefer to reinvest earnings

39

dividend declaration

formal action by the board of directors to indicate that a dividend will be paid, establishes a liability that is legally enforceable, dividends account directly reduces retained earnings

40

ex-dividend date

precedes date of record, allowing records to be updated

41

date of record

owner of stock on date of ex-dividend date receives the dividend, date of record is a few days later to update records

42

stockholders' equity section

should include detailed descriptions of the type of stock outstanding and its basic features (authorized, issued, outstanding)

43

authorized stock

permitted to be issued

44

issued stock

actually issued

45

outstanding stock

issued minus reacquired

46

legal capital

total par value

47

total paid in capital

legal capital plus amounts paid in excess of par values

48

treasury stock

represents shares of a company's own stock that it has reacquired, gains and losses are not reported in income, it is a contra equity item (debit to increase)

49

examples of reasons for buybacks

the stock market value is thought to be too low, the company is reorganizing, going private, or delisting, the company is fulfilling employee stock award plans

50

stock splits

increase the number of shares outstanding and reduce the par value per share, no journal entry needed

51

rationale behind stock split

decreases market value per share, keeping price low, stock becomes more attractive to future investors to buy into a large pool of lower priced shares

52

trend analysis

financial statement data in percentage terms (also called "common size" financial statements

53

statement of cash flows

must be reported, provides information to assess the amounts, timing, and uncertainty of a company's cash inflows/outflows

54

three categories of cash flows

operating activities, investing activities, financing activities

55

operating activities

generally link to transactions and events that enter into income

56

operating inflows

receipts from customers for goods/services provided, cash received from interest and dividend income, proceeds from the sale of "trading securities"

57

operating outflows

payments for inventory, trading securities, employee salaries and wages, taxes, interest, and other normal business expenses

58

investing inflows

sale of longer-term stock and bond investments, disposal of long-term productive assets, receipt of principle repayments on loans to others

59

investment outflows

payments made to acquire plant assets or long-term investments in other firms, loans made by the entity to others

60

financing inflows

proceeds from company issuing its own stock and bonds, borrowings under mortgage notes and loans

61

financing outflows

repayments of amounts borrowed, acquisitions of treasury stock, dividend distributions to shareholders

62

indirect approach

an alternative method for preparing the statement of cash flows; operating cash flows are presented as a reconciliation of income to cash from operating expenses

63

direct approach

the preferred method for preparing the statement of cash flows; operating cash flows are presented according to their direct source (e.g., cash received from customers)