midterm 1 Flashcards
(95 cards)
1
Q
accounting
A
“the language of business”
a process of identifying recording and communicating the economic events of an organization to interested users of the information
2
Q
managerial (cost accounting) accounting serves
A
INTENAL decision makers
3
Q
internal users (of managerial accounting) 4
A
marketing managers
production supervisors
finance directors
company officers
4
Q
financial accounting serves
A
EXTERNAL decision makers
5
Q
external users (of financial accounting)
A
investors * creditors * taxing authorities regulatory agencies customers labor unions
6
Q
how are publicly traded companies regulated?
A
securities and exchange commission (SEC)
7
Q
what is the SEC
A
the securities and exchange commission is:
- agency of the us gov’t
- established in 1933 to administer laws and regulations relating to the exchange of securities and the publication of financial info by us businesses
- deals with IPO’s
8
Q
securities act of 1933
A
because of stock market crash of 1929; there were fewer regs and fraud in financial statements
9
Q
registration statement
A
must have AUDITED financial statements. SEC confirms, deals with INITIAL IPO
soo, the sec deals with IPO’s that must be audited, and file a registration statement
10
Q
Securities exchange act of 1934
A
deals with later public offerings
11
Q
securities exchange act of 1934 (3 parts)
A
10K, 10Q, 8K
12
Q
10K
A
annual report: independent 3rd party CPA firm must audit each year
13
Q
10Q
A
quarterly report (less in scope). have to be REVIEWED (not audited) by independent 3rd party CPA firm
14
Q
8K
A
is a current report companies must file with the SEC to announce major events that shareholders should know about. for example:
- completion of acquisition
- bankruptcy
- changes in registrant’s certify accountant
- change in audtiros (increases chance of fraud)
15
Q
Sarbanes-Oxley Act of 2002
A
passed in response to ENRON (7th largest company that filed for bankruptcy. also WorldCon did the same) both fraught with fraud
16
Q
PCAOB
A
public company accounting oversight board
watchdog of auditors
in response to sarbanes oxley 2002
17
Q
EDGAR
A
electronic data gathering, analysis, and retrieval system (for sec filings plus their website)
18
Q
FASB
A
financial accounting standards board—an organization with the responsibly for developing accounting principles in the US
19
Q
GAAP
A
generally accepted accounting principles: the established set of standards nd rules that are recognized as a general guide for financial reporting purposes, which have been established by the accounting profession
20
Q
IFRS
A
international financial reporting standards: established by the international accounting standards board (IASB) – GAAP>IFRS in terms of detail
21
Q
GAAS
A
generally accepted auditing standards: the established set of standards and rules that are recognized as a general guide for performing audits of financial statement,s which have been established by the accounting profession
22
Q
forms of business organizations (3)
A
sole proprietorship
partnership
corporation (form to seek protection from legal liability)
23
Q
types of business activities (3)
A
service, merchandising, manufacturing
24
Q
debits
A
LEFT
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credits
RIGHT
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financial statements
```
income statement
statement of owner's equity
balance sheet
statement of cash flows
footnotes
```
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basic accounting equation
assets=liabilities + equity
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debits
increased by asset
decreased by equity
decreased by liability
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credits
decreased by asset
increased by equity
increased by liability
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assets include
```
cash
a/r
inventory
ppe
prepaid expenses
```
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liabilities include
unearned revenue
payables
loans
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equity
DEBIT SIDE: drawings, expenses (CREDITS DECREASE THESE)
CREDIT SIDE: contributed capital, revenue (CREDITS INCREASE THESE)
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normal balance
wahtever causes the account to increase
34
```
normal balance of
ASSET
LIABILITY
EQUITY
CC
REV
EXPENSE
DRAWINGS
```
```
ASSET- debit
LIABILITY- credit
EQUITY- credit
CC-credit
REV-credit
EXPENSE-debit
DRAWINGS-debit
```
35
income statement PURPOSE
describes the REVENUES and EXPENSES for a period of time (generally quarterly or annually)
single step and multi step
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single step income statement
revenues (expenses)= net income or (loss)
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multi step income statement
```
sales
(sales discounts)
net sales
COGS
GROSS PROFIT
```
operating expenses
selling exp
general and admin exp
INCOME FROM OPERATIONS
other expenses and losses
NET INCOME
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Retained earnings
revenue and expense accounts are considered temporary subdivisions within retained earnings
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permanent accounts
```
assets
liabilities
equity
---CC
---retained earnings
```
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temporary accounts
revenue
expenses
dividends or drawings
CLOSED INTO RETAINED EARNINGS AT YR END
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accrual accounting
1. revenue: recognized when the products are sold or the services are provided (WHEN EARNED), which ay or may not be when cash changes hand
2. expenses: recognized using MATCHING PRINCIPLE, which ay or may not be when cash changes hands
42
balance sheet
point in time
- has current and non current assets--presented in order of liquidity
- has current and non current liabilities-- presented order they will be paid
- has equity presented in order of preference
43
assets (Definition/presntation on bs)
def: economic resources owned by the company that are expected to provide future economic benefit (vs expense--benefit current period)
presented in order of liquidity
CURRENT: assets that DO NOT LAST beyond a year (cash)
nON CURRENT: assets that last beyond a year (bldg, land)
44
current assets ORDER OF LIQUIDITY
assets that DO NOT LAST beyond a year
1. cash and cash equivalents
2. investments or marketable securities (stocks and bonds)
3. A/R
4. MERCH INVT
5. PP EXPENSES
6. SUPPLIES
45
non current assets ORDER OF LIQUIDITY
1. LONG LIVED ASSETS
- --FIXED ASSETS= PPE
- --INTANGIBLE ASSETS
46
liabilitites
def: amounts owed by the coupon
| presnted in order they will be paid
47
current liabilities
pay within a year
1. PAYABLES (amounts we will pay l8r)
2. unearned revenue (when we get paid before the service is rendered...we still owe the service)
48
non current liabilities (long term)
1. bonds
| 2. loans (Debt)
49
equity
| def
def: excess of assets over liabilities; the owner's claim on the company's assets
presented in order of preference
50
types of equity accounts
1. cc
- -prefered stock, common stock, additional paid in capital, treasury stock
2. retained earnings
51
retained earnings equ
ending retained ernings=beginnning retained eranings+ net income - dividends
52
stmt of owner's equity
indicates the claim which the owners have in the company
has equity accounts:
1. cc
--prefered stock, common stock, additional paid in capital, treasury stock
2. retained earnings
period statmeent
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stmt of cash flows
to show the SOURCES AND USES of cash which are not completely reflected in the income statement bc accrual accounting is used in the income statement
54
types of cash flows
cash flows from operations
cash flows from investing activities
cash flows from financing activities
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footnotes
an integral part of the financial statements
we cannot understand the fin statements without reading them
crucial reading--they shed light on manipulation
substance over form
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required footnotes
note 1: summary of significant accounting policies `
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journal entries
```
sales
cash receipts
purchases
cash disbursements
general
```
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ledgers
general
A/r sub
a/p sub
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capitalize
put it on the balance sheet as an asset
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depreciation
everything depreciates except for land
a systmatic and rational method to allocate the cost of an asset to the years it benefits
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accum dep
contra account
| normal balance= credit
62
contra accounts 3 characteristics
1. they've always attached to another account
2. they have opposite balance of he normal account balance (contra assets have credit balance...contra liabilities have debit balance)
3. they reduce the account to thwack they are attached
63
period statements
income statement
owner's qui
cash flows
64
position statement
balance sheet
65
cash method of accounting
- recgonize rev when you receive the cash
- recognize expense when you actually pay
- this is typically what used for personal tax return
66
accruel method of accnt
recognize rev when earned, measurable and collectible
recognize expense when incurred===mtching
what corps use
67
all cash is supplied by sources or used for uses
1. operating activities
2. investing activies
3. financinac activiies
operating activiites: anything cash to change due to day to day operating activities
investing activitie: investing in PPE helps comp grow
financinag activities: debt and equity: debt (bonds, bank loans); equity (issuing stock)
68
conceptual framework of accounting (developed by financial accounting standards board (FASB))
1. objectives of financial reporting
2. qualatiative characteristics of accounting information
3. elements of financial statements
4. operating guidelines (assumptions, principles and constraints)
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objectives of financial reporting
the objectives of financial reporting are to provide information that
1. is useful to those making investment and credit decisisions
2. is helpful in assessing future cash flows
3. identifies the economic resources (asset), the claims to those rescues (liabilities), and the changes in those rescources and claims
70
qualitative characteristics of accounting information
to be useful, information should be
1. relevant--account information is relevant if it makes a difference in a decision
2. reliable--the information is free of error and bias; it can be depended on
3. comparable--different companies use the same accounting principles
4. a company should use the same accounting principles and methods form year to year
71
accounting assumptions
1. monetary unit
2. economic entity
3. period f time
4. going concern (continuity)
72
monetary unit
usually the national currency of the reporting company
| us dollar
73
economic entity
a business is an economic unit separate and distinct from its owners
74
period of time
information is reported in a company's financial statements at least on an annual basis
75
going concern (continuity
the company will continue to operate in the near future. we assume a business will operate indefinitely.
76
accrual accounting
relating the financial effects of transactions, events and circumstances having cash consequences to the period in which they occur rather than the period when the cash receipts or payments occur
77
accounting principles
1. rev recognition
2. matchin
3 full disclosure
4 historical cost
78
revenue recognition
revenues should be recognized when:
- realizatio has taken place
- usually at the time of sale
- recognize revenue when earned, measurable and collectible
realization: is the process of converting non-cash rescues into cash or rights to cash
recognize revenue at the point of sale, not necessarily when we get the cash (accrual basis of accounting)
79
realization
is the process of converting non-cash rescues into cash or rights to cash
80
matching
- -to determine the income of a company for an accounting period, the total expenses involved obtaining the revenue of the period must be computed and related (matched against) the revenues recorded in the period
- -costs incurred in generating revenues are expensed in the same period as the revenue is recognized
81
full disclosure
circumstances and events that make a difference to financial statement users should be disclosed
any information that will influence the actions of a decision maker must be disclosed
decision makers
-investors
-bank
-govn't
-managment
82
histoircal cost
the acquisition of goods, services and other rescues are entered into the accounting regards at their exchange price (the price you pay)
we record it at historical cost because it is objective and verifiable
83
accounting constraints
materiality
| conservatism
84
materiality
an item is material if it is likely to influence the decision of a reasonable prudent investor or creditor
85
conservatism
accounting measurements take place in a context of significant uncertainties therefore, when alternative accounting valuations are equally possible, select the one that is least likely to:
overstate assets and income
understate liabilities and expense
86
contemporaneous exchange
money received when earned
| express paid when incurred
87
accruel
income earned before money received
expense incurred before money is paid
impacts income statement now
impacts cash later
88
deferral
income earned after money received
expense incurred after money paid
impacts cash now
impacts income statment later
89
FOB shipping point
buyer pays
| when buyer pays, it increases the cost of the purchase, so merchandise inventory is debited
90
FOB destination
seller pays
91
cash includes
currency, coins, money in the bank, personal check
92
cash equivalents iclude
t bills, money market funds
93
objectives of internal conrols
accurate reliable financial statements
| safegaurding of assets
94
internal contol components
```
1 control activities
--performance reviews
--inof processing
--physical controls
--segreation of duties
2 risk assement
3 information and communication
4 monitoring
5 control environment
```
95
petty cash
a way to pay for those little expediters that come up;
| an IMPREST ACCOUNT (it has a set balance that doesnt change)
