Midterm 1 Flashcards
(96 cards)
1
Q
Accounting
A
A system of maintaining records of a company’s operations and communicating that information to decision makers
2
Q
Managerial accounting
A
Info that is provided for internal users (managers)
3
Q
Financial accounting
A
Provided to external users
- what we focus on
4
Q
Functions of financial accounting
A
- Measure business activities of a company
2. Communicate those measurements to external parties for decision making purposes
5
Q
Investors
A
Want to make good decisions related to buying and selling stock
6
Q
Creditors
A
Make decisions related to lending money to the company
7
Q
Corporation
A
Company that is legally seperated from its owners
8
Q
An advantage stockholders have
A
Double taxation
9
Q
Limited liability
A
Prevents stockholders from being personally responsible for the financial obligations of the corporation
- they only lose their investments not their personal assets
10
Q
Sole proprietorship
A
Business owned by 1 person
11
Q
Partnership
A
Owned by 2+ persons
12
Q
Assets
A
The resources of the company
Ex: cash and equipment
13
Q
Liabilities
A
Amounts owed to creditors
14
Q
Stockholders equity
A
Owners claims to resources
Common stock + retained earnings
15
Q
Basic accounting equation
A
Assets = liabilities + stockholders equity
- must always be in balance
16
Q
Value of a company
A
Total resources - amounts owed to creditors
17
Q
Revenues
A
Amounts earned from selling products or services to customers
18
Q
Expenses
A
Cost of providing goods and services
19
Q
Net income
A
Revenues - expenses
20
Q
Net loss
A
If expenses exceed revenues
21
Q
Dividends
A
Cash payments or stockholders
22
Q
Income statement
A
A financial statement that reports the company’s revenues and expenses
- company name
- title of financial statement
- time period covered
- 3 captions are : revenue, expenses, net income
23
Q
Statement of stockholders equity
A
Summarizes the changes in stockholders equity over an internal of time
2 components: common stock and retained earnings
24
Q
Common stock
A
amount stockholders have in the company
25
Retained earnings
Cumulative amount of net income earned over the life of the company that has been kept in the business rather than as dividends
Revenues- expenses- dividends
Or
Net income - dividends
26
What are dividends considered
A distribution of net income NOT expenses
27
balance sheet
Presents the financial position of the company on a particular date
- shows assets, liabilities, and S. equity
28
accounts receivable
Money expected to receive in the future
29
Statement of cash flows
Measures activities involving cash receipts and cash payments over an interval of time
30
3 categories of cash transactions
Operating cash flows
Investing cash flows
Financing cash flows
31
Operating cash flows
Cash receipts and cash payments for transactions involving revenues and expenses
32
Investing cash flows
Cash transactions for the purchase and sale of investments and productive long term assets
33
Financing cash flows
Cash transactions with lenders, such as borrowing money and repaying debt, and with stockholders such as issuing stock and paying dividends
34
Change in cash
Operating cash flows + investing cash flows + financing cash flows
35
What best explains a company's stock price performance
Their net income
36
GAAP
generally accepted accounting principles
| Rules of financial accounting all companies use
37
auditors
Makes sure financial statements are being prepared in compliance with the rules
38
accounting cycle
The full set of procedures used to accomplish this two step measurement/ communication process
39
External transactions
Transactions the firm conducts with a seperate economic entity
Ex: selling products to a customer, purchasing supplies from a vendor, paying salaries, borrowing from bank
40
Internal transactions
Events that affect the financial position of the company but do not include an exchange with a seperate entity
Ex: using the supplies on hand, earning revenues after receiving cash in advance from a customer
**** recorded at end of the period
41
Account
Summarizes all transactions related a particular item over a period of time
- asset accounts, liability accounts, SE accounts
42
Chart of accounts
A lit of all account names used to record transactions of a company
43
Revenue recognition principle
Companies record revenue at a time EARNED even if it's not paid right away
44
DEALOR
```
d- dividends
E- expenses
A- assets
L- liabilities
O- owners equity
R- revenues
```
45
Rules of DEALOR
RIGHT SIDE: (DEA)
- debit means increase and credit means decrease
LEFT SIDE: (LOR)
- debit means increase
- credit means increase
46
journal
Provides a chronological record of all transactions affecting a firm
47
journal entry
Used to describe the format for recording a transaction
- debits must equal credits
- credits are indented
48
General ledger
All accounts used to record the company's transactions
49
Posting
The processing of transferring the debit and credit information from the journal to individual accounts in the general ledger
50
T account
A simplified form of a general ledger account with space at the top for the account title and two sides for recording debits and credits
51
Trial balance
A list of all accounts and their balances at a particular date, showing that total debits = total credits
52
Accrual basis accounting
Record revenues when we EARN them (revenue recognition) and record expenses with related revenues (expense recognition)
- more accepted in major companies
53
matching principle
Companies report expenses in the same period as the revenues they help to generate
54
Cash basis accounting
Record revenues at the time we receive cash and expenses at the time we pay cash
55
during the year we
Record/post external transactions
56
At the end of the year we
Record/post adjusting entries
Prepare financial statements
Record/post closing entries
57
adjusting entries
To record events that have occured but that we have not yet recorded
58
Two categories of adjusting entries
Deferrals (prepayments): prepaid expenses, unearned revenues
| accruals: accrued expenses, accrued revenues
59
Prepaid expenses
The cost of assets acquired in one period that will be expenses in a future period
- adjusting entry includes a debit to an expense account and a credit to an asset account
60
Depreciation
The process of allocating the cost of an asset to expense over the assets useful life
61
Contra account
An account with a balance that is opposite to that of its related accounts
- accumulated depreciation account
62
Book value
Original cost - accumulated depreciation
63
unearned revenues
When a company receives cash in advance from a customer for products or services to be provided in the future
- adjusting entry includes a debit to the liability account and a credit to a revenue account
64
accruals
the opposite of prepayments
| - occur when the cash flow occurs after either the expense is incurred or the revenue is earned
65
accrued expense
When a company has a cost but hasn't yet paid cash or recorded an obligation to pay for that cost, it should still record the cost as an expense and also a liability for the amount
66
accrued Revenue
When a company has earned revenue but hasn't yet received cash or recorded the amount receivable, it should still recorded the revenue and asset for the amount expected to be received
67
when will we not require an adjusting entry
Transaction in which we receive cash at the same time we earn revenue or pay cash at the same time we incur an expense
68
accounts payable
Gonna pay it in the future
69
adjusted trial balance
A list of all accounts and their balance after we have updates account balances for adjusting entries
70
Classified balance sheet
Groups a company's asset and liabilities accounts into standard categories: current assets (provide benefit within a year and listed in order of liquidity)
Long term assets: provide benefit in more than 1 year
71
Liquidity
How quickly it is converted to cash
72
Operating cycle
The average time it takes to provide a service to a customer and then collect the customers cash
73
Temporary accounts
TRED : revenues, expenses, dividends
| - we will keep them for each period and then transfer balance to the retained earnings
74
Permanent accounts
PALS: assets, liabilities, SE
all accounts that appear in the balance sheet
- we carry forward their balances from period to period
75
Closing entries
Transfer the balances of all temporary accounts to the balance of the retained earnings
76
Post closing trial balance
A list of all accounts and their balance at a particular date after we have updated account balances for closing entries
77
Occupational fraud
The use of ones occupation for personal enrichment through the deliberate misuse of the employers resources.
78
Fraud triangle
3 elements for fraud: motive, rationalization, and opportunity
79
Internal controls
A company's plan to safeguard the company's assets and improve the accuracy and reliability of accounting info
80
Sarbanes Oxley act
Established guidelines to reform public company accounting and investor protection
81
Components of internal control
Monitoring
Control activities (preventative and detective)
Risk assessment
Control environment
82
Preventative controls
```
Separation of duties
Physical controls
Proper authorization
Employee management
E commerce controls
```
83
Detective controls
Reconciliations
Performance reviews
Audits
84
Collusion
When 2 or more people act in coordination to circumvent internal controls
85
Cash
Currency, coins, and balances in savings and checking accounts as well as items acceptable for deposits
86
Cash equivalents
Short term investments that have a maturity date no longer than 3 months from the date of purchase
Ex: money market funds, treasury bills, certificates of deposit
87
What do a company's purchases with a credit card go under
Accounts payable
88
Bank reconciliation
Matches the balance of cash in the bank account with the balance of cash in the company's own records
89
When do timing differences occur
When the company records transactions either before or after the bank records the same transaction
90
Deposits outstanding
Cash receipts of the company that have not been added to the banks record of the company's balance
91
Checks outstanding
Checks the company has written that have not been subtracted from the banks record of the company's balance
92
NSF checks
Customers checks written on nonsufficient funds, bad checks
93
Petty cash funds
Where comps is keep a small amount of cash on hand for minor expenses
94
Statement of cash flows
How investors know a company's cash inflows and outflows related to operating activities, investing activities, and financing activities
95
Earnings quality
The ability of current net income to help us predict the future performance of a company
96
Financial statements
Periodic reports published by the company for the purpose of providing info to external users
- what investors base their decisions on buying and selling stocks
- income statement
- statement of stockholders equity
- balance sheet
- statement of cash flows
