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Financial and Managerial Accounting > Midterm > Flashcards

Midterm Flashcards

1
Q

What is the purpose of financial accounting and who are its users

A

gives people insight on if they should incest in the business, should they lend out money

users are creditors, investors, etc

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2
Q

examples of users of accounting info

A

creditor, investors, business users, not for profit, government, individuals for personal tax

any decision maker is a user

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3
Q

4 types of financial statements

A

income statement
balance sheet
statement of changes in owner’s equity
cash flow statement

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4
Q

what is the GAAP

A

generally accepted accounting principles

underlying concepts that governs financial accounting

primary purpose is ensure the usefulness of financial information

useful information must be relevant and faithful representation

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5
Q

Reporting entity consideration

A

each entity is accounted for separately and distinctly from other entities

e.g company owner ensures business transaction are accounted separately from personal transactions

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6
Q

cost and materiality constraints

A

The benefits from the information produced should out-weigh the time, effort and cost to produce it.

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7
Q

A piece of information is material if…

A

it would affect a decision maker’s decision

materiality is judgement based

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8
Q

going concern assumption

A
  • We assume that an entity will remain in operation for the foreseeable future (12 months+)
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9
Q

The Stable-Monetary-Unit (Currency) Assumption

A

The dollar’s purchasing power is relatively stable

doesn’t acknowledge inflation of time value of money

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10
Q

The Cost Principle of Measurement:

A
  • Acquired assets and services should be recorded at their actual cost
    Also known as original or historical cost
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11
Q

Revenue Recognition Principle

A

Requires that revenue be recorded at the time that it is earned, regardless of whether cash or another asset has been exchanged.

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12
Q

Matching Principle:

A
  • The matching principle instructs expenses should be reported in the same period in which the corresponding revenues are earned. Declare revenue have to declare expenses at the same time
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13
Q

Accrual Accounting

A

Accrual Accounting involves the practice of declaring Revenues when earned, and reporting expenses that were incurred related to the revenues and time period.

laws require accrual accounting

tracks revenues and expenses separate from exchange of payment

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14
Q

Sole Proprietorship:

A

one owner
unlimited liability
limited life
not a separate legal entity from the owner
owner taxed on profits at own personal tax rate

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15
Q

Partnerships:

A
  • Two or more owners sole proprietorships together
  • Not a separate legal entity from the owners
  • Unlimited liability
  • Limited life
  • Owners taxed on profits
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16
Q

corporation

A
  • Separate legal entity from the owner(s)
  • Limited liability (the corporation pays the lawsuit, not the owner’s own person assets)
  • Unlimited life
  • Corporation taxed on profits, flat not the owner’s personal tax rate
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17
Q

examples of current assets

A

cash
a/r
inventory
prepaid expenses
short term investments

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18
Q

examples of long-term assets

A

property
plant
equipment
intangible assets (patents, goodwill, trademarks)

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19
Q

examples of current liabilities

A

a/p
unearned revenue

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20
Q

Double entry accounting

A

every business transaction affects at least two accounts

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21
Q

What does the term “Financing” mean for a business?

A
  • The term “Financing” refers to the methods used by a company to raise money to support its operations
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22
Q

what are the 2 major categories of financing for a company?

A

debt financing and capital financing

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23
Q

debt financing means…

A

funding that comes from creditors

recorded as liabilities using payable accounts

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24
Q

capital financing refers to…

A

money received from owners (investors or shareholders)

recorded under owner’s equity

may be received from one, or many, investors, and is sometimes done using stock exchanges and “IPO’s”

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25
Q

What is an IPO?

A

initial public offering, when a company offers shares for sale to the public, money in exchange for ownership

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26
Q

book value

A

sum of company’s account balances for all assets

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27
Q

market value

A

usually different than book value

what people are willing to pay for company

28
Q

what does bankruptcy mean?

A

when a company is unable to pay its debts, one of 2 things can happen:

company may apple to courts for creditor protection bankruptcy laws

or

  • An unpaid creditor may apply to put a company into “receivership” to liquidate company assets to obtain repayment of debt
29
Q

what are bankruptcy laws intended to do?

A
  • preserve employment and reduce social stress and welfare support
  • provide creditors with a measure of debt repayment

benefit the economy, by forgiving debt and providing businesses another chance to access credit and continue to pay taxes.

30
Q

In accounting, when a portion of the value of an asset is used to generate revenue, that value is

A

transferred to an expense account

when an asset is used is when it can be expensed

31
Q

what is the ledger in accounting?

A

list of all the company’s accounts

32
Q

normal balances

A

An account’s normal balance is the debit or credit side where increases are recorded.

33
Q

what 3 things do journal entries include

A

date
title of the account debited/credited and the dollar amount
short explanation of the transaction

34
Q

What is a trial balance?

A
  • A trial balance summarizes the ledger by listing all accounts with their balances
  • Assets first, followed by liabilities and then owner’s equity, revenues and expenses
35
Q

What are the differences between an employee and a contractors

A

-do they have their own tools or does the company own them
-do they set their own hours

36
Q

What are the required salary deductions the receiver general (fed government) requires employers take from emlpoyee’s pay?

A

CPP payable
EI payable
Income tax payable
other deductions might be health insurance, union dues etc

37
Q

What are fringe benefits

A

additional $ paid by the company to various agencies such as WSIB, vacation pay or compensation packages such as dental plans, etc.

38
Q

3 tool of financial analysis

A

horizontal analysis (comparing company’s financial performance across time)

vertical analysis (comparing company’s financial performance to a base amount, compare company performance within the year)

ration analysis: determination of key relationships among financial statement items, used with horizontal analysis a lot

39
Q

what is gross margin

A

the difference between the price you sell things at and the cost of the things that you sold

40
Q

What are the 4 building blocks of ratio analysis?

A
  1. liquidity: ability to meet short-term obligations and efficiency (how well a company’s uses it’s assets and converts them to cash)
    2.solvency: ability to to cover long-term obligations and generate future revenues
  2. profitability: company’s ability to generate an adequate return on invested capital
    4.market: ability to generate positive market expectations
41
Q

difference between managerial vs financial accounting in users, time horizon, verifiability vs relevance, precision vs timeliness, unit of analysis, regulation, and requirement

A

users: financial primarily external, managerial primarily internal

time horizon: financial historical perspective, managerial historical and future persepective

verifiability vs relevance: financial verifiability, managerial relevance

precision vs timeliness: financial precision, managerial timely

unit of analysis: financial entire organization, managerial individual units of organization or sometimes entire organization

regulation: financial must follow prescribed accounting standards, managerial no prescribed standards

requirements: financial mandatory, managerial not mandatory

42
Q

The Lean Business Model

A

main idea underlying this model is to eliminate waste

customers don’t want to pay for costs of waste in the prices they pay or the time they wait for products

43
Q

what 4 practices are included in the lean business model?

A

just-in-time
total quality management
process re-engineering
theory of constraints

44
Q

Just in time

A

a production and inventory control system in which materials are purchased and units are produced only as needed to meet actual customer demand

45
Q

Benefits of a JIT system

A
  • Reduced inventory costs
  • Greater customer satisfaction
  • Higher quality products
    Less warehouse space needed
46
Q

Total Quality Management

A

an approach to continuous improvement that focuses on customers and using teams of front-line workers to systematically identify and solve problems

47
Q

benchmarking

A

studying organizations that are the best in the world at performing a particular task

48
Q

Plan-do-check-act cycle

A

part of TQM

plan: study current process and implement plan for improvement
do: implement it at small scale and collect data
check: evaluate the data to see if it showed improvement
act: if it did, implement it company wide, if not go back to plan

49
Q

process re-engineering

A

an approach to improvement that involves completely redesigning business processes in order to eliminate unnecessary steps, reduce errors, and reduce costs

questions a business process in detail then completely redesigns it

50
Q

Theory of constraints

A

management approach to identify and deal with constraints, 3 steps

  1. identify constraints
  2. limit the strain on the system to the capacity of the constraints
  3. focus on strengthening the weakest link
51
Q

What is corporate Governance?

A

Is the system by which an organization is directed and controlled
- motivates board of directors to pursue objectives in the interests of company’s owners rather than top managements interests

52
Q

cost object

A

anything for which cost information is desired

53
Q

Opportunity Costs

A

The potential benefit that is given up when one alternative is selected over another.

54
Q

what is a sunk cost

A

something you’ve already paid for can’t be changed by any decision, should be ignored when making decisions

55
Q

What ways did Fishs Eddy make ways

A

retail store, online, business to business (to restaurants and other businesses who sell), and registry

56
Q

merchandiser vs manufacturer activités

A

merchandisers buy finished goods and sell finished goods

manufacturers by raw materials and produce and sell finished goods

57
Q

on the balance sheet, what would the difference in inventories be for a merchandisers vs manufacturer

A

merchandiser would just have merchandise inventory while manufacturers would have raw materials, work in process and finished goods under inventories

58
Q

direct cost

A

cost that can be easily traced to a cost object (direct materials and direct labour)

59
Q

indirect cost

A

costs that cannot easily be traced to a cost object (manufacturing overhead)

60
Q

what 3 things make up manufacturing costs

A

direct material, direct labour and manufacturing overhead

61
Q

what 3 things make up manufacturing overhead

A

indirect labour, indirect materials and cost incurred to run the factory

62
Q

period costs are…

A

non manufacturing costs such as marketing and selling costs, and admin costs

63
Q

product costs are…

A

direct material, direct labour and manufacturing overhead, basically anything in the factory

64
Q

what is the difference between period and product costs in terms of where they appear on balance sheet/income statement

A

product costs first appear as inventory on the balance sheet and then cogs on income statement

period costs appear as expense on the income statement only

65
Q

contribution margin

A

amount remaining once all the variable costs have been deducted from sales revenues

provides managers with an income statement that clearly distinguishes between fixed and variable costs

66
Q

What three manufacturing/product costs does COGS consist of

A

manufacturing overhead (can e fixed or mixed cost), direct labour, direct materials (both variable costs)

Financial and Managerial Accounting (2 decks)

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