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Financial and Managerial Accounting > Midterm > Flashcards

Midterm Flashcards

1
Q

Characteristic of most Preferred Stock

A

Preference as to dividends
Preference as to assets in the event of liquidation
No voting power

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2
Q

Assume an accounted closed the Dividends account by debiting Income Summary and crediting Dividends. What is the effect on net income and retained earnings?

A

Net income is understated and the balance in Retained Earnings is correct NEEDS EXPLANATION

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3
Q

How do Sales, expenses, and dividends get closed in Income summary?

A

Credit sales, Debit expenses, and dividends are not closed to income summary

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4
Q

Net Income end of month adjustment

A

Subtract expenses, even accrued expenses like interest, add revenues - even if they are unearned

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5
Q

A revenue transaction results in all of the following

A

An increase in assets
An increase in owners equity
A positive cash flow at any time

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6
Q

A debit balance in the income summary indicates

A

Net Loss

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7
Q

A credit balance in the income summary indicates

A

Net Profit

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8
Q

What happens to shareholder equity during a stock split?

A

NOTHING

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9
Q

Number of shares used to calculate EPS

A

Yearly Weighted Average of COMMON Stock Shares

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10
Q

Equation for EPS

A

(Net Income - Monies owed and attributed to Preferred Stockholders) / Weighted Average of Common Stock

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11
Q

When do Dividends become a liability?

A

On the date of declaration

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12
Q

Percentage change in Net Income

A

Current year net income / Previous year net income

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13
Q

Current Ratio

A

Current Assets / Current Liabilities

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14
Q

Working Capital

A

Current Assets - Current Liabilities

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15
Q

From the Adjusted Trial Balance we can prepare (in order)

A

Income Statement
Statement of Retained Earnings
Balance Sheet

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16
Q

The Income Statement compares these 2 categories

A

Revenue and Expenses (Revenue - Expenses = Net Income)

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17
Q

Statement of Retained Earnings Equation

A

Retained Earnings at beginning of the period + Net Income (from Income Statement) - Dividends = Retained Earnings at the end of the period

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18
Q

Dividends reduce these two categories

A

Assets and Owners Equity (Not an expense!)

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19
Q

Statement of Retained Earnings does …

A

Summarizes the changes in retained earnings resulting from business operations during the period

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20
Q

Balance Sheet lists…

A

Assets, Liabilities, and Stockholder Equity

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21
Q

A classified balance sheet…

A

Groups the accounts into sub categories

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22
Q

Current Assets are…

A

Assets that can be converted to cash within a short time

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23
Q

Current Liabilities are…

A

Debt that a company is expected to satisfy soon

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24
Q

Temporary (Nominal) accounts…

A

Only 1 accounting period
balance of beginning of next period should be 0
balances are transferred to retained earnings at end of period
includes revenues, expenses, and dividend accounts

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25
Permanent (real) accounts
Continue to exist in the next accounting period Includes assets, liabilities, and equity accounts
26
Closing is the process of...
Transferring the balance of nominal accounts into the Retained Earnings account through closing entries
27
This account is what Revenue and Expenses are closed out to at the end of the accounting period
Income Summary
28
Income Summary gets closed to this account
Retained Earnings
29
Closing Entries in Order
1. Close rev accounts to Income Summary 2. Close expense accounts to Income summary 3. Close Income summary to Retained Earnings 4. Close dividends to Retained earnings
30
How to close a revenue account to Income Summary
Debit the revenue account and credit income summary
31
How to close an expense account to Income Summary
Credit the expense account and debit Income summary
32
Assuming a positive net income, how to close Income Summary to retained earnings
Debit Income Summary and Credit Retained Earnings
33
Assuming a negative net income, how to close Income Summary to retained earnings
Credit Income Summary and Debit Retained Earnings
34
How to close dividends to Retained earnings
Credit dividends and debit retained earnings
35
Net Income % = ...
Net Income / Total Revenues
36
Return on Equity = ...
Net Income / Average Stockholders Equity
37
Financial Accounting info is for...
external parties who have an interest in a company
38
Managerial Account info is for...
internal use by Management
39
primary objective of accounting
provide info that is useful in making decisions
40
Information Systems can consist of
personnel, procedures, technology, and records to develop and communicate information
41
Internal control is a process that...
provides reasonable assurance that the organization is producing reliable financial reports
42
5 components of internal control
1. Control environment 2. Risk assesment 3. control activities 4. Information and communication 5. Monitoring Activites
43
Sarbanes-Oxley Act of 2002
securities law designed to improve the effectiveness of corporate financial reporting through enhanced accountability
44
External users of accounting information
Owners creditors investors labor unions
45
Objectives of External Financial Reporting
Cash Flow prospects Return OF investment Return ON investment
46
Objectives of Financial Reporting
Provide info useful in making investment decisions assessing amount, timing, and uncertainty of future cash flows info about enterprises resources, claims to resources, and how both change over time
47
Financial Statement is...
monetary declaration of what is believed to be treu
48
Balance Sheet is...
shows where company stands in financial terms (Assets, Liabilities, and Equity)
49
Income Statement is...
Shows details of the companies profit related activities (Revenues - Expenses)
50
Statement of Cash flows is...
shows details of cash related activites
51
These orgs establish accounting principles
SEC, Financial Accounting Standards Board (FASB), and International Accounting Standards Board (IASB)
52
Professional Organizations
AICPA, IMA, IIA, AAA, COSO
53
Assets
Economic resources that are owned and used by a firm and are expected to benefit future operations
54
Cost Principal
We record the original amount the business entity paid to acquire the asset, not the market value. Example: Land
55
Going-Concern Assumption
Assumption the buisness will operate in the forseeable future
56
Objectivity Principle
describes an assets evaluation that are factual and verifiable
57
Stable-Dollar Assumption
money is stable over time
58
Liabilities
financial obligation or debts. Negative cash flow
59
Owner's Equity
Owner's claim on the assets of the business
60
Owner's Equity Increases when
More investment Earnings from profit
61
OE Decreases when
Dividends Net Loss
62
Accounting Equation
Assets = Liabilities + Owner's Equity
63
Types of Firms
Sole Proprietorship Partnership Corporation
64
This type of account is increased by debits
Assets and Expenses
65
This type of account is increased by credits
Liability, Owners Equity, Capital Stock, Retained Earnings, and Revenues
66
Double Entry Accounting
Every transaction affects at least 2 accounts, with an equal dollar amount of debits and credits
67
Revenue is...
Price of goods sold and services rendered
68
Realization Principle
Revenue should be recognized at the time goods are sold or services rendered
69
Expenses are...
cost of the goods and services used up in the process of earning revenue
70
Accrual Accounting
Revenue is recognized in the period in which it is earned
71
Cash Based Accounting
Revenue is recognized when cash is collected
72
Steps when revenue is earned
Debit Cash, Credit Revenue
73
Steps when wages are paid
Debit Wages Expense, Credit Cash
74
Steps when utilities are paid
Debit Utilities Expense, Credit Cash
75
Steps when advertising is paid
Debit Advertising Expense, Credit Cash
76
Steps when expense is taken on credit
Debit Expense, Credit Accounts Payable
77
Supplies that will be used are paid
Debit Supplies, Credit Cash
78
Revenue is earned, but will be paid over time
Debit Accounts Receivable, Credit Revenue
79
Transaction for declaring and paying dividends
Debit Dividends, Credit Cash
80
Elements of a trial balance
lists assets, liabilities, retained earnings, income statement accounts, revenue and expese accounts. DEBITS = CREDITS
81
Outcome of converting assets to expenses
Increase Expenses - Decrease net Income Decrease Assets - Decrease Owners' Equity
82
Outcome of converting liabilities to revenue
Increase Revenue - Increase Net Income Decrease Liabilities - Increase Owner's Equity
83
Outcome of Accruing Unpaid Expenses
Increase Expenses - Decrease Net Income Increase Liabilities - Decrease Owners Equity
84
Outcome of Accruing Uncollected Revenue
Increase Revenue - Increase Net Income Increase Assets - Increase Owner's Equity
85
Using Supplies
Debit Supplies Expense, Credit Supplies
86
Purchasing pre-paid asset
debit unexpired asset, credit cash
87
Depreciation Expense Equation
Cost of Asset / Estimated Useful life
88
Contra account
separate but related account that offsets or is a deduction from a companion account (Has a balance opposite of companion account)
89
Depreciation Expense steps
Debit Depreciation Expense, Credit Accumulated Depreciation
90
Depreciation and Balance Sheet
Subtract the accumulated depreciation from the assets value in the balance sheet
91
Unearned Revenue
When receiving contract: Debit Cash, Credit Unearned Revenue As time passes: Debit Unearned Revenue, Credit Earned Revenue
92
Unpaid Expenses (Example Wages)
For accrual period: Debit Wages Expense, credit Wages Payable When the bill comes due: Debit Wages Expense, Debit Wages Payable, Credit Cash
93
Interest Equation
Interest = Principle * Interest Rate * Fraction of a Year
94
Interest that is paid is a(n) _______, Interest that is received is a(n) ______.
Expense, Revenue
95
Income Taxes
Accruing: Debit Income Taxes Expense, Credit Income Taxes Payable
96
Steps in accounting cycle
1. Journalize transactions 2. Post to ledger 3. Prepare a Trial Balance 4. Make period ending adjustments 5. Prepare a trail balance 6. Prepare financial statements 7. Journalize and post closing entries 8. Prepare after closing trial balance
97
An after closing trial balance shows...
Assets, Liabilities, and Owners Equity after the closing process. Only reflects permanent accounts. WILL NOT SHOW RETAINED EARNINGS OR DIVIDENDS
98
True or False: Comparative financial statements refers to a presentation whereby the financial statement amounts for more than one accounting period appear side by side in vertical columns.
True
99

Financial and Managerial Accounting (2 decks)

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