Midterm Financial Accounting 3000 Flashcards

Question

EXPENSES ARE ALWAYS DEBITED revenues are always credited!!!

Answer 1

EXPENSES ARE ALWAYS DEBITED REVENUES are always credited* no economic rational need all these things to zero out at the end goes into Net income then retained earnings!

Answer 2

will always be hte opposite of what I did above

Answer 3

is not an equity, asset or liability it is just sayign hey this is what happened in this time period ex. service revenue need all the accounts to have zero balances at the end** so this would actually economic activity this is just my closing entry to make sure I go back to zero balance SO FLIP when closing entry** only applies to revenue adn expense accounts**

Answer 4

when PPE is purchased, it is a capital expenditure: always Dr. PPE $Historic Cost Cr. Cash/Debit $historic cost Dr. Depreciation Expense $X= lowers net income, WE ALWAYS DEBIT expenses Cr. Accumulated Depreciation $X expenses make net income lower therefore it dec net earnings*** just so you know: difference btw depreciation vs ameorilation, identical concepts depreciatin is physical assets, ameorilization is copyrights, patents, exactly same thing but intangible assets

Answer 5

dividend when they declare immediately becomes a liability** dividends issued X 150,000 shares of common stock valued at $1 par. 150,000 x $0.05 per share= $7,500, thats it! so visualize on balance sheet: decrease cash and inc retained earnings: Dr. Retained Earnings $7,500 Cr. Cash $7,500 credit cash because your cash goes down, then debit retained earnings**

Answer 6

is a negative asset account related to an asset account to double click on balance sheet what it would look like so when I buy the PPE ex problem set 3 PPE gross will always be at historical cost what I paid for the thing 830,000 then I have a negative asset which keeps track of how much I have used it for how much I bought it, yes I paid 830,000 for it but during January I have used up 3750 so new baalnce of PPE woudl be 830,000- 3750** so usually that is abbreviated XA for contra account

Answer 7

contra assets inc with credits decrease with debits

Answer 8

more complicated when you declare it at that moment in time I am creating a new liability called dividend payable and dec retained earnings Dr. Retained earnings X Credit Dividends Payable then when actually pay it cash dec and liabiity goes away Dr. Dividends Payable X Cr. Cash X but just easier to do at teh end Dr. Retained Earnings X and Cr. Cash X bc cash goes down

Answer 9

steady state cap ex= what we need to continue to operate the way we are operating at a steady state growth going out and buying new things

Answer 10

an asset balance sheet

Answer 11

liability balance sheet

Answer 12

asset balance sheet

Answer 13

value of expense = income statement operations of a business how we run a business we have expenses! exceptions prepaid is always an asset and trumps rule number 4 thus Prepaid rent expense is always an asset on balance sheet

Answer 14

revenue always goes on income statmenet can also be called advances from customers what we ear

Answer 15

a liability goes on balance sheet like gift cards, concert tickets, plane tickets

Answer 16

inventory* our warehouse so it costs if sell off 2 dollars but costs me 1 dollar to produce I have 2 dollars in revenue 1 dollar cogs, 1 dollar

Answer 17

1. beware of fiscal years vs fiscal year-ends year end 1/30/2022 relates to fiscal year 2021 2. beware of denominations. ex dollar values may be in millions, but number of shares may be whole numbers. additionally, when reporting in millions rounding may cause misleading perceptions 3. financails are comparable... but the most recent year is not always on the left 4. while GAAP dictates how accounting numbers are calculated, there is variation in the presentation of those numbers in financais

Answer 18

1. a cumulative statement, snapshot in time, measured using historic values (in general) 2. a conservative statement, the report bad news when it is probable only 3. we report good news when it is definite* 4. this is a way to discern a company's= assets, liabilities, owner's equity! for example huge red flag= if revenue grows steadily but accounts receivable goes up way more= context dependent could be a big deal, makign all these sales but not actually collecting a lot from my customers! RED FLAG NOT REALLY REVENUE GROWING or if they are diluting hte dividends and put out more dividends

Answer 19

a periodic measurement, different than blanace sheet measured using the accural method a way to discern a company's revenue, gains, expenses and loses= NET INCOME= Revenues + Gains- Expenses-Losses Revenue and Expenses are operating issues Gains and Losses are investing/financing

Answer 20

-all income statement accounts start at zero each accounting period -net income is determined over the course of the accounting period - at the end of the accounting period, after the IS is prepared, all income statement accounts are closed-out, and moved into retained earnings***

Answer 21

all accounts are valued using the ACCRUAL METHOD 1. revenues and gains are recognized when earned and measurable, regardless of whether cash is received earned: ex. retail title transfers or service provided 2. expenses/losses are recognized when incurred regardless of whether cash is spent incurred: resource has been used a main purpose of the accrual method is to match revenues and expenses within the same accounting period

Answer 22

separated into two columns: Earned capital: 1.retained earnings 2. accumulated other comprehensive income Contributed capital 1.common stock (at par) 2.preferred stock (at par) 3. additional paid-in-capital (APIC) 4. treasury stock in the us we create a bs using indirect method* american apparel is different they use the direct method

Answer 23

shareholder's equity, BS

Answer 24

intangible asset, goes on BS**** if purchased from another firm, not on th BS if created by the firm

Answer 25

current liability

Answer 26

current liability for us

Answer 27

shareholders' Equity (contra account)

Answer 28

change in Assets= Change in liabilites+ change in owner's equity what is owner's equity? the amount owned by owners. "The residual" teh value of all assets not owed to others (liabiliites) is considered owned by the shareholders (owners) all asset values not owed to third parties are considered owned by the shareholders, assets are what the company owns not what a shareholder owns

Answer 29

balance sheet we never close out because it is cumulative, they are accumulative last period's ending values we only close out income statement bc it is a snapshot in time Dr. X Cr always think diet coke assets debit inc/plus left handside *** always credit dec/ negative right hand side liabilityes and shareholder/owner's equity= Credit plus sign, right debit left hand side negative sign

Answer 30

bs t accounts balance and impact IS through Net Income is part of retained earnings which impacts revenue!!!! revenue gains credited!!! expses are debited! when we inc revenue inc net income so inc retained earnings at the end

Answer 31

typically does not involve a physical event, instead the passage of time means revenue is earned or an expense has been incurred -ex interest revenue/expense accrues, but is not yet due ex of interrest accures overtime ex. supplies are used- we count what remains and assume what was there in begining and used that is the ending ex. prepaid assets are used uneared revenue/advances from customers is earned PPE has been used, this is a fixed asset used , or resource used up in pursue of revenue= depreciation expssense if borrow money interest expense

Answer 32

Dr. Depreciation Expnse $X expense on income statement Cr. Accumulated Deprectiation - contra-asset on the balance sheet BS presentation: PPE, Gross $Historic Cost Less: Accumulated Depreciation (subtract $change in deppreciatin expense) --- PPE, NET= $book value, any expnese remember is on teh income statement bcs it impacts revenue!!

Answer 33

revenue= price X quantity (-cost of goods sold ) _____ gross margin from sales (minus SGA) Operating Income Gains/Losses Income before taxes (income tax expense) Net incomeL

Answer 34

5. use ending t account balances to create hte income statement 6. record/post adjusting tax entry 7.record/post closing entry (move NI into RE)= very important for closing entry = close all temporary accounts and move NI into RE! 8.use ending t accoutn balances to create the baalnce sheet 9. use completed balance sheet and income statement to create cash flow statement

Answer 35

reconcile the perioic change in cash why accrual method vs. cash method separate cash inflow and outflows into 3 business activities 1. operations -->CFO 2. Investing--> CFI 3. financing--> CFF remember we use and study the indirect method like most US companies, only American apparel can think of uses direct method

Answer 36

Dr. Tax Expense $X Cr. Taxes Payable $X $X= inc. before taxes x tax rate!

Answer 37

1. create a cash t account 2. include beginning and ending cash balances (from balance sheet) 3. create three separate sections for the three business activities operating, inves, financing 4. assume that net income is an inrease in cash** from operations so always put net income in cash to beging NI will be negative net losses out flows of cash from operations out

Answer 38

changes in current accounts impact operating cash flows- EXCEPTION short term ivnestiments are investing activies they impact others dividends payable are financing activities changes in NCA impact investing cash flows like PPE changes in NCL and owners' equity impact financing cash flows

Answer 39

bc this doesnt involve any cash transaction -COGS merely represents the cost of ivnentory used up or sold this inveotry is sold, hopefully for a higher price either through cash or AR -the net revenue is captured through teh income statement, teh net cash received is the NI change in AR Change in ivnentory reprsents either a cash outflow, inc in inventory or cash inflow reduction in inventory

Answer 40

1. What is the impact on NI? 2. What is the impact on Cash? changes in CURRENT ASSETS (CA)= obvi other than cash= operating section 1. increases in CA other than shot term ivnestments bc that is an investing activity!= credit or decrease teh cash t-accoutn!!!! 2. if there is a dec in current assets (CA) =debit and increase the cash t-accunt

Answer 41

cash inflows -Cash receipts from customers for sales made or services rendered (or in anticipation of future deliveries of goods/services) -Cash receipts of interest and dividends -Other cash receipts that are not related to investing or financing activities, such as rentals, lawsuit settlements, and refunds received from suppliers cash outflows -Cash payments to employees or suppliers -Cash payments to purchase inventory -Cash payments of interest to creditors -Cash payments of taxes to government -Other cash payments that are not related to investing or financing activities, such as contributions to charity and lawsuit settlements

Answer 42

-Cash receipts from sales of PPE and intangible assets -Cash receipts from sales of investments in government securities and securities of other companies (including divestitures) -Cash receipts from repayments of loans by borrowers

Answer 43

Cash outflows= -Cash payments to purchase PPE and intangible assets -Cash payments to purchase government securities and securities of other companies (including acquisitions) -Cash payments made to lend money to borrowers

Answer 44

Cash inflows -Cash receipts from issuance of stock and sales of treasury stock -Cash receipts from issuance of bonds payable, mortgage payable, and other notes payable

Answer 45

cash outflows -Cash payments to acquire treasury stock -Cash payments of dividends -Cash payments to settle outstanding bonds payable, mortgage payable, and other notes payable

Answer 46

inc in AR /inc in sales on account = Dr. AR Cr. Sales Revenue only reason we have an inc in AR is bc net income inc, no impact on cash dec in AR (cash recepit) Dr. Cash Cr. AR not impacted NET INCOME* reflected in Net income but we have an increase in cash here!!

Answer 47

answer= Dr. Cash $2,000 Dr. Accumulated Depreciation $70,000 Dr. Loss $8,000 Cr. PPE $80,000 b continued. -compare book value PPE net to actual sale price. Book value= purchase price - accumulated*, worth 80,000- deprectiationw hich is 70,000 if its worth 10,000 (bc 80k-70k=10k) = loss of 8,000 bc sold it for 2,000 but for example if we could have sold it for 20,000 I have a gain, if I sell it for less that is a loss but if I sell it for more that is a gain, so purchased price - accumulated - memorize when undoing accumulated deprecitation bc it is a contra-asset we have to debit it so it becomes Debits= Dr. Loss $8,000 Dr. Acc Deprecitaiton 70k Dr. CAsh $2,000 Cr. ppe gross 80,000 can also do contra assets= AR if I extend credit to my customers I will probably not geto 100% of that money, some ppl will go out of business and just decide not to pay me, if I made 100 dollars in credit sales, I also need to make an estimate of how much I am not going to colelct, and that will recall allowance for dboutful accounts - similar way AR gross dollar amount of crdit sales I made, this is my estimation AFDA allowance for doubtful accounts AFDA= will be what I will not collect, so if I made 100 dollars in AR sales I can estimate I will not collect 2 of them so can list them as really 98 for my accounts receviable net of that allowance* this is just another example

Answer 48

if asset can be consumed in one year we treat it as current, if not it is noncurrent Total Liabilities = Current Liabilities + Non-Current Liabilities same thing with assets, if can be consumed in one year it is current otherwise noncurrent Liability

Answer 49

Inventoryend = Inventorybeginning + Purchases – Cost of Goods Sold (CGS) plug in purchases sold COGS is from IS**

Answer 50

REend = REbeginning + Net Income (NI) – Dividends Declared (DD

Answer 51

Total Owners’ Equity = Contributed Capital + Earned Capital

Answer 52

Contributed Capital = Common Stock (CS) + Preferred Stock (PS) + Additional Paid in Capital (APIC) – Treasury Shares TS is repurchased company stock which is not retired.***

Answer 53

CS and PS are stated at their respective par values. Example: A firm issues stock with $1 par for $10  $1 is “Common Stock” and $9 is considered “APIC”.

Answer 54

Earned Capital = Retained Earning (RE) + Accumulated Other Comprehensive Income (AOCI) AOCI is a catch-all for ∆s to equity which do not flow through NI.

Answer 55

so our journal would Dr. PPE Cr. Cash

Answer 56

revenue calculated by price of goods sold X quantity

Answer 57

9 =1, 000,000, 000 1,000,000,000 has nine zeroes = 10^9, which equals ONE BILLION. Therefore, ten billion has TEN ZEROES or 10^10

Answer 58

100,000,000 so 8 zeros

Answer 59

1. You can basically plug all the difference between year 1 and year 2 amounts into the CFS (e.g., a $100 increase in Inventory would directly lead to a $100 credit in Cash) except PPE and Retained earnings (e.g., a $100 decrease in PPE does not necessarily mean a direct $100 debit in Cash). For PPE and Retained Earnings, you would have to solve the PPEg and Depreciation expense t-accounts as well as the Dividends Payable and RE t-accounts. 2. On the CFS, don’t forget to include NI! Sometimes students forget this and can’t figure out why everything isn’t balancing. 3. Remember the basic equations 1. REend = REbeg + NI -DD 2. Inventory-end = Inventory-beg + Purchases - COGS 3. Most importantly: Total assets = total liabilities + total owners' equity 4. When filling in the blanks on BS/CFS/IS, sometimes you may need to work backwards. For example, figuring out Pre-Tax Income by knowing Net Income and the Tax rate. 5. For overstated/understated problems, just complete the practice problems repeatedly until you get the logic of them. I would write out the Journal Entries to guide your thinking. Also, remember that A = L + OE, so if there is an increase of $X in Assets, you should expect an equal increase of $X from the L + OE side of the equation. 6. Cash t-account is influenced in multiple ways by PPE 1. Depreciation Expense 2. Loss/Gain on sales 3. Proceeds from sales 4. CAPEX (purchases of PPE)

Answer 60

Dr. Accounts Receivable $27,575 Cr. Service Revenue $27,575

Answer 61

1. You can basically plug all the difference between year 1 and year 2 amounts into the CFS (e.g., a $100 increase in Inventory would directly lead to a $100 credit in Cash) except PPE and Retained earnings (e.g., a $100 decrease in PPE does not necessarily mean a direct $100 debit in Cash). For PPE and Retained Earnings, you would have to solve the PPEg and Depreciation expense t-accounts as well as the Dividends Payable and RE t-accounts. 2. On the CFS, don’t forget to include NI! Sometimes students forget this and can’t figure out why everything isn’t balancing.

Answer 62

3. Remember the basic equations REend = REbeg + NI -DD Inventory-end = Inventory-beg + Purchases - COGS Most importantly: Total assets = total liabilities + total owners' equity 4. When filling in the blanks on BS/CFS/IS, sometimes you may need to work backwards. For example, figuring out Pre-Tax Income by knowing Net Income and the Tax rate. 5. For overstated/understated problems, just complete the practice problems repeatedly until you get the logic of them. I would write out the Journal Entries to guide your thinking. Also, remember that A = L + OE, so if there is an increase of $X in Assets, you should expect an equal increase of $X from the L + OE side of the equation. 6. Cash t-account is influenced in multiple ways by PPE 1. Depreciation Expense 2. Loss/Gain on sales 3. Proceeds from sales 4. CAPEX (purchases of PPE)

Answer 63

1. You can basically plug all the difference between year 1 and year 2 amounts from the Balance Sheet into the CFS (e.g., a $100 increase in Inventory would directly lead to a $100 credit in Cash) except PPE and Retained earnings (e.g., a $100 decrease in PPE does not necessarily mean a direct $100 debit in Cash). For PPE and Retained Earnings, you would have to solve the PPEg and Depreciation expense t-accounts as well as the Dividends Payable and RE t-accounts. 2. On the CFS, don’t forget to include NI! Sometimes students forget this and can’t figure out why everything isn’t balancing. 3. Remember the basic equations REend = REbeg + NI -DD Inventory-end = Inventory-beg + Purchases - COGS Most importantly: Total assets = total liabilities + total owners' equity 4. When filling in the blanks on BS/CFS/IS, sometimes you may need to work backwards. For example, figuring out Pre-Tax Income by knowing Net Income and the Tax rate.

Answer 64

5. For overstated/understated problems, just complete the practice problems repeatedly until you get the logic of them. I would write out the Journal Entries to guide your thinking. Also, remember that A = L + OE, so if there is an increase of $X in Assets, you should expect an equal increase of $X from the L + OE side of the equation. 6. Cash t-account is influenced in multiple ways by PPE : -Depreciation Expense -Loss/Gain on sales -Proceeds from sales -CAPEX (purchases of PPE)

Answer 65

wages payable did not get paid inc the liability because dec net income right but did not have an inc on cash so didnt dec cash yet adding it back just an adjustment relative to net income

Answer 66

for NCA like PPE when we buy PPE we Dr. PPE Cr Cash has no impact on NI, thats irrelevant dec cash obviosuly right bc outflow of cash cap ex is like when we buy something through cap a dec in PPE like when we sell capex properties there is an inflow of cash so cash is positive, impact on NI we will deal with later could nbe a gain or loss work on that after thanksgiving

Answer 67

inflow of cash if inc in BP!!! issuance of debt!!! vs decrease in bonds payable would dr. bonds payable when we pay the bond right, and crdit cash so dec cash, outflow of cash!

Answer 68

if ASSETS go up cash goes down!!!! proceeds from stock or debt issuance is normally the case in finacing section for start up companies

Answer 69

right so just memroize dec in current assets will be a decrease in Net INCOME and didnt actually lose cash yet!!!

Answer 70

** for inventory this means /reflects the value of your inventory used up this period Dr. CGS Cr. INV so for inventory=net income dec, cash flow no change vs with AR net income increases no change in cash flow*** sales revenue inc by 132 but not yet collected so its in the operating section but cash is not collected

Answer 71

current liability goes up so have to adjust it on staement of cash flow net income dec so reduction but doesnt impact cash yet so no change on cash at the moment

Answer 72

for taxes and interest payable cash flow doesnt matter because whatever I inc the value by I dec teh value by change doesnt matter for top bc the net change was fully paid so any inc is canceled out by a dec for accrued liabilities - dec liability dec statement of cash flow so debit accrued liability cr. cash paying it right so that means we have to dec cash to pay it! net income has no change, cash dec!

Answer 73

only time we would ever credit accumulated depreciation we have a depreciation expense flowing through INCOME STATEMENT***** and then net income*** so thus net income dec remember depreciation expense is listed on income statement as 243 thats where you get that #**

Answer 74

bonds payable!!! Assume no new bonds were issued during 2026.

Answer 75

remember step one most important put Begining balance of RE at top and ending balance of new year of RE at bottom what goes on that plug fromn right side is NET INCOME FROM INCOME STATEMENT**** KEY that 1192 is the net income FROM INCOME STATEMENT I care about what was paid, so this means that the left hand side must have given 573 to shareholders and look for dividiends payable Dr. dividends payable $573 cr. cash payable $573

Answer 76

Cash Flows from Investing Activities: Purchase of PP&E (Capital Expenditures) (525) Purchases of Long-Term Investments (264) Cash Flows Used in Investing $ (789) Cash Flows from Financing: Payments on Bonds Payable (233) Dividends Paid (573) Cash Flowed Used in Financing $ (806)

Answer 77

please notice how if depreciation expense inc from 20,000 to 26,000 then inc depreciation expense on L side by 6,000***

Answer 78

note a. proceeds from issuance of stock is the change in CS + APIC so 6,000 + 10,000= 16,000 is the proceeds from stock issuance on fin ancing left side b. dividends paid is 2320 bc we had no dividends paid line and 2320 is what dividends declared was SO! just do 2320 REe=REB + NI-DD * the hard one besides depreication so= 144,780= 135,100+ 12,000-DD DD= 2320

Answer 79

dividends paid THIS IS WHAT GOES ON CASH FLOW STATEMENT

Answer 80

NOTHING dividends is not an expense has no impact doesnt run through net income!!!

Answer 81

Step 1: Find dividends declared, which is the change (always a reduction) in retained earnings not attributable to current period net income or net loss. Step 2: Find dividends paid, which is the reduction in dividends payable. -If dividends payable does not exist (there’s no beginning or ending balance of dividends payable), it may be assumed all dividends declared this period were paid this period. -If there is a balance in the dividends payable account, increase the dividends payable balance by the dividends declared this period, and solve for the decrease to dividends payable, which is equal to the value of dividends paid. *** this DIVIDENDS PAID is the only thing she cares about that goes on cash flow statement that pink box of step 2 is what goes on cash flow statement Net income comes from Income statement adn will b e given to you and can find it there

Answer 82

An increase in common stock (at par value) PLUS an increase in APIC represent the total inflow (increase) of cash due to stock issuance. A decrease in common stock (at par value) PLUS a decrease in APIC represent the total outflow (decrease) of cash due to stock repurchase.

Answer 83

The only impact on cash is the cash proceeds. This should be the cash in-flow due to investing activities. However, net income is impacted by any gain/loss. These gains & losses represent non-cash changes to net income in operations, and thus must be reversed out of the operating section. loses like expenses we recognize as debits always, credits are gains

Answer 84

Reverse gains/losses out of NI in the operating section. How? -->If there is a gain: credit the cash T-account by the amount of the gain in CFO. -->If there is a loss: debit the cash T-account by the amount of the loss in CFO. Why? a) A gain/loss impacts net income, but not cash flows. Recall: a gain/loss is the difference between book value of PPE sold and cash proceeds received; it is not the change in cash. b) The gain/loss is included in net income, and thus the operating section. However, the sale of PPE relates to an investing activity.

Answer 85

Show the increase of cash in the investing section. How? -->Debit the cash T-account by the amount of the cash proceeds in CFI. Why? -->The cash proceeds represent the increase in cash from the sale of an investment.

Answer 86

(1) Reverse depreciation expense from net income in operating section. How? Debit the cash T-account by the amount of depreciation expense. Why? Depreciation expense decreases net income but not cash.

Answer 87

(2) Reflect capital expenditures in investing section. How? Credit the cash T-account by the amount of capital expenditures. Why? Capital expenditures decrease cash but not net income.

Answer 88

3) Reflect sales of PPE using the two-step procedure. How? 1st reverse the gain/loss in the operating section; 2nd debit the cash T-account by cash proceeds in investing. Why? 1st step: gains/losses impact net income but not cash. Also, gains and losses are in the operating section but PPE sales relate to investing activities; 2nd step: cash proceeds increase cash from investing activities.

Answer 89

the BV or 3 here in this image of t accounts "BV of ppe sold" she boxed for both PPE gross and Acc Depr. = these 2* things do not show up on cash flow but helpful for understanding cash flow so sale of

Answer 90

so starting point for statement of cash flow assume + 200 not negative*** thats the assumption begin with Net Income 200 even though our cash went down from 70 to 40 this year just assume positive net income of 200 remember from IS= income statement the depreciation expense we did not lose 70 in cash but just adijusting the 70 with depreciation expense so then we have those journal entries the highlighted loss on disposal of buildings nad equip. of 15 is the SALE OF PPE

Answer 91

** 1. the 70 isd the Accumulated depr. that was originally credited from the IS so then 800 + 70 -x = 840 x= 30 so do that first step 2. plug in the step 2 of the 245, we are told that the company investing activity, we are given 55,000 was the historic cost of sold PPE in this time so we plug in to find 245 bc 1,800+ y- 55=1,990 so y=245 PLUG step 3. Book value of PPE sold 55-30= 25 ** this tells us for our cash flow statement the dec, 25 is the value of the land at the time of sale so really 25 not 55 THEN from IS we have hte loss on the sale we know its 15!!! 25-15= 10!!! NOW JOURNAL ENTRY FINAL: Dr. Cash 10 Dr. Accumulated depreciation 30 Dr. Loss 15 Cr. PPE Sold 55 the 10 is is the proceeds from the sale of PPE so that goes in investing setion an inc in cash by 10 for land so inc of cash by 10 from proceeds from sale

Answer 92

cash flow statement again with the loss from the sale of 15 added into OPERATION SECTIOn 10 inc in cash from proceeds of sale goes into investing section!! the light green hihglight is what gets put on the cash flow the cash debit of 10 and the debit loss of 15

Answer 93

= retirement of DEBT*

Midterm Financial Accounting 3000 Flashcards

(154 cards)