vocab

Question 1

Basic accounting equation?

Answer 1

Assets = Liabilities + Equity

Question 2

ADE-LER?

Answer 2

Debits increase: assets, drawings, expense
Credits increase: liabilities, equity, revenue

Question 3

T/F: Financial accounting affects internal decision makers

Answer 3

False

Question 4

Which act established the 10-K, 10-Q, and 8-K?

Answer 4

Securities Exchange Act of 1934

Question 5

Which act was created due to fraud?

Answer 5

Sarbanes-Oxley Act of 2002

Question 6

What is the name of the database of SEC filings?

Answer 6

EDGAR

Question 7

What does GAAP stand for?

Answer 7

Generally Accepted Accounting Principles

Question 8

What is the accounting cycle?

Answer 8

Transaction => Documentation => Journal Entry => Ledger => Trial Balance => Adjustments => Adjusted Trial Balance => Financial Statements

Question 9

What are the 3 properties of contra accounts?

Answer 9

1. They’re always attached to another account
2. They have the opposite balance of the normal account balance
3. They reduce the account to which they are attached

Question 10

Which financial statements are position statements?

Answer 10

Balance sheet

Question 11

What are the 5 financial statements?

Answer 11

Income Statement, Statement of Owner’ s Equity, Balance Sheet, Statement of Cash Flows, Notes

Question 12

What is the accrual method of accounting?

Answer 12

Recognize revenue when it is earned, recognize expense when incurred through matching to the period of benefits, used by corporations

Question 13

What is the different between indirect and direct statement of cash flows?

Answer 13

Indirect method starts with net income

Question 14

What is an asset?

Answer 14

A resource to provide future economic benefit

Question 15

Which are non-current assets?

Answer 15

PPE, Intangible assets

Question 16

Which are non-current liabilities?

Answer 16

Bonds payable, Loans payable (bank loans)

Question 17

The accrual method of accounting records accruals and… ?

Answer 17

Deferrals

Question 18

Define accrual.

Answer 18

Accrual: income is earned before money is received and expense is incurred before money is paid
- impacts Income Statement now, impacts cash later

Question 19

Define deferral.

Answer 19

Deferral: income is earned after money is received and expense is incurred after money is paid
- impacts cash now, impacts Income Statement later

Question 20

Which are temporary accounts?

Answer 20

Revenue, expense, drawings, Sales Return and Allowances, Sales Discounts, COGS

Question 21

How do you record an adjusting journal entry for prepaid advertising?

Answer 21

Dr. Adv Exp
Cr. Prepaid Adv
Debit the expense because cash went out
Credit prepaid advertising to decrease asset

Question 22

How do you record an adjusting journal entry for unearned rent or rent paid in advance (we’re the landlord!)

Answer 22

Dr. Unearned Rent
Cr. Rev
Debit liability to decrease liability
Credit revenue because we earned revenue

Question 23

How do you record an adjusting journal entry for supplies at year end?

Answer 23

Dr. Supplies Exp
Cr. Supplies
Debit expense because cash went out
Credit asset of supplies to decrease it

Question 24

How do you record an adjusting journal entry for salaries at year end?

Answer 24

Dr. Sal Exp
Cr. Sal Payable
Debit expense because cash went out
Credit liability of salaries payable to increase liability because we still need to pay the salary

Question 25

How do you record an adjusting journal entry for equipment depreciation?

Answer 25

Dr. Dep Exp Cr. Acc. Dep We used up $xxx amount of the equipment based on its useful life Credit Acc. Dep to decrease Equipment account = contra account

Question 26

What should you include on the Balance Sheet when recording accumulated depreciation?

Answer 26

Book Value

Question 27

Closing Journal Entries: Step 1

Answer 27

Close out entire revenue account to income summary Dr. Rev Cr. Income Summary

Question 28

Closing Journal Entries: Step 2

Answer 28

Close out entire expense account to income summary Dr. Income Summary Cr. Sal Exp Cr. Rent Exp

Question 29

Closing Journal Entries: Step 3

Answer 29

Close out Income Summary to capital Dr. Income Summary Cr. Capital

Question 30

Closing Journal Entries: Step 4

Answer 30

Close out drawings Dr. Cap Cr. Drawing

Question 31

Equity = ?

Answer 31

Beg Bal + Cont Cap + Net Income - Drawings

Question 32

What is the historical cost accounting assumption?

Answer 32

Acquisition of goods, services, and other resources are entered into accounting records at their exchange price (the price you pay) because it is objective and verifiable

Question 33

What is materiality?

Answer 33

An item is material if it is likely to influence the decision of a reasonably prudent investor or creditor

Question 34

What is the conservatism accounting constraint?

Answer 34

When alternative account valuations are equally possible, you should select the one that is least likely to overstate assets and income and understate liabilities and expenses

Question 35

What are the objectives of internal controls?

Answer 35

Accurate and reliable financial statements, safeguarding of assets

Question 36

What are the segregation of duties?

Answer 36

Authorization, Recording, Custody/Safeguarding, Comparison

Question 37

What are reconciling items?

Answer 37

Items we included/deducted that the bank did not OR items the bank included/deducted that we did not

Question 38

Does the bank side or the books side require journal entries?

Answer 38

Books side

Question 39

How do you record non-sufficient funds in a reconciling journal entry?

Answer 39

Dr. A/R Cr. Cash Reverse original entry for check

Question 40

How do you record notes receivable and interest in a reconciling journal entry?

Answer 40

Dr. Cash Cr. N/R Cr. Interest Income Cash increases

Question 41

How do you record a service charge for a reconciling journal entry?

Answer 41

Dr. Fee Exp Cr. Cash Cash went out

Question 42

How do you record the error between the balance per bank and balance per books?

Answer 42

Dr. Cash Cr. Cash Short/Over

Question 43

If cash is over when replenishing petty cash.... ?

Answer 43

Credit Cash Short/Over

Question 44

If cash is short when replenishing petty cash... ?

Answer 44

Debit Cash Short/Over

Question 45

What should balance in a trial balance?

Answer 45

Adjustments, Adjusted Trial Balance, Income Statement after adding Net Income, Balance Sheet after adding Net Income