A304 first exam

measurable obligations form a past transaction that are expected to be settled in the future by transferring assets or providing services

liabilities

expense recognition principle

(matching principle) expenses incurred to generate revenues be recognized in the same period (recorded as incurred, regardless of when cash is paid)

multiple-step income statement

A form of income statement that contains several sections, subsections, and subtotals. (income from operations; income before income taxes)

The two equalities in accounting that aid in providing accuracy.

A=L+OE credits=debits

accounting equation

Assets = Liabilities + Owner's Equity

Four periodic financial statements.

Income Statement Stockholders' Equity Statement of Cash Flows Balance Sheet

revenue recognition principle

Record revenue in the period in which it's earned (performance obligation is satisfied) not when cash is received from customers

record the $4000 repurchase of common stock for cash

Treasury Stock - debited Cash - credited

general ledger (or T accounts)

a record of effects to and balances of each account $ amounts from journal entries are copied to the appropriate accts. in ledger so acct. final balances can be totaled

deferred expenses

adjusted for amounts used that were paid for in advance ex: prepaid expenses like insurance

deferrals

cash received or paid before revenues have been earned or expenses have been incurred cash was received or paid in the past

general journal

chronological of each transaction's effects on each account shows the accts debited along w/ corresponding credited

two issues of principal/agent

conflicting incentives information asymmetry (one party has more information than the other)

The closing process requires ________. crediting the expense accounts debiting the revenue accounts debiting retained earnings when there is a net loss crediting the revenue accounts debiting the expense accounts crediting retained earnings when revenues are greater than expenses

crediting expense accounts debiting the revenue accounts debiting r/e when there is net loss crediting r/e when revenues > expenses

creditors vs shareholder

creditors: interest included in loan; preference for payment in liquidation (when co. is bankrupt); no voting rights (still has influence) shareholder: dividends; higher future stock prices; voting rights (on CEOs--Elizabeth Holmes)

______ is the process of allocating the cost of buildings, vehicles, and equipment to expense over time as they are used

depreciation

What is the purpose of the depreciation adjustment for long-lived assets?

depreciation allows the company to allocate the cost of an asset over the years the asset benefits the company

every transaction has at least two effects

double entry

accrued expenses

expenses incurred but not yet paid in cash or recorded adjusted for amounts incurred but not yet paid

results of transaction analysis in accounting format

journal entry

ordered $2000 of equipment (once you receive the equipment, then you record Equipment increase and Cash decrease)

no journal entry needed

which action is done to update account balances? - jouranling entries - recording - posting - analyzing

posting

principal-agent problem

principal (shareholders) delegates authority and responsibility to an agent (managers) and interests of the two are in conflict

information presented must be

relevant to the decisions faithful representation of the economic substance of the company's activities

Accrual adjustments to record amounts earned but not yet collected include a credit to a(n) ________ account

revenue

accruals

revenues earned or expenses incurred before cash has been exchanged cash will be received or paid in the future (earning of revenues and incurring of expenses occurred prior to the cash changing hands)

accrued revenues

revenues for services performed but not yet received in cash or recorded adjusted for amounts earned, but not yet collected

creditors

suppliers who sell things on account (if company goes out of business creditors would have first claims to their assets before stockholders do)

Closing entries move the balances from the Blank______ accounts into the Retained Earnings account.

temporary

deferred revenues

when a company receives cash in advance from a customer for products or services to be provided in the future adjusted for amounts earned that were collected in advance