ACC 310F Definitions and Conceptual Questions

Relevant Range

(unless specified otherwise) assume Vcu and total FC stay the same

b

All of the following are true about an accounting framework except a) each row must balance mathematically b) a cash amount is always used in a transaction c) amounts in the R/E column should be labeled d) each column must be totaled before the financial statements are prepared

Balance Sheet

Assets = Liabilities + Owner's Equity

Statement of Equity

Common Stock + Beginning R/E + NI - Dividends = Ending R/E

Direct Labor costs

DL, pay for factory workers

Product Costs

DM, DL, OH; costs to produce products themselves, inventory on balance sheet, cost of goods sold on income statement

Fixed cost

FC, ex: rent, salary, all-you-can-eat buffet

c

For a company that has been in business for several years, total equity would consist of a) the cash it has on hand b) only the amounts invested by owners c) the profits made in the current year d) the total dividends it paid e) none of the above

0

How many of the following appear on more than one financial statement? - advertising expense - revenue - equipment - inventory

2

How many of the following appear on more than one financial statement? - inventory - net income - common stock - cost of goods sold

investing, outflow

If a company purchased equipment, when recorded in the accounting framework, it would include a (OPR/ INT/FIN) cash (inflow/outflow)

a

If a company reported a building in its balance sheet, that would indicate that it a) owns the building b) is renting the building c) owes money on the use of the building d) has access to the building

Mixed cost

MC, ex: mobile phone service plan (most), car rental costs

Overhead costs

OH, cost/maintenance of factory equipment

Return on Investment

ROI, operating income / invested assets

e

Relevant range assumes a) unit volume stays the same b) total variable costs stay the same c) price per unity stay the same d) break-even point stays the same e) none of the above

Income Statement

Revenues - Expenses = Net Income

operating/receipt, operating/disbursement, investing/receipt, financing/disbursement, operating/disbursement

The Cabello Company buys air conditioners and sells them to customers. Below are a variety of items that would be included in the company's cash budget. For each one, select what type of cash flow is involved and whether it would be considered a cash receipt (i.e. inflow) or cash disbursement (i.e. outflow) a) sales to customers b) rent c) sale of equipment d) bank loan payment e) salaries

minus, cash, plus, inventory

The Herbal Goodness Company produces bottled tea and recently paid an employee who works on the production line. The transaction used to record the payment would include a (plus/minus) to the (cash/inventory/equipment) account and a (plus/minus) to the (cash/inventory/equipment) account.

overhead, fixed

The Herbal Goodness Company produces bottled tea; the cost of rent for equipment used in the drying process of the tea leaves would be classified as a(n) (DM/DL/OH/PC) as well as a (variable/fixed) cost.

period, variable

The Herbal Goodness Company produces bottled tea; the cost of utilities for the administrative office would be classified as a(n) (DM/DL/OH/period) cost as well as a (variable/fixed) cost.

d

The transaction used to record a payment on a bank loan would include a) +cash and +revenue b) +cash and +note payable c) (cash) and (loan expense) d) (cash) and (note payable) e) (inventory) and (cost of goods sold)

Variable cost

VC, ex: gas, utilities, wages or hourly pay, a la carte menu

c

Which of the following best represents the equation for the income statement? a) revenues - liabilities = net income b) assets - liabilities = net income c) revenues - expenses = net income d) assets = liabilities + owner's equity e) none of the above

Deferrals

accrual basis accounting; cash then activity, supplies + prepaid expenses + depreciation = assets until used up, unearned revenue = liability

Accruals

accrual basis adjustments; activity then cash, revenues and expenses = "on account"

Period Costs

advertising, administration costs; selling + administration expenses on income statement

Break-even

amount of sales required to avoid a loss, FC/(price-Vcu)

Revenue Expenditure

benefits current period only; ordinary repair and maintenance; recorded as expense on accounting framework (ex: replace brake pads on vehicle, power wash parking lot, rotate tires on vehicle)

Capital Expenditure

benefits future and current period; asset improvement that adds service value; extraordinary repair that extends life; update asset accounts (ex: remodel building, replace engine in vehicle)

e

contribution margin is a) fixed costs minus variable costs b) sales minus fixed costs c) sales minus product costs d) sales minus period costs e) none of the above

Direct Materials costs

cost of materials in final good

Operating Activities

day to day operations including things like sales, payroll, or utilities (ex: rent, buying coffee, working a job)

Financing Activities

funds needed to start and operate a business from owners/banks (ex: going to college, funds to start company)

Contribution Margin

gross profitability of each product

Statement of Cash Flows

operating, investing, and financing activities = change in cash

Intangible Assets

patents (exclusive right to produce & sell goods with on or more unique features for 20 years), copyrights (exclusive right to publish artistic work for 70 years beyond author's death), trademarks (right to use a name or symbol used to identify a business), goodwill (excess fair value of purchased business above net asset value)

Depreciation

physical and/ or functional loss of ability to provide usefulness; straight line method = (cost - estimated value)/ estimated useful life

Investing Activities

purchase (or sale) of long-term resources such as land, a building, or equipment (ex: buying a laptop)

Cost Center

responsibility accounting, expenses (ex: maintenance department)

Profit Center

responsibility accounting, revenues + expenses (ex: sales division)

Investment Center

responsibility accounting, revenues + expenses + assets (ex: division HQ)

Cash Basis Accounting

revenues recorded when cash received, expenses recorded when cash paid; no adjustments needed

Accrual Basis Accounting

revenues recorded when earned (revenue recognition), expenses recorded when incurred (matching); adjustments needed

Fixed Assets

tangible, used in normal operations and not offered for sale; costs include purchase price, related fees (ex: freight, assembly, installation) and taxes; generally referred to as Property & Equipment (ex: delivery vehicles, production machinery, buildings and land)

Activity Base

unit volume, # employees, time

d

which of the following could be an activity base? a) unit volume b) number of employees c) time d) all of the above e) none of the above