Accounting I Final Study Guide
Which of the following statements regarding the income statement is true?
The income statement provides information about the profitability and growth of a company.
Accumulated Depreciation
The sum of all the depreciation expense recorded to date for a depreciable asset.
If a company's bonds are callable,
the issuing company is likely to retire the bonds before maturity if the bonds are paying 8% interest while the market rate of interest is 4%.
Notes Payable
when a business borrows money or purchases goods or services from a company that requires a formal agreement or contract.
Accounts payable
when a business purchases goods or services on credit. It is considered a current liability and is expected to be paid from current assets and are due within one year.
A current liability includes obligations that must be repaid
within one year or within the operating cycle, whichever is longer.
A current liability is defined as a commitment or obligation that requires a company to transfer assets, create a new current liability, or provide services to another entity at some point in the future that must occur
within one year or within the operating cycle, whichever is longer.
Par value
an amount printed on each share of stock that establishes a minimum price when issued.
A Premium on Bonds Payable account would appear on the balance sheet as
an increase to a long-term liability.
Current portion of a long-term debt
any payment due within a year from a long-term debt... payments, interest.
Par value represents the
arbitrary amount that establishes a minimum price for the stock when it is first issued
The going concern assumption is concerned with
the company's ability to continue operations long enough to carry out its existing obligations.
Outstanding shares represent the
number of shares that are currently held by stockholders.
Long-term debt generally includes
obligations that extend beyond one year
Accrued liabilities
recognized by adjusting entries at the end of a period, such as wages payable, taxes payable
All of the following accounts have normal debit balances except
service revenue
Interest
stated rate, coupon rate, contract rate, amount the borrowings cost
A convertible bond is one where
the bondholder can convert the bond into common stock at a future time.
Liability
A commitment which arises from a business activity that has already occurred that requires a transfer of assets or providing services to another entity in the future.
perpetual inventory
An inventory determined by keeping a continuous record of increases, decreases, and the balance on hand of each item of merchandise.
The accounting equation may be expressed as
Assets = Liabilities + Stockholders' Equity
What effect does the purchase of office equipment on credit have on the accounting equation?
Assets and liabilities increase
What effect does the payment of employee salaries have on the accounting equation?
Assets and stockholders' equity decrease
Which of the following statements is true concerning assets?
Assets are initially recorded using the historical cost principle.
Which of the assets listed below is considered the most liquid?
Cash equivalents
Current Liability
Due within 1-year or 1 operating cycle. Examples include accounts payable, taxes payable, unearned revenue, current portions of long-term obligations.
Which of the following organizations is primarily responsible for establishing GAAP in the United States?
Financial Accounting Standards Board (FASB)
What is the impact on the accounting equation of recording the accrual of wages expense?
Liabilities increase and stockholders' equity decreases.
A check returned by a bank because the issuer's account balance could not cover the check is called a(n)
NSF check.
Intangible Assets
Patents, trademarks, copyrights, licenses and goodwill. These assets are not physical.
Payroll
Payroll refers to the amount paid to employees for services they provide during a period.
The only essential element of internal control from the following is
Procedures for proper authorization of transactions.
fixed assets
Property, plant, and equipment that are long term, relatively permanent assets such as equipment, machinery, buildings, or land.
Which of the following statements concerning retained earnings is true?
Retained earnings represents accumulation of the income that has not been distributed as dividends.
Short term notes payable
This account is usually used to satisfy an account payable created at an earlier date and can not be paid as an account payable.
Natural Resources
Timberland, coal, oil, natural gas, and gravel are all naturally occurring materials that have economic value.
Bond
Type of note where the payment of principal is done at the end of the time.
When will bonds sell at a discount?
When the stated rate of interest is less than the yield rate of interest at the time of issue
Paid in capital
an additional amount over par value that is paid for stock when it is issued into the market.
periodic inventory
a merchandise inventory evaluated at the end of a fiscal period
What type of questions do the financial statements help to answer?
a.What resources does the company have? b.For what did a company use its cash during the year? c.Is the company better off at the end of the year than at the beginning of the year?
Face value
also known as principal or par value
COGS equation
beginning inventory + purchases - ending inventory
Ending Retained Earnings
beginning retained earnings + net income - dividends
Which internal control activity is followed when the management authorizes only the purchasing department to order goods and services for the company?
clearly defined authority and responsibility
COGS
cost of goods sold
Which of the following accounts is increased by a credit entry?
capital stock
The account that records differences between amounts of cash deposited and amounts from the cash register tapes is called
cash over and short
The current portion of long-term debt would appear on the balance sheet as
current liability
Amounts collected and recorded by a company but not yet reflected in a bank statement are known as
deposits in transit.
Many stockholders choose to invest in preferred stock because
dividends are distributed to preferred stockholders before common stockholders.
Maturity
due dates at some specific time in the future
Which of the following accounts is increased by a debit entry?
equipment
The four basic financial statements are:
income statement, statement of retained earnings, balance sheet, statement of cash flows
Debit entries are used to
increase asset accounts.
Credit entries are used to
increase liability accounts.
Which of the following items would be added to the company's cash balance on a bank reconciliation?
interest earned on the bank account
All of the following accounts have normal credit balances except
inventory
LIFO
inventory accounting in which the most recently acquired items are assumed to be the first sold; method is supposed to create the lowest ending inventory in a period of rising prices. Also create a lower taxable income, lower gross profit.
FIFO
inventory accounting in which the oldest items (those first acquired) are assumed to be the first sold; creates a higher ending inventory and lower cost of goods sold, higher gross profit and higher taxable income.
Unsecured bonds that are relatively risky and, therefore, pay a high rate of interest to compensate the lender for the added risk are called
junk bonds.
A landlord records the collection of a tenant's security deposit as a(n)
liability.
It is important that the petty cash custodian
maintains supporting documentation for all payments made from the petty cash fund.
Bonds sell at a premium when the
market rate of interest is less than the stated interest rate at the time of issue.
Authorized stock represents the
maximum number of shares that can be issued for each class of stock.
Gross Profit
net sales - cost of goods sold
Which of the following is an example of a debit memo?
notice of a bank service charge
