ACCT Chapters 1-3
Included in heading of statement of stockholder's equity of Xoff Inc.
"Statement of Stockholder's equity" "For the year ended Dec 31, 2018" "Xoff Inc."
Four basic assumptions underlying GAAP
-Economic Entity Assumption -Going Concern Assumption -Periodicity Assumption -Monetary Unit Assumption
Steps for analyzing the effect of transactions
1. Determine one account in the accounting eqn that will increase/decrease 2. Determine a second account in the account eqn that will increase/decrease 3. Confirm that assets = liabilities + stockholder's equity
Steps for measuring transactions
1. Use a source document to identify accounts affected 2. Analyze the impact of the transaction on the accounting equation 3. Assess whether the transaction results in a debit or credit to account balances 4. Record the transaction in a journal 5. Post the transaction to the general ledger
If a transaction decreases cash by $100, the balance sheet will balance if
A liability decreased AND another asset is increased
Asset
A resources, such as cash, land, buildings, that is owned by company
The type of information included in an account
Account title and columns of increases/decreases
The fundamental model of business valuation is commonly referred as the
Accounting equation
Management discussion and Analysis and note disclosures to financial statements are included in
Annual report
Accounting Equation
Assets = Liabilities + Stockholder's Equity
what is the correct order of items on the balance sheet
Assets > Liabilities > stockholder's equity
The purpose of a trial balance
Assist in preparing financial assistants, assist in preparing adjusting entries, ensure debits = credits
which of the following services may be provided by public accounting firms
Audit, tax, consulting
The financial statement that posts the firm's financial position on a particular day
Balance Sheet
The result of a single transaction had both cash and notes payable increase
Borrowing cash and signing a promissory note
London Corp issues 1000 shares of stocks for $20 per share.
Cash and Common Stock increase
Deferred Revenue
Cash received from customers for services to be performed in FUTURE
If the same accounting principles and methods are used for similar events by two different companies, this enhances
Comparability
users of financial information contribute financial resources to company
Creditors
Which of the following external user groups would likely be interested in financial accounting info
Current and prospective creditors, regulators, customers, current and prospective investors
Managerial Accounting
Deals with the concepts and methods used to provide info to organization's internal users
Larkin Company pays $300 for utilities per month
Debit utilities expense, credit cash
Heading of a Balance Sheet
December 31, 2018, Name of Business, and "Balance Sheet"
Suppliers
Determine the ability to pay for goods
Appears on statement of stockholder's equity
Dividends, net income, beginning balance of retained earnings
A balance sheet is a list of all accounts and their balances showing that debts = credits
False
Dividends paid to shareholders are recorded on income statement as an expense
False
Private sector organizations that is currently responsible for setting accounting standards in the U.S.
Financial Accounting Standards Board
Members of FASB include
Financial analysists, govt agencies, accounting professionals, accounting educators
Generally Accepted Accounting Principles
GAAP
Steps applied in ethical decision making
Identify ethical issues > Specify Alternatives > Evaluate courses of actions > make decision
Four financial statements to provide information to external users
Income Statement, balance sheet, statement of stockholder's equity, statement of cash flows
Effect on stockholder's equity for services performed on account
Increase
Attributes of FASB
Independence, private sector organization, and full-time board members
the two external users of financial accounting information that contribute financial resources to a company are
Investors and Creditors
Investing activities
Involve buying and selling of land, buildings, and equipment used in business
External Transaction
Involves an exchange between the company and separate economic entity
Operating Activities
Involves purchasing goods from suppliers, designing and manufacturing products, and selling products to customers
Knowledge and skills an accounting professional should possess:
Leadership, ability to work in teams, technical accounting knowledge, presentation skills
The primary functions of accounting are:
Measure a company's activities and communicate to decision makers
Included with the annual report to help evaluated a firm's financial performance and financial health
Note Disclosures
Reported on balance sheet as liabilities
Notes payables AND wages and salaries payable
Big 4 Accounting Firms
PWC, Deloitte, Ernst & Young, KPMG
Which of the following are operating activities
Paying advertising expenses, paying salaries to employees, and providing service to customers
Retained Earnings
Profits earned by company that have not been paid to stockholders
An income Statement reports
Revenue, expenses, and net income/loss
Income Statement
Revenues and Expenses
The types of accounts which affect retained earnings
Revenues, Expenses, Dividends
Business organizations that have unlimited liability
Sole Proprietorship and Partnership
Financial statement shows the sources of changes in various stockholders' equity
Statement of stockholder's equity
Which of the following are assets
Supplies and Inventory, equipment
An account that is used informally for analysis instead of drawing a formal general ledger account is referred to as
T-Account
Heading of income statement should include
Title of financial statement, the accounting period covered by the statement, the name of the business
Debit goes on left hand side and credit goes on right hand side
True
Understandability
Users of financial statements should have a reasonable understanding of business and economic activities
Which of the following are internal transactions
Using supplies purchased and paid last month AND Earning Revenues after cash is received in advance from customers
General ledger
a collection of accounts used to keep track of increases and decreases in financial position elements
A separate _____ is maintained for each financial position element.
account
Accounts receivable are
assets in the balance sheet
Balance Sheet
assets, liabilities, stockholders equity
Ending Retained Earnings Equation
beginning retained earnings + net income - dividends
The purpose of a statement of cash flows is to provide info about
cash receipts and cash disbursements during a period
Accountants' primary information-related roles are to:
communicate measurements of companies' activities AND measure companies' activities
The qualitative characteristic of using the same accounting method each period over time
consistency
predictive value
consistently increasing income helps forecast the company's ability to generate future cash
A business organization that issues a share of stock to its investors
corporation
Verifiability
cost of an item can be traced to objective evidence of a transaction, such as sales receipt, cancelled check, bank statement
Competitors
decide market share and profitability
Regulators
decide on social welfare
Managers
decide production and expansion
Creditors
decide whether to lend money
Investors
decide whether to purchase stock
Effect of dividends on retained earnings
decrease
A distribution of net income to the stockholder's of a corporation
dividend
The two sources of stockholder's equity are:
earned by the corporation AND paid in from shareholders
All economic events can be identified with a particular economic
entity
Salaries paid to employees for the month is a ______ account that appears on the ________
expense, income statement
A______ is a cost of doing business that is necessary to produce_______
expense, revenue
To be useful for decision making, information should possess the primary qualities of relevance and
faithful representation
1933 Securities Act and 1934 Securities Exchange Act were designed to restore investors' confidence in
financial accounting
Financial statement that summarizes revenues and expenses for a period of time
income statement
Information that best explains companies' stock price performance is reported on
income statement
A chronological record of all economic events affecting a firm are recorded in a
journal
Any amount owed to the creditor is reported in the balance sheet as
liability
consistency
means of achieving overriding goal
Accounting assumption states that financial statement elements should be measured in terms of U.S. dollar
monetary unit
Faithful representation requires information to have
neutrality, completeness, and free from material error
The statement of stockholder's equity is
one of four required financial statements
Statement of Cash Flows
operating, investing, and financing activities
comparability
overriding goal of financial information
The __________ assumption allows the life of a company to be divided into artificial time periods to provide timely info
periodicity
confirmatory value
positive income is consistent with effectiveness of management
The process of transferring information from the journal to the ledger is
posting
Career choices in accounting include
public and private accounting
Timeliness
refers to information being available to users early enough to allow them to use it in the decision process
Revenues are:
sales of goods or services to customers
Three most common forms of business organization
sole proprietorship, partnership, and corporation
the owners' claims to resources of company are:
stockholder's equity
Financial Accounting should provide information that:
tells about economic resources, claims to resources, and changes in resources, helps to predict cash flows, and is useful to investors and creditors in making decisions
ethics
term that refers to code or moral system to determine right or wrong
