ACG 3173 Exam 1 (1,2,3&5)

current liabilities

(accounts payable, other accrued liabilities, shot-term debt) will be paid within one year

acid-test ratio=

(cash+AR)/current liabilities (firm's ability to meet its current obligations in worst case scenario.) average ratio:1.0

long-term assets

(plant+equipment) will benefit entity over several years

independent auditor's report contains

4 brief paragraphs and states whether the financial statements are prepared in conformity with GAAP. report can be unqualified (clean bill of health) or qualified.

standard for auditing/public accounting

Auditing Standards Board (part of AICPA)

periodic inventory system

COGS is determined at the end of the fiscal period

perpetual inventory system

COGS is determined each time inventory is sold

standard for managerial/cost accounting

Cost Accounting Standards Board (CASB) for gov. contracts

July 2009

FASB standards were superseded by the FASB Codification

FASB

Financial Accounting Standards Board

standard for state/local governments:

Governmental Accounting Standards Board (GASB)

ROI=

Net Income/Av total assets describes the RoR management was able to earn on its assets. average between 8%-12%

matching concept

all expenses incurred to generate that period's revenues be deducted from revenues earned.

net realizable value

amount of AR that the business expects to collect NRV= AR-Allowance for bad debts

rate of return=

amount of return/amount of investment higher=higher risk. RoR comes from interest calculation

other accrued liabilities

amounts owed to various creditors

the DuPont model

an expansion of the ROI calculation. adds in margin and turnover

current assets

assets that are likely to be converted into cash or used to benefit the entity within one year.

Stockholders equity=

assets-liabilities

COGS=

beg inventory + purchases - end inventory

marketable securities

bond investments, capital stock investments, current assets, almost as liquid as cash, readily marketable

full disclosure

circumstances and events that make a difference to financial statement users should be disclosed

cash includes:

coins and paper money, petty cash funds, checking accounts, money orders, undeposited receipts

trend analysis

compares a single observation over several years

the corporations annual report

contains the financial statements, with the external auditor's examination report and contains Management's Discussion and Analysis (MD+A)

working capital=

current assets - current liabilities (company's excess of current assets)

current ratio=

current assets/current liabilities (company's ability to pay debts as they become due. average ratio: 2.0

FASB created SFAC to

define the underlying concepts of accounting principles and financial reporting practices.

goal of IASB

develop a single set of high-quality, understandable, enforceable, and globally accepted financial reporting standards based on clearly articulated principles.

tax practitioners

develop specialties in the taxation of individuals, partnerships, corporations, trusts and estates or international tax law issues.

internal control objectives are to ensure:

effective + efficient operations, reliable financial reporting, compliance with laws and regulations

Accounting Entity Concept

every economic entity can be separately identified and accounted for.

GAAP

generally accepted accounting principles

bank reconcile objective

identify differences between ending cash balance reported on bank statement and ending cash balance in depositor's records.

accounting

identifying, measuring and communicating economic info about an entity for decisions and informed judgments.

ethical standards in accounting

integrity, objectivity, independence, competence

IASB

international accounting standards board

Assets=

liabilities + equity

governmental units

municipal, state, and federal agencies (same accounting functions as other entities)

retained earnings=

net income - dividends

margin=

net income /sales or Turnover * ROI

EPS=

net income/outstanding shares

profit margin=

net income/sales

ROE=

net income/stockholder's equity average 10%-15%

Unit of Measurement Principle

only transactions denominated in dollars are recorded in the accounting records.

total stockholders equity=

paid-in capital +retained earnings

bookkeeping

procedures for sorting, classifying, and presenting transactions

internal auditors

professional accountants who perform functions similar to those of an external auditor. However, they are employed in industry rather than public accounting.

Public Accounting firms and Certified Public Acct's (CPA's)

provide auditing services and issue an independent auditor's report.

consistency

provides meaningful trend comparisons over several years

accrual accounting

recognize revenue at the point of sale and recognize expenses when incurred, even though the payment may occur at another time

cost accounting

relates to the determination and accumulation of product, process, or service costs.

FASB Codification

reorganized divergent sources of U.S. GAAP in a more accessible and researchable format. It now represents a single source of US GAAP.

Gains and Losses

reported on income statement and result from NON-operating activities.

internal control over cash

require daily deposits, make all payments by check, promptly reconcile bank statements

accrual accounting recognizes

revenue at the point of sale and expenses when they're incurred

cash flow recognizes

revenue when payment is received and expenses when they're paid

net income=

revenues - expenses

Net income=

sales-cogs-operating expenses-interest expense-taxes

turnover=

sales/av total assets or ROI/Margin

statement of changes in stockholders equity

shows investments by and distributions to owners during the period.

inventory valuation methods

specific identification, weighted-average, FIFO and LIFO

SFAC

statements of financial accounting concepts

objectivity

the accountants' desire to have a given transaction recorded in the same way in all situations

materiality

the benefit of increased accuracy should outweigh the cost of achieving the increased accuracy

financial statements

the end product of a process that starts with transactions between the entity and other orgs/individuals

financial accounting is concerned with

the historical results of an entity's performance.

ratio analysis is sensible because

the large dollar amounts reported and the varying sizes of companies.

Going Concern Concept

the presumption that the entity will continue to operate and not be liquidated.

financial accounting refers to

the process that results in the preparation and reporting of financial statements for an entity.

managerial accounting is concerned with

the use of economic and financial information to plan and control many activities of the entity and to support management decision-making.

paid-in capital

total amount invested in the entity by the stockholders

debt ratio=

total liabilites/total assets

debt-to-equity=

total liabilities/shareholders equity

cost principle

transactions are recorded at their original cost to the entity as measured in dollars.

not-for-profit entities

universities, hospitals and religious organizations (require same accounting functions as other entities)

accounts

used to organize like-kind transactions

specific identification

when a unit is sold, the specific cost is added to COGS

conservatism

when in doubt, make judgments and estimates that result in lower profits and asset valuations

measures of liquidity

working capital, current ratio, and acid-test ratio

note

written promise to pay a specific amount at a specific future date, usually includes interest charge