ACT210 Final Exam CSU

Stockholder's Equity

-Common Stock -Retained Earnings

Long-term assets

-Land -Land improvements -Buildings -Equipment -Accumulated Depreciation -Natural Resources -patents -copyrights -trademarks -franchises

Current assets

-cash -accounts receivable -notes receivable if due within the year -interest receivable -supplies -inventory -prepaid advertising insurance, rent investments

Accounting Cycle Steps

1. Capture and evaluate the economic event 2. Make the journal entry for the economic event 3. Post the original journal entry to the ledger 4. Create the unadjusted trial balance 5. Make the adjusting journal entries and post them to the ledger 6. Create the adjusted trial balance 7. Make the closing journal entries and post them to the ledger 8. Create the income statement 9. Create the Statement of Stockholders' Equity 10. Create the Balance Sheet 11. Create the statement of cash flows 12. Create the post closing trial balance --at least i think

Sole Proprietorship

A business owned by one person

internal controls

A company's plans to (1) safeguard the company's assets and (2) improve the accuracy and reliability of accounting information

Verifiability

A consensus among different measurers

Balance Sheet

A financial statement that presents the financial position of the company on a particular date

income statement

A financial statement that reports a company's revenues and expenses over an interval of time

Accounting

A system of maintaining records of a company's operations and communicating that information to decision makers

relevance

Accounting information that possesses confirmatory value and/or predictive value, and that is material

temporary accounts

All revenue, expense, and dividend accounts; account balances are maintained for a single period and then closed (or zeroed out) and transferred to the balance of the Retained Earnings account at the end of the period.

Liabilities

Amounts owed to creditors

contra account

An account with a balance that is opposite, or "contra," to that of its related accounts.

Financial Accounting Standards Board (FASB)

An independent, private body that has primary responsibility for the establishment of GAAP in the United States.

International Accounting Standards Board (IASB)

An international accounting standard-setting body responsible for the convergence of accounting standards worldwide.

average collection period

Approximate number of days the average accounts receivable balance is outstanding. It equals 365 divided by the receivables turnover ratio

classified balance sheet

Balance sheet that groups a company's assets into current assets and long-term assets and that separates liabilities into current liabilities and long-term liabilities.

aging method

Basing the estimate of future bad debts on the various ages of individual accounts receivable, using a higher percentage for "old" accounts than for "new" accounts

Balance Sheet Header

Company Name Balance Sheet December 31, 20XX -Total Assets (current and long-term) on one side, total liabilities (short term and long-term) plus total stockholder's equity. Assets = liabilities + stockholder's equity

Income Statement information

Company Name Income Statement For the year ended December 31, 20XX -Net income or Net loss

The statement of cash flows header

Company Name Statement of Cash Flows For the year ending December 31, 20XX

Statement of Stockholder's Equity Header

Company Name Statement of Stockholders' Equity For the year ended December 31, 20XX -Total ending stockholder's equity

purchase cards

Company-issued debit cards or credit cards that allow authorized employees to make purchases on behalf of the company

cash

Currency, coins, balances in savings and checking accounts, items acceptable for deposit in these accounts (such as checks received from customers), and cash equivalents.

closing entries

Entries that transfer the balances of all temporary accounts (revenues, expenses, and dividends) to the balance of the Retained Earnings account

Accounting Equation

Equation that shows a company's resources (assets) equal creditors' and owners' claims to those resources (liabilities and stockholders' equity).

Sarbanes-Oxley Act (SOX)

Formally titled the Public Company Accounting Reform and Investor Protection Act of 2002, this act provides regulation of auditors and the types of services they furnish to clients, increases accountability of corporate executives, addresses conflicts of interest for securities analysts, and provides for stiff criminal penalties for violators.

Sarbanes-Oxley Act

Known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly referred to as SOX; the act established a variety of guidelines related to auditor-client relations and internal control procedures

debit

Left side of an account. Indicates an increase to asset, expense, or dividend accounts, and a decrease to liability, stockholders' equity, or revenue accounts.

Liabilities

Payable's

accrual-basis accounting

Record revenues when goods and services are provided to customers, and record expenses with related revenues

allowance method

Recording an adjustment at the end of each period to allow for the possibility of future uncollectible accounts. The adjustment has the effects of reducing assets and increasing expenses.

Assets

Resources of a company

credit

Right side of an account. Indicates a decrease to asset, expense, or dividend accounts, and an increase to liability, stockholders' equity, or revenue accounts.

Stockholders' Equity

Stockholders', or owners', claims to resources, which equal the difference between total assets and total liabilities.

Decision usefulness

The ability of the information to be useful in decision making

Comparability

The ability of users to see similarities and differences between two different business activities

bad debt expense

The amount of the adjustment to the allowance for uncollectible accounts, representing the cost of estimated future bad debts charged to the current period.

International Financial Reporting Standards (IFRS)

The standards being developed and promoted by the International Accounting Standards Board.

Auditors

Trained individuals hired by a company as an independent party to express a professional opinion of the conformity of that company's financial statements with GAAP

Understandability

Users must understand the information within the context of the decision they are making

partnership

a business owned by two or more people

journal

a chronological record of all transactions affecting a firm

ethics

a code or moral system that provides criteria for evaluating right and wrong behavior

statement of cash flows

a financial statement that measures activities involving cash receipts and cash payments over an interval of time

statements of stockholders' equity

a financial statement that summarizes the changes in stockholders' equity over an interval of time

adjusted trial balance

a list of accounts and their balances after we have updated balances for adjusting entries

chart of accounts

a list of all account names used to record transactions of a company

post-closing trial balance

a list of all accounts and their balances at a particular date after we have updated account balances for closing entries

trial balance

a list of all accounts and their balances at a particular date, showing that total debits equal total credits

T-account

a simplified form of a general ledger account with space at the top for the account title and two sides for recording debits and credits

general ledger

a single location that provides a list of transactions affecting each account and the account's balance

account

a summary of the effects of all transactions related to particular item over a period of time

Monetary Unit Assumption

a unit or scale of measurement can be used to measure financial statement elements

faithful representation

accounting information that is complete, neutral, and free from error

permanent accounts

all accounts that appear in the balance sheet; account balances are carried forward from period to period

economic entity assumption

all economic events with a particular economic entity can be identified

revenues

amounts recorded when the company sells products or services to customers

book value

an asset's original cost less accumulated depreciation

Corporation

an entity that is legally separate from its owners

Separation of Duties

authorizing transactions, recording transactions, and maintaining control of the related assets should be separated among employees

dividends

cash payments to stockholders

deposits outstanding

cash receipts of the company that have not been added to the bank's record of the company's balance

NSF checks

checks drawn on non sufficient funds, or "bad" checks from customers

checks outstanding

checks the company has written that have not been subtracted from the bank's record of the company's balance

allowance for uncollectible accounts

contra asset account representing the amount of accounts receivable that we do not expect to collect

expenses

cost of providing products and services

retained earnings

cumulative amount of net income earned over the life of the company that has been kept (retained) in the business rather than distributed to stockholders as dividends (not retained)

adjusting entries

entries used to record events that occur during the period but that have not yet been recorded by the end of the period

internal transactions

events that affect the financial position of the company but do not include an exchange with a separate economic entity

Cost constraint

financial accounting information is provided only when the benefits of doing so exceed the costs

accounting cycle

full set of procedures used to accomplish the measurement/communication process of financial accounting

Going Concern Assumption

in the absences of information to the contrary, a business entity will continue to operate indefinitely

timeliness

information being available to users early enough to allow them to use it in the decision process

bank reconciliation

matching the balance of cash in the bank account with the balance of cash in the company's own records

financial accounting

measurement of business activities of a company and communication of those measurements to external parties for decision-making purposes

financial statements

periodic reports published by the company for the purpose of providing information to external users

matching principle

recognize expenses in the same period as the revenues they help to generate

Revenue Recognition Principle

record revenue in the period in which we provide goods and services to customers

revenue rocognition principle

record revenue in the period in which we provide goods and services to customers

cash-basis accounting

record revenues at the time cash is received and expenses at the time cash is paid

cash equivalents

short-term investments that have a maturity date no longer than three months from the date of purchase

petty cash fund

small amount of cash kept on hand to pay for minor purchases

Accounts receivable

the amount of cash owed to the company by its customers from the sale of products or services on account

prepaid expenses

the costs of assets acquired in one period that will be expensed in a future period

net income

the difference between total revenue and total expenses

Periodicity Assumption

the economic life of an enterprise (presumed to be indefinite) can be divided into artificial time periods for financial reporting

journal entry

the format used for recording business transactions

depreciation

the process of allocating the cost of an long-term asset to expense over its useful life

posting

the process of transferring the debit and credit information from the journal to individual accounts in the general ledger

Generally Accepted Accounting Principles (GAAP)

the rules of financial accounting

fraud triangle

the three elements present for every fraud- motive, rationalization, and opportunity

occupational fraud

the use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employer's resources

Consistency

the use of similar accounting procedures either over time for the same company, or across companies at the same point in time

external transactions

transactions the firm conducts with a separate economic entity

collusion

two to more people acting in coordination to circumvent internal controls

accrued expense

when a company has incurred an expense but hasn't yet paid cash or recorded an obligation to pay

accrued revenue

when a company provides products or services to customers but hasn't yet received cash

deferred revenues

when a company receives cash in advance from a customer for products or services to be provided in the future