BUSI 101 Midterm

Cash Basis

* Not allowed under GAAP Recognizes revenues as cash is received Recognizes expenses as cash is paid

Accrual Basis

* Required under GAAP Recognizes revenues when earned Recognizes expenses with revenues

What is included on a financial report?

1. Income Statement 2. Balance Sheet 3. Statement of Cash Flows 4. Statement of Owner's Equity (less well known)

Why Buy Shares of Stock?

1. Price appreciation 2. Dividends

Which document has more information about a company on it? 10k or annual report?

10k

Balance Sheet Equation

A=L+OE Assets=Liabilities+Owners Equity

Standard Journal Entry

Account Debited Amount Debited Account Credited Amount Credited

Factory Overhead

All manufacturing costs, other than DM+DL

Contraasset

An asset that acts like a liability Ex. Accumulated depreciation

Expenses Occur

Assets Decrease Liabilities Increase

Revenues Occur

Assets Increase Liabilities Decrease

Which accounts are normal debits?

Assets and Expenses (also dividends)

Which Financial Statement is From One Day in Time?

Balance Sheet

Retained Earnings Schedule

Beginning Retained Earnings +Net Income ______________________ =Available -Dividends Declared ______________________ =End Retained Earnings

Basic Schedule

Beginning ____ + Inflow ____ ______________ = ____ Available - Outflow ____ ______________ =End ____

Current Ratio Equations

CA-CL=WC CA/CL=CR

Accruals

Cash Lags aka accrual basis recognition precedes cash transaction Expense OR Asset Liability Revenue

Deferrals

Cash leads aka cash transaction precedes accrual basis recognition Expense OR Liability Asset Revenue

Liabilities

Creditors' claims

Equations Using the Three Cost Elements

DM+DL=PC FOHD+DL=CC Then solve for everything using the numbers given.

T Chart for Assets

Debit + Credit -

T Chart for Expenses

Debit + Credit -

T Chart for Liabilities

Debit - Credit +

T Chart for Owners Equity

Debit - Credit +

T Chart for Revenues

Debit - Credit +

Dividend

Decided by the Board of Directors, a portion of a company's earnings that gets distributed to their shareholders Typically recorded as the dollar amount each shareholder receives, so aka dividend per share (DPS)

Does the Balance Sheet increase or decrease with Deferrals?

Decrease

Categories of Adjusting Entries

Deferrals Accruals

Big Five Financial Companies

Deloitte Pricewaterhouse Coopers Ernst and Young KPMG Anderson Universal

Which manufacturing cost element is both a Prime Cost AND a Conversion Cost?

Direct Labor

Three Cost Elements of Manufacturing Firms

Direct Materials Direct Labor Factory Overhead

Which manufacturing cost elements are Prime Costs?

Direct Materials AND Direct Labor

Uncertainty

Does not make a difference

Assets

Economic resources

Misstatements

Errors (accident) Fraud (intentional)

Financial Accounting

External Conveyance of financial information to external parties so they can make good decisions

Which manufacturing cost elements are Conversion Costs?

Factory Overhead AND Direct Labor

A liability is defined as a probable future economic benefit that an organization owns or controls.

False

A material misstatement that is made in a set of financial statements is acceptable as long as there is only one.

False

A misstatement has to be caused by fraud.

False

Accountants are the primary users of the information provided by financial accounting.

False

An entity that loans money to a business is referred to as a "shareholder."

False

Corporations that report earning additional profits are required by law to pay dividends to their shareholders.

False

Creation of US GAAP is primarily done by the US government.

False

Employees have no reason to be interested in any financial accounting information provided by their employer.

False

Financial accounting information is generated primarily to help with decisions made inside a business or by some other organization.

False

For a business or other organization, an employee is an example of an asset.

False

IFRS has been in wide use in many countries since 1976.

False

If a company reports equipment costing $122,756,255, that is the amount that it actually did cost.

False

In analyzing a business, creditors are most interested in the possibility that the corporation's stock price might decline

False

In order for investors to properly evaluate the financial information of a business or other organization, it is vital that the financial information to be exact.

False

Most countries require companies that operate within their borders to follow US GAAP in preparing their financial statements.

False

Most investors in the capital stock of a business want to be involved in the daily operations.

False

One business has a misstatement of $10,000 that is caused by fraud. It also has another misstatement of $10,000 that is caused by error. If one of these misstatements is material, then they both are.

False

Only accountants need to understand the terminology that is found in accounting.

False

The purchase of a building for $2.4 million is recorded as an expense.

False

The reporting of a pending lawsuit is relatively simple.

False

Typically, a business operated as a sole proprietorship will be able to raise money from issuing capital shares easier than will a business operated as a corporation.

False

FASB

Financial Accounting Standards Board

Part of SCF Associated with Long Term Liabilities and Owners Equity

Financing Activities

Basic Schedule (Cost of Production Report)

I Beginning Materials +Materials Purchased _________________ =Materials Available -End Materials _________________ =Materials Used

Parts of the Cost of Production Report

I. Basic Schedule II. Total Manufacturing Costs III. Cost of Goods Manufactured IV. Cost of Goods Sold V. Income Statement

Does the Balance Sheet increase or decrease with Accruals?

Increase

Managerial Accounting

Internal Identifying, measuring, analyzing, interpreting, and communicating information for the pursuit of an organization's goals.

IFRS

International Financial Reporting Standards

Part of SCF Associated with Long Term Assets

Investing Activities

What is the rule for something being considered current?

It must be dealt with within 12 moths

Direct Labor

Labor expended upon direct materials

Debit=

Left

Which accounts are normal credits?

Liabilities, Owners Equity, Revenues

The Father of Accounting

Luca Pacioli

Direct Materials

Materials forming an integral part of the finished product

Income Statement Equation

NI=R-E Net Income=Revenues-Expenses

Net Assets

Net assets=total assets-total liabilities *Net assets=owners equity

What kind of accounts are on the Income Statement?

Nominal/temporary This means that these are the accounts that get reset at the beginning of each new year *Revenues and Expenses

Part of SCF Associated with Income Spending

Operating Activities

Part of SCF associated with Income Spending

Operating Activities

Expenses

Out flows or decreases in net assets from providing goods and/or services

Owners Equity + Parts of OE

Owners' claims Made up of two parts: 1. Contributed capital 2.Retained earnings- accumulated net income in excess of dividends

What kind of accounts are on Balance Sheets?

Real/permanent These are not reset at the beginning of each year *Assets, Liabilities, Owners Equity

Revenues

Represent in flows or increases in net assets from providing goods and/or services

Credit=

Right

Three Types of Managerial Firms?

Service Merchandising Manufacturing

Statement of Cash Flows

Shows all changes in cash Includes: 1. Operating activities 2. Investing Activities 3. Financing Activities

Materiality

Something that makes a difference/changes a decision

A corporation reports sales of $33,453,750 when the actual figure was $33,453,843. This information contained a misstatement.

True

A sales transaction is normally considered revenue even if cash is not collected until the following year.

True

Companies face many uncertainties when preparing their financial statements.

True

Financial information is communicated in monetary terms but may be explained verbally.

True

Investors who hold investments in capital stock for longer than a year may enjoy a tax benefit.

True

Materiality depends on the size of the organization.

True

Most businesses report their financial accounting information as part of an annual report released to owners and other interested parties.

True

Purchasing the capital stock of a business is typically a riskier investment than opening a savings account.

True

The board of directors of a corporation is elected by its shareholders.

True

Retained Earnings is always at ____ when a business starts up?

Zero

Return Equation

[(EOY price-BOY price)+annual dividend]/BOY price

Value Investors look at _____ when making investment decisions.

assets first

Growth Investors looks at _____ when making investment decisions.

earnings momentum

Depreciation is or is NOT cash?

is not