Pre-TEST and Reading
Given the following information, determine Fees Earned. Wages expense equals $4,400; supplies expense equals $2,900; and miscellaneous expense equals $1,250. Net income equals $5,100.
$13,650 Note: Revenues minus expenses equal net income. X - ($4,400 + $2,900 + $1,250) = $5,100; X = $13,650.
Marvin Company negotiated the purchase of a new building for $250,000. Marvin paid a $100,000 down payment and will pay off the remainder over seven years. What affect does this transaction have on the accounting equation?
$150,000 net increase in assets and $150,000 increase in liabilities Notes: The assets would increase by the net amount of $150,000 (or an increase to Building by $250,000 and a decrease to the Cash by $100,000). Liabilities would increase by $150,000 (probably through Notes Payable or Mortgage Payable).
Clayton Company purchased a new coffee maker in the amount of $3,500. Clayton paid $1,000 down and will pay the remainder in 60 days. What effect does this transaction have on the accounting equation?
$2,500 net increase in assets and $2,500 increase in liabilities Note: Assets will have a net increase of $2,500 (due to an increase in Equipment of $3,500 and a decrease of $1,000 cash). Liabilities (likely in the form of Accounts Payable) will increase by $2,500.
Liabilities and stockholders' equity of a company are $50,000 and $150,000, respectively. Determine assets using the accounting equation.
$200,000 Note: Assets = Liabilities + Stockholders' Equity ($200,000 = $50,000 + $150,000)
Given the following information, determine the amount of Cash on the balance sheet (assume there are only three assets). Liabilities equal $3,050; Stockholders' equity equals $25,000; Supplies equal $1,500; and Land equals $22,500.
$4,050
Equipment with a sales price of $100,000 is purchased at a discount of 10% by Aaron Company. At what value should the equipment be recorded in Aaron Company's records?
$90,000-- Under the cost concept, the equipment should be recorded at the price paid for the asset: $100,000 × 10% = $10,000; $100,000 - $10,000 = $90,000
The process by which accounting provides information to users:
1. identify users. 2. Assess users' information for needs 3. Design the accounting information system to meet users' needs 4. Record economic data about businesses activities and events. 5. Prepare accounting Reports
Service Businesses
A business providing services rather than products to customers.
Which of the following users is not considered an external user of accounting information?
A manager Note: Managers are considered internal users of accounting information.
Public Company Accounting Oversight Board (PCAOB
A new oversight body for the accounting profession that was established by the Sarbanes-Oxley Act.
Manufacturing Businesses
A type of business that changes basic inputs into products that are sold to individual customers.
Merchandising Businesses
A type of business that purchases products from other businesses and sells them to customers.
General- purpose financial statements ( refers to a wide range of decision-making needs that these reports are designed to serve )
A type of financial accounting report that is distributed to external users. The term "general purpose" refers to the wide range of decision-making needs that the reports are designed to serve.
Which of the following skills do accountants need?
Accountants need to be critical thinkers with good decision-making skills.
Sarbanes-Oxley Act (SOX)
An act passed by Congress to restore public confidence and trust in the financial statements of companies.
business transaction
An economic event or condition that directly changes an entity's financial condition or directly affects its results of operations.
Accounting
An information system that provides reports to users about the economic activities and condition of a business.
Business
An organization in which basic resources (inputs), such as materials and labor, are assembled and processed to provide goods or services (outputs) to customers.
Which of the following best represents the accounting equation?
Assets = Liabilities + Stockholders' Equity Note:The accounting equation is Assets = Liabilities + Stockholders' Equity.
Transaction> Accounting Systems> Accounting Equation>
Assets= Liability + Equity
Examples of service businesses is
Delta Air Lines ( Transportation Services ) & The Walt Disney Company ( entertainment services)
Examples of Manufacturing businesses
Ford Motor Co. ( cars, trucks, vans) Dell Inc. ( Personal Computers)
The principles and assumptions that the management of a company uses to record and report its financial information are called
GAAP Note:Generally accepted accounting principles, better known as GAAP, are the principles and assumptions used to record and report a company's financial information.
Which of the following statements about GAAP is not true?
GAAP allows a company's management to record and report data as it sees fit. Note:Financial accountants follow GAAP as a standard set of principles and assumptions that allows investors and other users to compare the financial performance and condition of one company to another.
generally accepted accounting principles (GAAP)
Generally accepted guidelines for the preparation of financial statements. Financial information in the US is based on GAAP
The following data were taken from Reynolds Company's balance sheet: Dec. 31, 2018 Dec. 31, 2017 Total liabilities$240,000$210,000 Total stockholders' equity$160,000 $150,000 Which of the following best explains the change in creditors' risk from 2017 to 2018?
Increased Risk Note : The lower the ratio of liabilities to stockholders' equity, the better able the company is to pay its obligations to creditors and the less risk to creditors. December 31, 2018: $240,000/$160,000 = 1.50; December 31, 2017: $210,000/$150,000 = 1.40. Since the ratio has increased between 2017 and 2018, the creditor risk has increased.
Ethics
Moral principles that guide the conduct of individuals.
Which of these groups was involved in developing the study Charting a National Strategy for the Next Generation of Accountants?
Pathways Commission, American Institute of Certified Public Accountants, and American Accounting Association
Accounting principles and assumptions
Principles that provide the framework upon which accounting standards are constructed.
Which of the following is not accurate when it pertains to managerial accounting?
Provides economic data reports on the operations and condition of the business that are useful for banks and other creditors in deciding whether to lend money to the business Note: Managerial accounting uses both financial accounting and estimated data to help management in running day-to-day operations and in planning future operations.
Certified Public Accountants (CPAs)
Public accountants who have met a state's education, experience, and examination requirements.
Managers and employees must also behave in an ethical manner in managing and operating a business. Otherwise, no one will be willing to invest in or loan money to the business
TRUE
Financial Accounting Standards Board (FASB)
The authoritative body that has the primary responsibility for developing accounting principles ( as well as standards).
Financial Accounting
The branch of accounting that is concerned with recording transactions using generally accepted accounting principles (GAAP) for a business or other economic unit and with a periodic preparation of various statements from such records.
Profit
The difference between the amounts received from customers for goods or services provided and the amounts paid for the inputs used to provide the goods or services.
Public Accounting
The field of accounting where accountants and their staff provide services on a fee basis.
Private accounting
The field of accounting whereby accountants are employed by a business firm or a not-for-profit organization.
assets
The resources owned by a business.
liabilities
The rights of creditors that represent debts of the business.
Accounting standards
The rules that determine the accounting for individual business transactions.
common stock
The stock outstanding when a corporation has issued only one class of stock. (a part of stock holders equity)
Currently, the demand for accountants exceeds the number of new graduates entering the job market.
This is partly due to increased regulation of business caused by the accounting and business fraud
What is the role of accounting in businesses?
To provide information for managers to use in operating the business. Also to provide information to other users in assessing the economic performance and condition of the business
External Users are NOT directly involved in managing and operating the business
True
managerial accounting, ormanagement accounting
Type of accounting that deals with information designed to meet the specific needs of a company's management.
Examples of Merchandising Businesses
Walmart ( general merchandise) Amazon.com ( Internet books, music videos)
Four companies and their ratio of liabilities to stockholders' equity are as follows: Fred Company 0.88 Yabba Company. 0.44 Dabba Company. 1.22 Doo Company. 0.66 To which company would a supplier be most eager to extend credit?
Yabba company Note :The lower the ratio of liabilities to stockholders' equity, the better able the company is to withstand poor business conditions and pay its obligations to creditors.
Which of the following users is not considered an internal user of accounting information?
a supplier Note:Internal users are directly involved in managing and operating a business. Suppliers are considered external users.
The total of the shareholders' rights or claims to the assets of a corporation is called
a.total stockholders' equity. Note:Total stockholders' equity represents the rights or claims of all owners (shareholders) to the assets of the corporation.
GAAP is a collection of
accounting, standards, principles, and assumptions that define how financial information will be reported
Included on the balance sheet are
assets, liabilities, and stockholders' equity. Note: Income and expenses are recorded on the income statement.
Assets of a company may include
cash, inventory, buildings, and equipment. Note:Assets are the resources owned by the business and may include cash, inventory, buildings, and equipment.
The area of accounting that provides external users with information is called
financial accounting
The statement that reports net income or loss for a certain period in time is the
income statement Note:The income statement is a summary of revenues and expenses for a specific period of time, such as a month or a year. If expenses are greater than revenues, a net loss will be reported.
Sensitive information is given to internal users include:
information about customers, prices, and plans to expand the businesses.
External users of accounting information include:
investors, creditors, customers, and governent
What type of company is twitter?
is a service company that provides a platform for individuals to send text massages called tweets.
The business entity assumption is important because
it limits economic data in the accounting system to data directly related to the activities of the business. Note: Under the cost principle, amounts are initially recorded in the accounting records at their cost or purchase price.
Internal users of accounting information include:
managers and employees who are directly involved in managing and operating the business
The objective of financial accounting is to provide relevant and timely information for users _____ of the business
outside
Owner's Equity
owner's right to the assets of the business.
Managerial Accountants employed by a business are employed in
private accounting
Money earned by a business for selling goods or services to its customers represents
revenues Note: Money earned by a business for selling goods or services to its customers represents revenues.
Which of the following statements provides a summary of cash receipts and cash payments for a specific period of time, such as a month or a year?
statement of cash flows Note:The statement of cash flows is a summary of cash receipts and cash payments for a specific period of time, such as a month or a year.
Each of the following transactions affects stockholders' equity except
the purchase of land with cash. Note The asset of (Land) increases assets by the same amount as Cash ( an asset ) decreases. There is no effect on the accounting equation and no change to either liabilities or stockholders equity
All of the following are incorrect as to the rights of creditors regarding a business's assets except
the rights of creditors come before the rights of stockholders. note: The rights of creditors to a business's assets come before the rights of the owners or stockholders. Note: The rights of creditors to a business's assets come before the rights of the owners or stockholders.
Liabilities are
the rights of creditors. Note: The rights of creditors are debts of the business and are referred to as liabilities.