Accounting I Final Study Guide

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Which of the following statements regarding the income statement is true?

The income statement provides information about the profitability and growth of a company.

Accumulated Depreciation

The sum of all the depreciation expense recorded to date for a depreciable asset.

If a company's bonds are callable,

the issuing company is likely to retire the bonds before maturity if the bonds are paying 8% interest while the market rate of interest is 4%.

Notes Payable

when a business borrows money or purchases goods or services from a company that requires a formal agreement or contract.

Accounts payable

when a business purchases goods or services on credit. It is considered a current liability and is expected to be paid from current assets and are due within one year.

A current liability includes obligations that must be repaid

within one year or within the operating cycle, whichever is longer.

A current liability is defined as a commitment or obligation that requires a company to transfer assets, create a new current liability, or provide services to another entity at some point in the future that must occur

within one year or within the operating cycle, whichever is longer.

Par value

an amount printed on each share of stock that establishes a minimum price when issued.

A Premium on Bonds Payable account would appear on the balance sheet as

an increase to a long-term liability.

Current portion of a long-term debt

any payment due within a year from a long-term debt... payments, interest.

Par value represents the

arbitrary amount that establishes a minimum price for the stock when it is first issued

The going concern assumption is concerned with

the company's ability to continue operations long enough to carry out its existing obligations.

Outstanding shares represent the

number of shares that are currently held by stockholders.

Long-term debt generally includes

obligations that extend beyond one year

Accrued liabilities

recognized by adjusting entries at the end of a period, such as wages payable, taxes payable

All of the following accounts have normal debit balances except

service revenue

Interest

stated rate, coupon rate, contract rate, amount the borrowings cost

A convertible bond is one where

the bondholder can convert the bond into common stock at a future time.

Liability

A commitment which arises from a business activity that has already occurred that requires a transfer of assets or providing services to another entity in the future.

perpetual inventory

An inventory determined by keeping a continuous record of increases, decreases, and the balance on hand of each item of merchandise.

The accounting equation may be expressed as

Assets = Liabilities + Stockholders' Equity

What effect does the purchase of office equipment on credit have on the accounting equation?

Assets and liabilities increase

What effect does the payment of employee salaries have on the accounting equation?

Assets and stockholders' equity decrease

Which of the following statements is true concerning assets?

Assets are initially recorded using the historical cost principle.

Which of the assets listed below is considered the most liquid?

Cash equivalents

Current Liability

Due within 1-year or 1 operating cycle. Examples include accounts payable, taxes payable, unearned revenue, current portions of long-term obligations.

Which of the following organizations is primarily responsible for establishing GAAP in the United States?

Financial Accounting Standards Board (FASB)

What is the impact on the accounting equation of recording the accrual of wages expense?

Liabilities increase and stockholders' equity decreases.

A check returned by a bank because the issuer's account balance could not cover the check is called a(n)

NSF check.

Intangible Assets

Patents, trademarks, copyrights, licenses and goodwill. These assets are not physical.

Payroll

Payroll refers to the amount paid to employees for services they provide during a period.

The only essential element of internal control from the following is

Procedures for proper authorization of transactions.

fixed assets

Property, plant, and equipment that are long term, relatively permanent assets such as equipment, machinery, buildings, or land.

Which of the following statements concerning retained earnings is true?

Retained earnings represents accumulation of the income that has not been distributed as dividends.

Short term notes payable

This account is usually used to satisfy an account payable created at an earlier date and can not be paid as an account payable.

Natural Resources

Timberland, coal, oil, natural gas, and gravel are all naturally occurring materials that have economic value.

Bond

Type of note where the payment of principal is done at the end of the time.

When will bonds sell at a discount?

When the stated rate of interest is less than the yield rate of interest at the time of issue

Paid in capital

an additional amount over par value that is paid for stock when it is issued into the market.

periodic inventory

a merchandise inventory evaluated at the end of a fiscal period

What type of questions do the financial statements help to answer?

a.What resources does the company have? b.For what did a company use its cash during the year? c.Is the company better off at the end of the year than at the beginning of the year?

Face value

also known as principal or par value

COGS equation

beginning inventory + purchases - ending inventory

Ending Retained Earnings

beginning retained earnings + net income - dividends

Which internal control activity is followed when the management authorizes only the purchasing department to order goods and services for the company?

clearly defined authority and responsibility

COGS

cost of goods sold

Which of the following accounts is increased by a credit entry?

capital stock

The account that records differences between amounts of cash deposited and amounts from the cash register tapes is called

cash over and short

The current portion of long-term debt would appear on the balance sheet as

current liability

Amounts collected and recorded by a company but not yet reflected in a bank statement are known as

deposits in transit.

Many stockholders choose to invest in preferred stock because

dividends are distributed to preferred stockholders before common stockholders.

Maturity

due dates at some specific time in the future

Which of the following accounts is increased by a debit entry?

equipment

The four basic financial statements are:

income statement, statement of retained earnings, balance sheet, statement of cash flows

Debit entries are used to

increase asset accounts.

Credit entries are used to

increase liability accounts.

Which of the following items would be added to the company's cash balance on a bank reconciliation?

interest earned on the bank account

All of the following accounts have normal credit balances except

inventory

LIFO

inventory accounting in which the most recently acquired items are assumed to be the first sold; method is supposed to create the lowest ending inventory in a period of rising prices. Also create a lower taxable income, lower gross profit.

FIFO

inventory accounting in which the oldest items (those first acquired) are assumed to be the first sold; creates a higher ending inventory and lower cost of goods sold, higher gross profit and higher taxable income.

Unsecured bonds that are relatively risky and, therefore, pay a high rate of interest to compensate the lender for the added risk are called

junk bonds.

A landlord records the collection of a tenant's security deposit as a(n)

liability.

It is important that the petty cash custodian

maintains supporting documentation for all payments made from the petty cash fund.

Bonds sell at a premium when the

market rate of interest is less than the stated interest rate at the time of issue.

Authorized stock represents the

maximum number of shares that can be issued for each class of stock.

Gross Profit

net sales - cost of goods sold

Which of the following is an example of a debit memo?

notice of a bank service charge


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