accounting midterm

what is created when you owe cash through informal debt

a liability account, ( accounts payable) is created

When an inventory system updates the Inventory account at the time of each sale, this is known as

a perpetual system

an increasing inventory turnover indicates

a shorter time span between the purchase and sale inventory

when revenue is recorded in the period it is earned and expenses are recorded when they are incurred, what basis of accounting are we using ?

accrual basis

conversion agents

add value by transforming basic resources into goods and services that consumers demand

which type of accounting information is intended to satisfy the needs of internal users of accounting information?

managerial accounting

The recognition of cost of goods sold expense in the same period that sales revenue is recognized from the sale of merchandise is a good example of the

matching principle

statement of changes in stockholders' equity

measures performance for a period of time

Physical Resources

natural resources

Financing Activities

obtaining cash from owners or from creditors and paying cash owners (dividends) or creditors

3 major section of the statements of cash flow

operating activities investing activities financial activities

elements of the fraud triangle

opportunity, pressure, rationalization

what entitle investors to share in the distribution of income.

ownership interest

what is not included in cash

a bank certification of deposit for one year

Financial Accounting

accounting information focused on the needs of external users

Managerial Accounting

accounting information focused on the needs of internal users

manufacturing business

makes the goods that they sell to their customers

in order to determine inventory for its balance sheet, it is best for a company to count the inventory at the end of the accounting period for?

both the periodic and perpetual inventory systems

what would be added to the balance per bank statement in a bank reconciliation?

deposit in transit

Accural

describes a revenue or an expense event that is recognized before cash is exchanged

Financial Accounting Standards Board (FASB)

establishes measurement and reporting rules that businesses use to facilitate communication

a net loss occurs when

expenses are greater than revenues

which type of accounting information is intended to satisfy the needs of external users of accounting information?

financial accounting

in which section of a statement of cash flows would the repayment of a note(borrowed funds ) be reported?

financing activities

FOB destination =

free to destination shipper is paying

service businesses

include doctors, attorneys, accountants, dry cleaners, and housekeepers, provide services to their customers

labor resources

include intellectual and physical labor

what follows the matching concept

income statement

which of the financial statements are required by the generally accepted accounting principles (GAAP)

income statements, statements of changes in stockholders equity, statements of cash flow

asset source transaction

increase the total amount of assets and increase the total amount of claims

the purchase of office equipment at a cost of 2,600 with an immediate down payment of 1,200 and agreement to pay the balance within 60 days is recorded in the accounts by:

increasing office equipment for 2,600, decreasing cash for 1,200 and increasing accounts payable for 1,400

what would be added to the balance per book in a bank reconciliation

interest on customer note

what does resource owners include

investors and creditors

Investing Activities

involve paying cash (outflow) to purchase long-term assets or receiving cash (inflow) from selling long-term assets

Operating Activities

involve receiving cash (inflow) from revenue and paying cash (outflow) for expenses

what happens if a company is forced to liquidate

its total assets would be distributed first to creditors , with any remaining amount going to the owners (investors)

if retained earnings decreased during the year and no dividends were paid what happens?

the company experienced a net loss for the year

what does the statement of changes in stockholders equity explain

the effect of transactions on stockholders equity during the accounting period. it starts with the beginning balance in the common stock account and ads or subtracts any changes that occurred during the the accounting period. the statement that also describes the changes in retained earnings for accounting period

the Lifo inventory costing method assumes that the cost of the units most recently purchased is

the first to be assigned to the cost of goods sold

Transaction Analysis

the heart of accounting and financial statement preparation

Generally Accepted Accounting Principles (GAAP)

the measurement rules established by the FASB

liquidation

the process of dividing up assets and allocating them to creditors and investors

at the year end inventory count, if goods are shipped FOB destination they should be included in an inventory count of

the seller

among the assets listed below, which one is considered the most liquid?

-accounts receivable -merchandise inventory -cash -prepaid rent cash

what questions are we trying to answer in the process of the transaction analysis

-what accounts are involved -for each account involved, what type of account is it (assets,liabilities of stockholders equity) -is the account balance increasing or decreasing as a result of the transaction

beta company reported assets of 2,400 and liabilities of 800. what amount will beta report to stockholders equity ?

1,600

Jordan's company borrowed 4,000 cash on June 1,2018. The loan had a one year term and a 6 percent annual interest rate. What is the amount of interest expense that must be recognized on the December 31,2018 income statement

140

asago co. sold 18,000 of merchandise to health co. on account, with terms 2/15, net 45. the cost of merchandise sold was 15,500. Health Co, returned 1,750 for merchandise that originally costed 1,400. Asago credited this return to Health Cos account , which health co paid in full within the discount period. what is the amount of net sales from the above transaction

15,925

Genuine Parts received a promissory note from a customer on March 1,2018. The face amount of a note is 8000, with terms of 90 days and 9% interest what is the total amount of interest that Genuine parts will receive when the note is paid

180

on jan 1,2019. the enid company had beginning balances as follows: total assets of 9,500, total liabilities of 1,500 and common stock of 2,500. during 2019, enid paid dividends to its stockholders of 1,300. given that retained earnings amounted to 8,000 at the end of 2019, what was enids net income for 2019

3,800

during the accounting period revenue amounted to 7,400. cash collections of accounts receivable amounted to 2,300. expenses for the period were 3,000. the company paid dividends of 800. what was the net income for the period.

4,400

Martin uses the perpetual inventory system and FIFO cost flow method. During the year, Martin purchased 400 units of inventory that costs $12 each and then purchased an additional 600 units that costs 16 each. If martin sells 700 units of inventory, what is the amount of cost of goods sold.

9,600

retained earnings at the beginning and ending of the accounting period were 500 and 1000. expenses of 350 and dividends paid to stockholders of 50 were reported during the period. what was the amount of revenues reported in the period?

900

Income Statement

A financial statement showing the revenue and expenses for a fiscal period.

which inventory method assigns the most recent costs to ending inventory

FIFO

FASB

Financial Accounting Standards Board

GAAP

Generally Accepted Accounting Principles

financial accounting standards are known as GAAP. what does the acronym stand for?

Generally accepted accounting principles

asset exchange transaction

Increase one asset, decrease another asset. The total amount of assets is not affected.

claims exchange transaction

Increase one claims account, decrease another. total amount of claims is not affected

which inventory costing method will produce an amount for cost of goods sold that is closest to current market value

LIFO

what action did the U.S. Congress take because of the audit failures at enron, world con and other companies ?

Passed the sarbanes - oxley act

net income =

Revenues - Expenses

the foundation for a company's financial statement is the

accounting equation

what is not a primary role of independent auditor

advise client on tax strategies

accounting equation

assestes = liabilities + stockholders equity

paying employee salaries is an example of which type of transaction

asset use

financial elements defined by the FASB are

assets liabilities equity contributed capital revenue expenses distribution net income

a company issues common stock for cash.What is the effect on the company's accounting equation?

assets and stockholders equity increase

carl and stefanie each invest 15,000 in a business and are given shares of stock in Thibeau industries as evidence of their own ownership interests . for this transaction, identify the effect of the accounting equation

assets increase and stockholders equity increases

the balance in the cash account is reported on which financial statement(s)

balance sheet and statement of cash flows

when a business provides services for cash, which elements of the accounting equation are affected?

cash and revenue

what is not an audit opinion that a company can receive on its financial statement

clean opinion

2 distinct parts equity can also be viewed as

common stock and retained earninga

3 distinct participants for the market for business resources involves

consumers conversion agents (businesses) resource owners

sales discounts is classified as what type of account

contra - revenue

the statement of changes in stockholders equity presents an explanation of the changes in the beginning and ending balances of what two stockholders equity accounts ?

contributed capital ( stock) and retained earnings

Resource owners

control the distribution of resources to conversion agents

what describes "cost of goods available for sale"

cost of goods available for sale is allocated into cost of goods on hand and the cost of goods sold and the end of the fiscal year

which one of the following accounts most likely would appear on the income statement of a merchandising company, but not on the income statement of a service company

cost of goods sold

asset use transaction

decrease the total amount of assets and the total amount of claims on assets

Investors

provide resources in exchange for ownership interests in business .

Creditors

provides financial resources to a businesses on a lending basis.

what do strong internal controls provide

reasonable assurance that the objectives of a company will be accomplished

if the market value of goods in inventory falls to 26,000 below its cost, the company should ?

reduce the inventory account by 26,000

retained earnings

represents assets obtained through the earning activities

common stock

represents assets received from investors

realization

results in collecting cash, generally from the sale of products or services

recognization

results in formally recording an economic event in the financial statements

the income statement generally includes which two elements of financial information?

revenues and expenses

many different forms orginizations exist in

service businesses merchandising businesses manufacturing businesses

Balance Sheet

shows the companys financial condition at the end of each accounting cycle

which of the following would be reported in the cash flow from investing activities section of a statement of cash flows?

sold land for cash

merchandising businesses

sometimes called retail or wholesale companies, sell goods to customers that other entities make

matching concept

states that the income statement matches asset increases ( revenues ) with assets decreasing (expenses ) from operating the buisness

zinc company understated its beginning inventory at the end of 2018. what reflects the effect of the error on the amount shown on the 2018 financial statements?

total assets and gross margin are understated

lew company provided services to a customer for 3,500 cash. what happened

total assets increased and net income increased

the process of buying and selling inventory is known as inventory

turnover

Consumers

use resources

when will accounts payable be romoved from the books

when the amount owed is payed in cash