Financial accounting basic terms
Summing up account balances to verify that debits equal credits is which step of the accounting cycle?
Unadjusted trial balance
examples of deferred revenue and journal entry
Unearned rental revenue Unearned revenue on a long term service contract Deferred subscription revenue
Three steps to write journal entries
What specific accounts are affected by this transaction Does this transaction increase/decrease the affected accounts Should we debit or credit the corresponding accounts
what are the sources for stock holder's equity
contributed capital (selling new stock) and retained earnings
stockholders' equity equation
stockholders' equity = contributed capital + retained earnings
Balance sheet
Financial position at a particular point in time
Who is responsible for internal reporting
Management is responsible for preparing financial statements. With oversight from board of directors which then hires an independent auditors
What is financial accounting
Standardized reports for external stakeholders
Statement of cash flows
Sources and uses of cash over a period of time
Firm B experienced 30% growth in both liabilities and shareholders' equity. What is the corresponding growth rate for total assets?
30
You commission a luxury yacht from Super Speedy Ships on April 1st, paying them $100 million up front and promising to deliver the remaining $200 million when the yacht is delivered on October 31st. As of June 1st, how much revenue has Super Speedy Ships earned?
0
Firm A logged a net income of $1,200 and paid out $75 in dividends. What was the change in retained earnings?
1,125
What types of reports are there
10-k ( annual report), 10-Q(Quarterly report), 8-k (current report)
We take out a loan of $120,000 at an annual interest rate of 10%. We make zero payments on the principal or interest. How much interest expense do we record at the end of one year?
12000
Firm C holds $80,000 in total assets and $63,000 in total liabilities. What is the residual claim on assets by shareholders?
17,000
On March 1st, Chez Econ snack shop purchases $220 of inventory. On March 31st, some customers purchase $18 of snacks, half in cash and half on credit. How much can Chez Econ record in sales revenue?
18
Which of the following are examples of situations that will require an adjusting entry towards the end of the accounting cycle?
All of these
Once you start a new period, what is the first step in the accounting cycle?
Analyse transactions
What is the fundamental equation in accounting
Assets = Liabilities + Stockholders' Equity
Stock is measured when ?
At one specific time, and represents quantity existing at that point in time
What are required financial statements
Balance sheet, income statement, statement of cash flows and statement of stockholder's equity
What role does firms play in the circular flow diagram
Buy/hire factors of production, use them to produce goods and services. Sell goods and services
Statement of stockholder's equity
Changes in stockholders equity over a period of time
Each of the following situations will result in revenue being recognized in December EXCEPT Bank A leases space to a tenant for the months of December through February for $10,000, all of which is paid up front Bank B receives $30,000 of interests on a loan that it was owed for December but receives the payment in January Company C collects $20,000 in cash in December for goods that were delivered in November None of these
Company C collects $20,000 in cash in December for goods that were delivered in November.
Which of the following is NOT a legitimate journal entry according to double entry bookkeeping? Credit an expense and debiting an asset Crediting revenue and crediting an expense
Crediting revenue and crediting an expense
What is managerial accounting
Custom reporting for internal use
Purchasing inventory with cash requires
Debiting inventory and crediting cash
Which of the following types of adjusting entries is most likely associated with crediting a prepaid asset? Accrued revenues Accrued expenses Deferred expenses Deferred revenues
Deferred expenses
Each of the following situations require utilizing an asset as a "placeholder" for a cash payment that will occur at a different time EXCEPT Deferred revenue Accrued revenue Deferred expense None of these
Deferred revenue
Which of the following should be recognized as a deferred expense? (select all that apply) Prepaid advertising Advance from customers Depreciation Account receivable
Depreciation Prepaid advertising
What are three types of accounting
Financial accounting, tax accounting, and managerial accounting
In our class for circular flow diagram, who played a role ?
Household and firms
What is tax accounting
IRS rules for computing tax obligations
accrued expenses examples and journal entry
Income taxes payable Interest payable Salaries / wages payable
accrued revenue example and entries
Interest receivable Rent receivable
What is accounting
It is a type of information system
What are used to track transaction
Journal entries and t accounts
Identify the account types that carry a normal credit balance. (check all that apply) Revenues Dividends Expenses Liabilities
Liabilities Revenues
A flow variable is measured when ?
Over an interval of time
What role does household play in the circular flow diagram
Own the factors of production, sell/rent them to firms for income and buy and consume goods and services
deferred expenses examples and journal entry
Prepaid rent Prepaid insurance Software license Legal counsel Depreciation or amortization
What does SEC requires you to do
Reporting/filling at regular intervals to be prepared in accordance with Gernally accepted accounting principles or GAAP
Income statement
Results of operating over a period of time
When recognising revenues what is the two thing you must do
Revenues must be earned Revenues must be realised
Who can take legal action if a firm goes against GAAP and who can help uncover them
SEC and media overage, stock analyst reports, institutional investors fleeing, and general public oversight can help uncover them
In accruals, cash flow occurs ?? The expense or revenue is recognized ?
The cash flow occurs AFTER the expense or revenue is recognised
In our class for circular flow diagram what were the two markets
The market for goods and services, and the market for "factors of production"
A liability is recognized when?
The obligation is based on benefits or services received currently or in the past. The amount and timing of payments is reasonably certain
What is factors of production
The resources the economy uses to product goods and services, including labor land and capital
Within a given T-Account, which of the following must be true? The sum of the debits must be negative The sum of the credits cannot be negative The account balance must be zero None of these
The sum of the credits cannot be negative
Across all T-accounts, the sum of debits must ALWAYS equal the sum of credits. True of false
True
When recording a single journal entry, which of the following statements apply? (select all that apply) The sum of debits can differ from the sum of credits Debits are recorded before credits Cash must always be a debit since it carries a normal debit balance Typically credit lines are indented
Typically credit lines are indented Debits are recorded before credits
debits
a left side journal entry
account conservatism
a principle that requires company accounts to be prepared with touch of pessimism all probable losses are recorded when they are discovered, while gains can only be registered when they are fully realized if an accountant has two solutions to choose from when facing an accounting challenge, the one that yields an inferior number should be selected
credits
a right side journal entry
What is circular flow diagram
a visual model of the economy that shows how dollars flow through markets among households and firms
what is intangible assets
abstract assets
Which of the following is an asset account? Treasury stock Notes payable Employment contracts Accounts receivable
accounts receivable
depreciation and why is it special
as an asset is utilized, the "wear and tear" on that asset has an associated replacement cost. They are special because they do not involve any explicit cash outflows.
three fundamental equation of bookkeeping
assets = liabilities + stockholders' equity beginning balance + sum of increase - sum of decrease = ending balance sum of debits = sum of credits
what has normal debit balance
assets and expenses
Which of the following financial statements gives a ``snapshot'' of the firm at a particular point in time? Income statement Statement of shareholders' equity Statement of cash flows Balance sheet
balance sheet
salvage value
because literally calculating the depreciation value is almost impossible we estimate resale value which is
typical current assets
cash, marketable securities, accounts receivable, notes receivable, interest receivable, inventory, prepaid expenses
revenue recognition SEC criteria
collection probability, delivery is complete, persuasive evidence of an arrangement, the price can be determined
accrued revenue what it is it and when do you use it
create a new account balance to reflect unrecorded assets or liabilities. have any revenues been captured during the period that have not yet been recorded
accrued expenses what it is it and what is the question you should be asking when using it
create new account balance to reflect unrecorded asset or liabilities. have any expenses been incurred during the period that have not yet been accounted for
If a company announces that it will pay dividends out in the next accounting period, this will require which of the following journal entry operations at the time of announcement? (check all that apply) Crediting dividends payable Debiting dividends Crediting cash Debiting retained earnings
crediting dividends payable debiting retained earnings
if an account carries normal credit balance
debit transaction will decrease the account balance credit transaction will increase the account balance
if an account carries normal debit balance
debit transaction will increase the account balance credit transaction will decrease the account balance
four categories of adjusting entries
deferred revenues deferred expenses accrued revenues accrued expenses
qualities of tangible assets
depreciation should be accounted for, the expense should be amortized, the accumulated depreciation is also tracked office equipment, hardware etc
Which of the following is NOT one of the three main branches of accounting? Derivative Financial Managerial Tax
derivative
changes in retained earnings are driven by what
difference between net income earned from operating in a given period less dividends paid out to investors during that same period changes in retained earnings = net income - dividends
qualities of intangible assets
do not depreciate because there is no physical "wear and tear", lump sum cash outlflow expense are still amortized in accordance with the matching principle. software license, consulting service
condition for revenues are recognized in accural accounting
earned and realized
cash basis
entails recording revenues and expenses only when money is received and paid out respectively
accural basis
entails recording revenues and expenses only when they are earned and incurred
rules for debit and credit entries
every transaction must have at least one debit and at least one credit debits must equal credits for any given transaction only none negative numbers allowed
What are the two types of markets in the circular-flow diagram? (select all that apply) Factors of production Households Firms Goods and service
factors of production goods and services
t account
formal record of all changes in an accounting quantity
accural accounting are recognized when
goods and services are provided, not necessarily when payment is received and must apply the revenue recognition criteria
account balance
is just the difference between the sum of debits and sum of credits for the account
matching principle
is the idea that the expense should be matched with the business activity it is most closely related to
When is asset recognized
it is acquired in a past transaction or exchange the value of its future benefits can be measured with a reasonable degree of precision
typical long term assets
land, buildings, equipment, accumulated depreciation, investments, notes receivable, intangible assets (patents)
what has normal credit balance
liabilities, shareholder's equity and revenues
net income formula
net income = revenues - expenses
Which of the following is NOT an information intermediary? (select the single best answer) The press The public Financia analysis None of the above
none of the above (they are all information intermediaries)
what is tangible assets
physical assets
retained earnings equation
prior retained earnings + net income - dividends
where is depreciation deducted in
recorded in a contra assets account (XA) called accumulated depreciation
expenses are recognized when
related revenues are recognized or incurred if difficult to match with revenues
What is Assets
resource that is expected to yield some future economic benefit by either increasing future cash inflows reducing future cash outflows
amortization
the process of "spreading out" a lump sum payment into a stream of payments is known as
normal balance
the type of account balance (debit or credit) carried by a particular account under regular circumstances is often referred to as
adjusting entries is what type of transaction and must confirm with what
they are internal transaction that updates account balances before the conclusion of the account cycle, and must confirm with the accrual principles discussed with respect to recognizing revenues and matching expenses
deferred revenue what it is it and when do you use it
to update existing account balances to reflect current accounting values. Updating any liabilities that have been fulfilled by delivery of goods or services that should be recognized as revenue
deferred expenses what is it and when do you use it
update existing account balance to reflect current accounting values. assets that have been "used u" this period and should be recognized as an expense
Who established GAAP, where do they delegate to
us congress and delegates to SEC, which delegates to FASB