A304 first exam
measurable obligations form a past transaction that are expected to be settled in the future by transferring assets or providing services
liabilities
expense recognition principle
(matching principle) expenses incurred to generate revenues be recognized in the same period (recorded as incurred, regardless of when cash is paid)
multiple-step income statement
A form of income statement that contains several sections, subsections, and subtotals. (income from operations; income before income taxes)
The two equalities in accounting that aid in providing accuracy.
A=L+OE credits=debits
accounting equation
Assets = Liabilities + Owner's Equity
Four periodic financial statements.
Income Statement Stockholders' Equity Statement of Cash Flows Balance Sheet
revenue recognition principle
Record revenue in the period in which it's earned (performance obligation is satisfied) not when cash is received from customers
record the $4000 repurchase of common stock for cash
Treasury Stock - debited Cash - credited
general ledger (or T accounts)
a record of effects to and balances of each account $ amounts from journal entries are copied to the appropriate accts. in ledger so acct. final balances can be totaled
deferred expenses
adjusted for amounts used that were paid for in advance ex: prepaid expenses like insurance
deferrals
cash received or paid before revenues have been earned or expenses have been incurred cash was received or paid in the past
general journal
chronological of each transaction's effects on each account shows the accts debited along w/ corresponding credited
two issues of principal/agent
conflicting incentives information asymmetry (one party has more information than the other)
The closing process requires ________. crediting the expense accounts debiting the revenue accounts debiting retained earnings when there is a net loss crediting the revenue accounts debiting the expense accounts crediting retained earnings when revenues are greater than expenses
crediting expense accounts debiting the revenue accounts debiting r/e when there is net loss crediting r/e when revenues > expenses
creditors vs shareholder
creditors: interest included in loan; preference for payment in liquidation (when co. is bankrupt); no voting rights (still has influence) shareholder: dividends; higher future stock prices; voting rights (on CEOs--Elizabeth Holmes)
______ is the process of allocating the cost of buildings, vehicles, and equipment to expense over time as they are used
depreciation
What is the purpose of the depreciation adjustment for long-lived assets?
depreciation allows the company to allocate the cost of an asset over the years the asset benefits the company
every transaction has at least two effects
double entry
accrued expenses
expenses incurred but not yet paid in cash or recorded adjusted for amounts incurred but not yet paid
results of transaction analysis in accounting format
journal entry
ordered $2000 of equipment (once you receive the equipment, then you record Equipment increase and Cash decrease)
no journal entry needed
which action is done to update account balances? - jouranling entries - recording - posting - analyzing
posting
principal-agent problem
principal (shareholders) delegates authority and responsibility to an agent (managers) and interests of the two are in conflict
information presented must be
relevant to the decisions faithful representation of the economic substance of the company's activities
Accrual adjustments to record amounts earned but not yet collected include a credit to a(n) ________ account
revenue
accruals
revenues earned or expenses incurred before cash has been exchanged cash will be received or paid in the future (earning of revenues and incurring of expenses occurred prior to the cash changing hands)
accrued revenues
revenues for services performed but not yet received in cash or recorded adjusted for amounts earned, but not yet collected
creditors
suppliers who sell things on account (if company goes out of business creditors would have first claims to their assets before stockholders do)
Closing entries move the balances from the Blank______ accounts into the Retained Earnings account.
temporary
deferred revenues
when a company receives cash in advance from a customer for products or services to be provided in the future adjusted for amounts earned that were collected in advance