Accounting 211 Final

net sales revenue

- cos of goods sold = gross profit

at the maturity date of the bonds and after all the interest is paid, the discount on bonds payable account equals

0

GAAP requires assets to be reviewed for impairment

1 a year

future repair work will cost 1000

1000 debit to an expense 1000 credit to a current liability

borrowed 20,000 on a 5 year note

20,000 added to credit side will be added to ending balance eonc rtedit

major actors involved in ensuring the integrity of financial statements of a publicly-traded company

Management SEC PCAOB independent auditors board of directors

long lived asset like equipment

Original cost will not change

in order for accounting information to be relevant

able to confirm past events capable of influencing dwcions

best measure of a companies probability

accrual based net income

in a bank reconciliation, interest revenue earned on the bank account balance is

added to the book balance

EFT cash receipt is

added to the cash balance

accrued revenues

adjusted for amounts earned but not collected

deferred revenues

adjusted for amounts earned collected in advance

allowance method

adjusting entry for estimated bad debts writing off actual bad debts

Straight line method of ammortization

adjusts interest expense for difference bteween its ststaed interest rate and market interest rate evenly allocates the amont of bond premum or discount over each period of a bonds life

adjusting entries are required before financial statements are prepared to ensure that

all expense incurred during the period are recorded all revenues are recorded

adjusting entries are required before financial statements are prepared to ensure that

all revenues earned during the period are recorded all expense incurred during the period is recorded

under the IFRS the cost of a long lived asset is

allocated among the assets significant components and then depreciated separately

GOODWILL

amount paid for a company is greater than its purchased net assets

prepaid rent

an asset and represents rent paid for in advance

steps to the accounting cycle

analyze record in journal post to eldger preapre unadujsted adjust revenues and expenses prepare financial

receives money from issuing shares of 1 par value

assets increase stockholders equity increases

Services provided by CPA firms

assurance services audits tax services management consulting services

ending retained earnings

balance statement of stockholders equity

supplies expense =

balance + purchased - on hand

amount of supplies on hand

balance sheet

prepaid expenses

balance sheet as an asset

lenders or creditors include

banks commercial credit companies suppliers

US GAAP contingent liability is required to

be in the notes of financial statement be report on the balance sheet if the lost will probably occur not be reported if the loss is remote

ending inventory

beginning + purchases - cost of goods

callable bonds can be called for early retiremnet by the

bond issuer

revision of an estimate for straight line

book-new residual/1/remaining life

involuntary disposal

burned in a fire and replaced

adjusting entry for income taxes owed must be recorder

by increasing income taxes payable using adjusted pretax after all other adjusting entries have been recorded

how do accrual adjustments affect liabilities and expenses

can increase liabilities and expenses

two ways to assess a company's ability to internally finance needs

capital acquisition free cash flow

gift cards

cash unearned revenue

direct method summarizes the transactions in the

cash account

short term highly liquid investments such as money market funds or treasure bills are classified as

cash equivalents

working capital increase

cash sales of long term assets sales on account

accounting equation on cash flows statement

change in cash = change in liabilities + stockholders equity - non cash assets

identify various sources of financial information for the investing public

companies websites SEC EDGAR financial analysts

intangible asset is recorded when

company pays more than the net assets trademark

list of items needed to prepare a statement of cash flows

comparative balance sheet complete income statement additional data

advantages to forming as a corporation

continuity of life limited liability ability to raise large amounts of money ease in transferring ownership

corporations have

continuity of life limited liability for its stockhodlers

accumulated amortization

contra asset account similar to depreciation except netted against intangible assets

treasury stock is reported in the financial statements as

contra equity account

interest rate written on a bond is called the

contract coupon nominal stated

institutional investors

control majority of publicly traded shares of US companies

current asset

converted to cash within 1 year

double declining formula

cost - accumulated/(2/useful life)

assets book value is

cost - deprecation

units if production

cost - residual / estimated total production x actual production

straight line method formula

cost - residual/(1/useful life)

gains on the sale of assets are recorded with a

credit

purchase of supplies on account ending accounts payable balance payments of supplies previously purchased on account

credit credit debit

supplies on hand entry

credit supplies debit supplies expense

the entry to record NSF checks per bank statement include

credit to cash debit to receivables

declared cash dividends

credit to dividends payable debit to retained earnings

wages incurred

credit to wages payable debit to wages expense

retained earnings is increased wit

credits

operating acitivities

current assets current liabilities

when recording losses on the sale of fixed assets, loss on disposal is a

debit

debiting and crediting

debit can increases an expense for an account where debit is an increase, credit is a decrease credit will always be a decrease on asset account a debit or credit can increase or decrease and account

____ to an equity accounts causes it to

debit decrease

patent entry

debit to amortization expense credit to patents (accumulated)

journal entry to record a write down of inventory from cost to its lower market value

debit to cost of goods sold credit to inventory

closing entry includes

debit to sales revenue

provides services previously recorded as an unearned revenue

debit to unearned revenue credit to revenue

the closing entry to reduce the sales revenue norma account balance to zero requires the revenue account to be

debited`

increase in a companies dividend yield may be caused by

decrease in the market price per share relative to the dividend

allowance method

decreases net accounts receivable for bad debts

interest expense on bond is tax

deductible

MACRS

depreciation method approved by IRS that yields high depreciation in early years

five revenue recognition criteria

determine price recognize revenue when performance satistied identify performance obligations identify contract allocate the transaction price

technology intangible assets include cost incurred to

develop software develop web designs

benefits of being a shareholder

dividends residual claim voting rights

journal

document that shows effect of transactions chronologically but does not provide account balances

asset turnover ratio

dollars of sales generated for each dollar invest in assets

adjustments ensure that assets report their

economic benefit remaining,g not used up

board of directors

elected by stockholder processes are in place for maintaining integrity

amount purchases on account

ending + payments - beginning accounts payable

Cash t account

ending balance on left decreases on the right increases on left begging in balance on left

forgot to record adjusting entry for some accrued expenses how would this effect stockholders equity

ending retained earnings overstated net income overstated

contingent liabilities

environmental problems future litigation product warranties

accruing a liability involves a

expense liability

higher turnover ratio

greater increase in sales relative to fixed assets used fixed assets more efficiently

quality of income ratio near 1 indicates

high likelihood that revenues are realized in cash and expenses with outflows

declining balance depreciation assings a

higher depreciation expense in the begging years

recorded value of the houses

house/all house prices x total cost

a low strategy _____ the asset turnover, but _____ the profit margin

improves lowers

accrued liability

income taxes incurred but not paid health insurance coverage vacation owed

debits

increase expense accounts are entered on the left side increase asset accounts

what directly improves net profit margin

increase in sales relative to expenses decrease in expenses relative to sales

how do accryal adjustments affect liabilities and increase expenses

increase liabilities and expenses

sold equipment and received more cash than paid for

increase to equity and assets

the book value of bonds payable

increases as a bond sold at a discount is amortized equals the principal at the maturity date decreases as the bond sol at a premium is amortized

specific promises made to bondholders are described in a document called

indenture

goodwill

intangible asset when a company buys another company at a higher value of its net identifiable assets

US Gaap

interest is classified as operating

disadvatanges of issuing bonds instead of stock

interest payments are legal obgliation bonds are riskier than stock interest payments have a negative impact on cash flows

effective interest amoritzation

interset expense = bonds payable book value x market rate of itnerest

periodic system

inventory is recorded at the end

perpetual system

inventory system account updated when purchased

callable bonds

issuing company can pay off bonds at the option of the issuer

company might report negative cash flows from financing activities when

it has paid a large cash dividend to stockholders

if a cost is capitalized

it is recorded as a revenue

expenses are increased on the

left side

interest expenses accrued but not yet paid

liabilities increase stockholders equity decrease

amounts collected in advance of being earned

liability deferred revenue unearned revenue

debt covenants

limiations placed on the issuing company designed to protect the creditor

capitalized costs increase

long lived assets will capitalize asset it its cose are inmaterial

higher cost of goods sold results in a

lower net income, lower income taxes

interest expense on bonds sold at a discount using the effective interest method will equal the

market rate of interest x the book value of the bonds

the objectives when accounting for accounts receivable and bad debts are to____

math the cost of bad debts to the accounting period in which the related credit sales are made report accounts receivable net of the amount the company expects to collect

institutional investors

mutual funds pension funds charitable foundations

contra account

negative account carries opposite balance of the account with which it is paired

dupont analysis breaks down return on assets into two factors

net profit margin total asset turnover

gross profit

net sales - cost of goods

gross profit percentage

net sales - cost of goods / net sales

audit committee

non management, independent financial knowledge

if the market interest rates increase during the life of a bond, the issuer will

not change the amount of interest paid on the bond

companies are required to adopt IFRS, they have to

not use LIFO

adjusted balance in supplies account

on hand at end of period

indirect method affects

operating

free cash flows equation

operating -dividends - capital expenditures

loss and gains on sales or disposal of pant assets must be removed form

operating expenses, do not represent cash inflow

The SEC

oversees financial reporting by us public companies determines the financial statements that public companies must provide

increase to intangible assets

patent franchise another company

separated for cash disbursements

payment approval and check writing electron funds transfer transmittals

adjustment process

prepare an unadjusted record adjusting entries in journal post adjusting to ledger prepare statements record closing entries in journal post closing to ledger

direct method

prepares the operating activities section of the statement of cash flows by restating revenue and expense from the accrual basis to the cash basis

common sized income statemtnq

presents each income statement line time as a percentage of net sales helps to identify changes in expenses relative to net sales

default risk

probability that a bond issuer will not meet the indentures requirements less for investment graded bonds with ratings above BB than for junk bonds

preparing a bank reconciliation

provides a comparison of the bank balance and the cash balance is a sound internal control procedure helps a company to determine the correct cash balance

notes to financial statements may include

purchase commitments possible legal obligations

fraud triangles three conditions necessary for fraud

rationalization opportunity incentive

cash basis

recording when cash is received and expenses on when paid in cash

owners of a corportion are not

responsible for things

stockholders equity

retained earnings from prior dividends declared common stock net income

income from operations

revenues - operating expenses

accounts payable is increased on the

right

retained earnings is increased on the

right

revenues increased on the

right

liabilities appear on the ____ side and are increased on the _____ side

right right

within 30 days

sales on account credit sales

FOB destination. who pays for shipping?

seller

SEC fair disclosure requires publicly traded companies to

share all important company news

which business organizations owner has unlimited liability

sole proprietorship

corporate charter

specifies the number of sahres authorized required before stock is issued specifies the rights and characteristsics of stock

EDGAR

sponsored by SEC provides free access to public companies SEC

amortization

spreads the cost of intangible assets to expense over their useful life straight line in accordance with matching principle

indirect method

starts with net income and adjusts it by eliminating the effects of non cash items

at what government level are corporate charters issued

state

forgot to make adjusting entries to prepaid expenses

stockholders equity overstated assets overstated

forgot to record adjusting entry for revenues earned during period, what is effect on accounting equation

stockholders equity understated assets understated

issue price of bond equals

sum of the present value of the principal and interest payments

least and latest rule

taxpayer should pay the least tax legally permitted at the latest date

revenues earned but not yet collected

total assets will increase and stockholders equity will increase

amounts collected in advance of being earned

unearned revenue a liability deferred revenue

balance sheet

unearned revenue supplies accrued expenses payable

trademarks

unlimited life not amortized

debentures

unsecured bonds

supplies recorded as an expense when

used, regardless of when it was paid for

depreciation expense is an estimate because it is based on the assets

useful life residual

expense recognition principle

when costs are recognized on the income statement

impairment

when the future cash flow expected form using an asset is less than the assets book value