ACCT 200 - Test 1 (Reading Notes)

_______: "lender", people or businesses who have lent money to another entity (like a business or individual). They are motivated by the hope of the return of the money plus a bit extra. This bit extra is called ______.

-Creditor ; interest

______: The process or system which provides the people giving out cash with historical financial and economic information

Accounting

______: when the revenue or expense precedes the associated cash flow

Accrual

______ _______ _______: shows the ending account balances for all ledger accounts once the adjusting entries have been completed

Adjusted trial balance

______ _______: those entries which assign revenues and expenses to the correct period when no trigger even has caused them to be recorded during the period

Adjusting entries

______: the economic resources which are expected to be of some future benefit to the business (ex. Cash, merchandise waiting for sale, buildings, equipment)

Assets

What is the fundamental accounting equation?

Assets = Liabilities + OE

_____ ______: this report lists assets, liabilities, and owners' equity at a specific point in time

Balance sheet

______: cash or other things of value

Capital

What is the basis for the statement of cash flows under the direct method?

Cash T-account

Which type of accounting gives a better representation of what is really going on in a company?

Cash accounting is not always a good representation of reality when a company does non-cash business. Accrual accounting gives a more accurate representation.

_____ __ _____: this is how companies keep track of the accounts that they have created. It's a list of the accounts, each assigned a unique number

Chart of accounts

_______ continue to operate as legal entities regardless of the specific ownership

Corporations

______: when the revenue or expense follows the associated cash flow

Deferral ; (the cash payment has occurred but booking the revenue or expense will be deferred until later)

________: this represents the consumption of assets which have longer lives than prepaid expenses

Depreciation

______: A payment to the owners of a corporation that provides a return on their investment (Decreases R/E)

Dividends

How are liabilities defined?

Economic claims against the business assets which can be made by parties outside the business.

_____ _____: Only expenses that benefit the entity in question would be recorded by the accounting system

Entity concept

______: The using up of an asset owned by a firm or the receipt of a service from another entity

Expense

______ _______ ______ ______: the group which presently creates accounting standards

Financial Accounting Standards Board (FASB)

______ _______: these are the primary source of information for investors, regarding investment decisions. They are the set of documents which result form the accounting process

Financial statements

______ ______: this is a record of both the debits and the credits associated with each specific transaction kept in chronological order

General journal

What financial report summarizes the revenues and expenses of a company during a specific period of time?

Income statement

_____ ______: this summarizes the revenues and expenses during a particular period of time.

Income statement

How is net income defined?

It is the Revenues - Expenses for a given period of time

________: refers to how rapidly an asset can be converted to cash or how soon a liability will have to be satisfied

Liquidity

What is the basis for the statement of cash flows under the indirect method?

Net income

______ ______: refers to the side, either debit or credit, where increases in the account are generally found

Normal balance

_______: this is the process of transferring the information in the journal to the appropriate ledger accounts

Posting

_____ ______: Net income of the firm, over the life of the firm, minus the sum of all the dividends paid out

Retained earnings

______ : When a company provides a good or service to another (effects retained earnings)

Revenue

______ ____ ______ ______: they were created to regulate the sales of any type of investment which is sold to a large number of unrelated individuals

Security and Exchange Commission (SEC)

______ _______ ______ ______: this is the assumption that inflation is so small that it can be safely ignored when doing accounting evaluation. (allows investors to compare financial results over different time periods)

Stable monetary unit concept

____ ___ ____ _____: This shows what has happened to cash during a specific period of time

Statement of cash flow

What financial report provides a synopsis of changes that impacted retained earnings during a period?

Statement of changes in retained earnings

Is dividends a temporary or a permanent account?

Temporary (along with revenues, expenses, and income summary

How are the adjusted trial balance and the closing trial balance different?

The closing trial balance looks a lot like the adjusted trial balance, except that retained earnings has been updated for this period's net loss and all the revenue/expense accounts have been reduced to zero

_____ _____ _____: businesses can and should report economic information on a regular periodic basis

The periodicity concept

What is posting?

The process of transferring information in the journal to the appropriate ledger accounts

In a corporation, do the stockholders have any say in the operations of the company?

The stockholders have no power over the operation of the company other than the election of the board members

How are assets defined?

They are economic resources that are expected to be of some future benefit to the business

_____ ______: a listing of the ending debit and credit balances for all the company's accounts

Trial balance

What is the difference between account receivable and note receivable?

With note receivable, there is a written document

______ _______: this is the difference between current assets and current liabilities

Working capital

Reversing entries are most often associated with ______ and are meant to reverse the associated _____ ______.

accruals ; adjusting entries

________ ________: an account that keeps track of all the depreciation which has occurred for the equipment over the time that it had been owned in the company

accumulated depreciation

these are classified according to whether they precede or follow the actual cash flow associated with a revenue or expense

adjusting entries

Prepaid expenses are categorized as ______ and also a ______

asset ; deferral

The date in the heading of a _____ ______ is a specific date, not a time period

balance sheet

Owners Equity consists of .....

common stock, dividends, and retained earnings

______ ______: when accounts have the opposite normal balance

contra-accounts

Double taxation is a drawback to the _______ form of ownership.

corporate

As a separate legal entity a ______ exists apart form its owners and has the right to buy and sell property, enter agreements, etc.

corporation

the _________: the most complex form of ownership because it involves creating a separate legal entity; they are the most common form of ownership for large businesses.

corporation

Although dividends decrease retained earnings, they are never .....

counted as an expense

Liabilities increase as ______

credit

Assets increase as ________

debit

This consumption of long-lived assets is called _______ _______

depreciation expense

Investments are normally in the form of _____ or _______ or ______ _______

loans ; acquisition ; ownership rights

The balance in the income summary account at the end of the period is the ______ _______

net income

The income statement contains the company's _____ _____

net income

Balance sheet accounts are called ______ _______ and are cumulative in nature and need to be maintained from one period to the next

permanent accounts

Types of deferrals include ______ ______, _______, and ______ _______

prepaid expenses, depreciation, and unearned revenue

Small retail enterprises; your local dentist, doctor, or lawyer are all examples of _________

proprietorships

Dividends are closed to _____ ______

retained earnings

The off-setting entry to the closing of income summary is found in _______ ________

retained earnings

Balance sheets do not list _____ and ____ accounts

revenue ; expense

At the end of a period we close the ______, _______, and ________

revenue, expense, and dividends

The owners of a corporation, who are called _______, own a specific portion of the company depending on their number of ______

shareholders ; shares

Ownership interest in a corporation is indicated by _____ __ _____

shares of stock

The income summary account is viewed as a _______ account which must be closed.

temporary

All accounts associated with the income statement are _______ and are closed to ______ _______

temporary ; income summary

What is the difference between a balance sheet and a trial balance?

trail balances list ALL of the accounts and their specific debit or credit balances --- balance sheets do not list revenue and expense accounts