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