MBA 6020- Financial and Managerial Accounting

Can all of the stock of a corporation to be owned by a single individual?

Yes

What is a balance sheet aka a financial position?

a listing of the organization's assets, liabilities, and stockholders' equity (often referred to simply as owners' equity) at a point in time.

How is a corporation taxed?

any income distributed to stockholders has been taxed first as income of the corporation and then is taxed a second time as income of the individual stockholders.

What are current liabilities?

are those liabilities that are likely to be paid with cash within one year of the balance sheet date

How is a corporation formed?

by having a charter and bylaws prepared and registered with the appropriate office in 1 of the 50 states.

Financing statements do not including opportunity costs, what are opportunity costs?

economic concept relating to income forgone because an opportunity to earn income was not pursued.

What is a partnership?

essentially a group of proprietors who have banded together.

Net income = revenues - __________________

expenses

What is the matching concept?

expenses incurred in generating that period's revenues be deducted from the revenues earned

What is the financial review?

financial statements themselves, the annual report will probably include several accompanying notes called financing statements

Define depreciation as it relates to accounting.

in accounting is the process of spreading the cost of an asset over its useful life to the entity—it is not an attempt to recognize the economic loss in value of an asset because of its age or use

What is the term for he number of shares authorized by the corporation's charter, the number of shares that have been issued to stockholders, and the number of shares that are held by the stockholders.

Common stock

What are revenues?

Inflows of cash or increase in other assets or the settlement of liabilities during a period.

Accounting equation or balance sheet equation.

It is the equality, or balance, of these two amounts from which the term balance sheet is derived. Assets = Liabilities + Stockholder Equity

What does cash represent on a balance sheet?

Represents cash on hand and in the bank or banks used by company

They have invested funds in the corporation and received shares of _______ as evidence of their ownership.

Stock

It is not unusual for a corporation that wants to expand its operations to form a separate corporation to carry out its plans. In such a case, the original corporation owns all the stock of the new corporation; it has become the "parent" of a ______________

Subsidiary

Stockholder liability is limited to what?

The amount invested. cannot seek relief through the stockholders personal assets

What is an income statement?

The financial statement that summarizes the entity revenues, , expenses, gains, and losses for a period of time and thereby reports the entities result of operations for that period of time

The legal owner of the merchandise, as determined by the shipping terms, is who?

The one who suffers the loss

What is equity?

The ownership rights associated with the asset

What is a major disadvantage of the corporate form of business?

They are taxpaying entities

what is the purpose of the statement of cash flows?

To identify the sources and uses of cash during the year.

Define earned as it relates to revenue.

means that the entity has completed, or substantially completed, the activities it must perform to be entitled to the revenue benefits

Define realization as it relates to revenue.

means that the product or service has been exchanged for cash, claims to cash, or an asset that is readily convertible to a known amount of cash or claims to cash.

What is Conservatism as it relates to accounting?

relates to making judgments and estimates that result in lower profits and asset valuation estimates rather than higher profits and asset valuation estimates

What does accounts payable represent on a balance sheet?

represent amounts owed to suppliers of merchandise inventory that was purchased on credit and will be paid within a specific period of time.

What does long-term debt represent on a balance sheet?

represents amounts borrowed from banks or others that will not be repaid within one year from the balance sheet date

What are the other names for income statement?

statement of earnings, or profit and loss statement, or statement of operations

Define sales.

term used to describe the revenues of firms that sell purchased or manufactured products.

Materiality means what?

that absolute exactness, even if that idea could be defined, is not necessary in the amounts shown in the financial statements (numbers are rounded)

What is a fiscal year?

the annual period used for reporting to owners, the government, and others

what is the purpose of an income statement?

to answer the question "Did the entity operate at a profit for the period of time under consideration?"

What is a subsidiary?

A corporation whose stock is more than 50% owned by another corporation

What does freight prepaid mean?

A freight payment alternative meaning that the freight is paid by the shipper

retained earnings has a negative balance because cumulative losses and dividends have exceeded cumulative net income, this part of stockholders' equity is referred to as an _______ _________ or ______________

Accumulated deficit, or simply deficit.

Financial statements that reflect the financial position, results of operations, and cash flows of a parent and one or more subsidiaries are called what?

Consolidated Financial Statements

What are dividends?

Distributions of earnings that have been made to the stockholders, so these reduce retained earnings.

What are transactions?

Economic interchanges between entities that are accounted for and reflected in financial statements

Net income = Net sales - _____________

Expenses

What might the financial review contain?

Explanations of the accounting policies and detailed information about many of the amounts and captions shown on the financial statements. These notes are designed to assist the reader of the financial statements by disclosing as much relevant supplementary information as the company and its auditors deem necessary and appropriate

What is FOB destination/FOB shipping point?

FOB means free on board and is jargon that has carried over from the days when much merchandise was shipped by boat.) When an item is shipped FOB destination, the seller owns the product until it is accepted by the buyer at the buyer's designated location. FOB shipping point means that the buyer accepts ownership of the product at the seller's shipping location.

What are net sales?

Gross sales (revenues)

What might an annual report include?

Highlights for the year, including net revenues, diluted earnings per share, and return on average stockholders' equity, often appear inside the front cover or elsewhere toward the front of the report. Most firms also include a historical summary of certain financial data for at least the past five years

__________ refers to accountants' desire to have a given transaction recorded the same way in all situations.

Objectivity

What are the categories on a statement of cash flow?

Operating activities, investing activities, and financing activities.

Stockholders' equity is made up of two principal components, what are they?

Paid in Capital Retained earnings

Income earned from partnership activities is taxed at the individual partner level; the partnership itself is not a tax-paying entity. Accountants, attorneys, and other professionals frequently operate their firms as this. What is the title of the business organization?

Partnership

What are the three principal forms of business organization?

Proprietorship Partnership Corporation

What is accrual accounting?

Recognizing revenue at the point of sale and recognizing expenses as they are incurred, even though the cash receipt or payment occurs at another time or in another accounting period

Sales and returns allowances.

Reduction in sales from product returns or adjustments in selling price

What is income from operations?

Represents one of the most important measures of the firm's activities. Income from operations (or operating income or earnings from operations) can be related to the assets available to the firm to obtain a useful measure of management's performance.

What is cost of goods sold?

Represents the total cost of merchandise removed from inventory and delivered to customers as a result of sales.

Shipping terms also describe which party to the transaction is to incur the shipping cost. The _______ incurs the freight cost for shipments made FOB destination; the _______ incurs the cost of shipments made FOB shipping point.

Seller Buyer

What is the name for owners of a corporation?

Stockholders or shareholders

T/F Many firms select fiscal periods that relate to the pace of their business activity.

T

T/F The vast majority of U.S. publicly traded companies now include within their annual reports the entire 10-K report that is filed with the SEC each year.

T

T/F Transactions that affect the income statement also affect the balance sheet

T

To be recognized, revenues must be realized or realizable and earned. T/F

T

What are retained earnings?

The cumulative net income of the entity that has been retained for use in the business

What are shipping terms?

The description of the point at which the title passes from seller to buyer

What is additional paid in capital?

The difference between the total amount invested by the stockholders and the par value or stated value of the stock.

What is a depreciation expenses?

The expense recognized in a fiscal period for the depreciation of an asset

What is the difference between an income statement and balance sheet?

The income statement reports results for a period of time, in contrast to the balance sheet focus on a single date. In this sense, the income statement is more like a movie than a snapshot; it depicts the results of activities that have occurred during a period of time.

What is stockholders or owners equity?

The ownership right of the stockholder(s) of the entity in the assets that remain after deducting the liabilities. (A car or house owner refers to his or her equity as the market value of the car or house less the loan or mortgage balance.)

What do LLPs shield limited partners from?

Unlimited personal liability

What does short-term debt represent on a balance sheet?

amounts borrowed, probably from banks, that will be repaid within one year of the balance sheet date.

Define Accrued liabilities.

amounts that are owed by an entity on the balance sheet date

What do gains and losses result from?

nonoperating activities, rather than from the day-to-day operating activities that generate revenues and expenses.

What are expenses?

outflows of cash or increase in other assets or the incurring of liabilities during a period.

What is the going concern concept?

presumption that the entity will continue to operate in the future—that it is not being liquidated

Define assets.

probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

Define liabilities.

probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events. the amounts owed to the other entities

What is an accounting entity?

refers to the entity for which the financial statements are being prepared. The entity can be a proprietorship, partnership, corporation, or even a group of corporations

What is the cost principles?

refers to the fact that transactions are recorded at their original (historical) cost to the entity as measured in dollars

What does accounts receivable represent on a balance sheet?

represent amounts due from customers who have purchased merchandise on credit and who have agreed to pay within a specified period or when billed by company

What is interest expense?

represents the cost of using borrowed funds.

What does merchandise inventory represent on a balance sheet?

represents the cost to business, of the merchandise that it has acquired but not yet sold.

What does Accumulated depreciation represent on a balance sheet?

represents the portion of the cost of the equipment that is estimated to have been used up in the process of operating the business.

What is paid in capital?

represents the total amount invested in the entity by the owners

What is a Statement of Changes in Stockholders' Equity?

summarizes the changes during a fiscal period in capital stock

What does full disclosure mean?

that the financial statements and notes should include all necessary information to prevent a reasonably astute user of the financial statements from being misled

What is the accounting period?

the period of time selected for reporting results of operations and changes in financial position.

What does freight collect mean?

A freight payment alternative meaning that the freight is payable when the merchandise arrives and is at its destination

What is the easiest way to get started in a business activity?

A proprietorship

Define account.

A record in which transactions affecting the individual's assets , liabilities, stock holder equities, revenues and expenses are recorded.

Financial statements that satisfy the current auditing standard include what? (4)

-Balance sheet (or statement of financial position). -Income statement (or statement of earnings, or profit and loss statement, or statement of operations). -Statement of cash flows. -Statement of changes in stockholders' equity (or statement of changes in capital stock and/or statement of changes in retained earnings).

Accounting principles and auditing standards require that the financial statements of an entity show what for the reporting period? (4)

-Financial position at the end of the period. -Earnings for the period. -Cash flows during the period. -Investments by and distributions to owners (i.e., stockholders) during the period.

What are the disadvantages of a proprietorship?

After the business assets have been liquidated, the owners can too if there is still a debt to be paid. Also, the individual proprietor may have difficulty raising the money needed to provide the capital base that will be required if the business is to grow substantially

What is par-value?

An arbitrary value assigned to a share or stock when the corporation is organized.

A proprietorship is operated by whom?

An individual

How is stockholder equity calculated?

Assets - Liabilities = SE

What is the equation for net assets?

Assets - liabilities = Net assets

What is another name for stockholders equity?

Net assets or net worth

What is Earnings per share of common stock outstanding ?

Net incomes available to the common stockholder divided by the average number of shares of common stock outstanding during a period.

What are current assets?

cash and other assets that are likely to be converted into cash or used to benefit the entity within one year

What are synonyms for cost of goods sold?

cost of sales and cost of products sold.

Because of the equality that exists between assets and liabilities plus stockholders' equity, the total of the changes in every other asset and each liability and element of stockholders' equity will equal what?

the change in cash.

What is the gross profit?

the difference between net sales and cost of goods sold and represents the seller's maximum amount of "cushion" from which all other expenses of operating the business must be met before it is possible to have net income.

What is the annual report?

the document distributed (or made available electronically) to shareholders that contains the reporting firm's financial statements for the fiscal year, together with the report of the external auditor's examination of the financial statements.