Financial Accounting Mid-Term Exam

London Corp. issues 1,000 shares of stock for $20 per share. What are the effects of this transaction?

Cash and common stock are increased

Alex purchases equipment with cash. What accounts are affected?

Cash and equipment

What are some examples of a stockholders' equity account?

Common stock and retained earnings

The two roles of financial accounting are to:

Measure business activities of the company and communicate those measurements to external parties for decision-making purposes

Define 2/10, n/30

Pay an expense within 10 days, receives a 2% discount. Pay an expense after that, must pay full price.

Which financial statement reports revenues and expenses?

Income statement

True or false, the account equation must always remain in balance

True

A journal provides...

A chronological record of all transactions affecting a firm

What is an auditor?

A person hired by a company, NOT an employee, to express a professional opinion of how a company's financial statements are prepared, and to make sure GAAP rules are followed and are free from errors.

To complete the measurement process, companies need to update balances of assets, liabilities, revenues and expenses for __________ entries

Adjusting

Revenue in the income statement for the year ended December 31, 2018 equals the ______.

Amount earned by selling goods or services to customers during 2018

What is the accounting equation?

Assets = Liabilities + Stockholders' Equity

What types of transactions appear on the balance sheet?

Assets, liabilities, and stockholder's equity (ex. accounts receivable, utilities payable, common stock)

When would you use specific identification?

Automobiles with serial numbers, fine jewelry and art.

The financial statement that displays a firm's financial position on a particular date is the __________

Balance Sheet

How do you calculate COGS?

Beginning inventory + net purchases = goods available for sale - ending inventory = COGS

What is the purpose of the "notes" to the financial statements?

Clarify accounting procedures used by a company, as well as divulge information that has occurred during and immediately after the close of the accounting period.

The entries that transfer the balances of all temporary accounts to retained earnings are referred to as...?

Closing entries

According to the conceptual framework, for accounting information to be relevant, what two qualities must it possess?

Confirmatory value and predictive value

A business organization legally separate from its owners is called a(n) __________

Corporation

The form of business organization where an entity is legally separate from its owners and issues shares of stock is a __________

Corporation

The post-closing trial balance checks that total _____ equal total _____ at the end of the period

Debits, credits

The process of allocating the cost of an asset to expense over the useful life of the asset is called...

Depreciation

Define FIFO

First in, first out. First units purchased are the first ones sold.

Define GAAP

Generally Accepted Accounting Principles

What is the purpose of GAAP?

Helps investors to accurately compare financial information among companies when they are making decisions about where to invest or lend their resources.

When are supplies recorded as an expense?

In the period the supplies are used, regardless of when they are purchased.

What is the purpose of a general ledger?

It provides in a single location the list of transaction affecting each account and the account's balance

What does the post-closing trial balance verify?

It verifies that a company prepared and posted closing entries correctly, and that the accounts are now ready for the next period's transactions

Define LIFO

Last in, first out. The last units purchased are the first ones sold.

Debits are on the __________ side of the account

Left

__________ accounting deals with the concepts and methods used to provide information to an organization's internal users

Managerial

Define specific identification

Matches each unit of inventory with its actual cost. Records actual units sold.

What transactions are included in the three main sections of the statement of cash flows?

Operating, investing, and financing activities.

Costs of assets acquired in one period that will be recorded as expense in a future period are referred to as ______ and are initially recorded as _____.

Prepaid expenses, assets

Rent paid in advance and classified as an asset is referred to as...

Prepaid rent

What is the purpose of the statement of cash flows?

Provide information about cash receipts, cash payments, and the net change in cash resulting from the operating, investing, and financing activities of a company during the period.

Define financial accounting

Provides accounting information to external users

Careers for accounting professionals typically include a choice between __________ and __________ accounting

Public, private

What is the primary purpose of adjusting entries?

Record events that have occurred but have not yet been recorded

How do you record revenues and expenses under accrual-basis accounting?

Record revenues in the period that goods and services are provided to customers Record expenses in the period that costs are used to provide those goods and services to customers.

__________ is the price earned from selling goods or services to customers

Revenue

What is deferred revenue?

Revenue earned when a business receives cash in one period, but does not provide all the related goods or services until a later period

An income statement reports...

Revenues, expenses, and net income or loss

What are some examples of temporary accounts?

Revenues, expenses, dividends

What are the four financial statements published to provide information to external users?

Statement of Cash Flows, Statement of Stockholders' Equity, Balance Sheet, and Income Statement

Closing entries move the balances from the __________ accounts into the Retained Earnings account

Temporary

What is the conceptual framework?

The "theory" of accounting. Details basic reasoning underlying the financial statements and financial reporting in general.

After adjusting entries have been completed, the adjusted balance in the Deferred Revenues account represents...?

The amount of sales or services still owed to the customer

Define expenses

The costs of products and services used in the process of generating revenues.

What do FIFO, LIFO, and weighted-average have in common?

They assume which units are sold. They assume a particular pattern of inventory cost flows.

What is the purpose of closing entries?

They transfer the balances of temporary accounts to the balance of the Retained Earnings account

What is the role of an auditor?

To ensure that companies are correctly applying GAAP.

What are the two main functions of accounting?

To measure business activities, to communicate those measurements to investors and creditors so they can make decisions

A list of all accounts and their balances at a particular date showing that debits equal credits is referred to as a __________

Trial balance

After adjusting entries have been completed, the adjusted balance in the Supplies Expense account represents that cost of supplies...

Used during the accounting period

Under cash-basis accounting...

You record revenues when cash is received, and record expenses at the time cash is paid.

The financial statement that is most useful in explaining a company's stock price performance is the

income statement

Define assets

resources owned by a business