ACC 210- Final Exam

Depletion

allocation of the cost of a natural resource over its service life (identical to the activity-based method of recording depreciation)

Revenues

amount earned from selling products or services to customers

Common Stock

amount paid to purchase stock

Liabilities

amounts owed to creditors (payables)

Allowance for uncollectible accounts

asset account representing the amount of accounts receivable that we do not expect to collect

Tangible Assets

assets in this category include land, land improvements, buildings, equipment, and natural resources

Intangible Assets

assets in this category include patents, trademarks, copyrights, franchises, and goodwill; lack of physical substance

Seperation of duties

authorizing, recording and maintaining control of related assets should be separated (receiving and disbursing cash separate from recording

Sarbanes-Oxley Act of 2002 (SOX)

big scandals resulted in this act; SOX increased accountability of corporate executives, imposed stiffer penalties, provided stricter regulation of auditors and what services they can provide.

Discount

bonds issued below face amount; stated<market

Carrying Value

bonds payable at issue price; if cv increases so does interest expense; if CV decrease, interest expense decreases; the amount actually owed in that period

Retired Bonds

buy back of bonds from the investors (generally bonds are retired at maturity rate)

Interest Expense

carrying value x market rate

Accounts Receivable

cash owed to the company by its customers from sales on account

Leases

contractual arrangement between lessor (owner) and lessee (user) to provide the right to use an asset for a specified period of time

Internal Control

control environment; sets overall ethical tone of company- management philosophy

Expenses

costs of providing products or services

Retained Earnings

cumulative net income that has been retained in business rather than distributed to owners; the earnings not paid out in dividends

NSF checks

customers' checks written on "nonsuffcient funds" otherwise known as bad checks

Dividends

distributions to owners

Unsecured Bonds

don't have a specified collateral

copyrights

exclusive right of protection given to the creator of a published work

Patents

exclusive right to manufacture a product or to use a process

Interest Payment

face amount x stated rate; if a bond is sold at below or above the value that you bought it for then it is going to be that much more or less than the interest payment

Notes Receivable

formal credit arrangements evidenced by a written debt instrument, or note

Journal Entry/ Journal

format used for recording transactions; provides a chronological record of all transactions

Role of Auditors

help ensure that management has in fact appropriately applied GAAP in preparing the company's financial statements; Help investors and creditors in their decisions by adding credibility to the financial statements.

Service life

how long the company expects to receive benefits from the asset before disposing of it

Capitalize

if it increases future benefits

Secured Bonds

if the bond faults you have some security- costs more

Annuity

if we are to receive or pay the same amount each period; ex: monthly payments of car loans, house loans, apartment rent, etc.

General ledger

includes all accounts used to record the company's transactions

return on equity

indicates their ability to generate earnings from the resources that owners provide

Financial Accounting

information provided for external users

Serial Bonds

installment payments over a series of years

Time Value of Money

interest causes the value of money received today to be greater than the value of that same amount of money in the future

Compound Interest

interest you can earn on the initial investment and on previous interest

Simple Interest

interest you earn you earn on the initial investment only; simple interest= initial investment x interest rate x time

Convertible Bonds

investor can convert bond into stock

Capital Leases

lessee buys an asset and borrows the money through a lease to pay for the asset

Operating Leases

lessor owns the assets and the lessee simply uses that asset temporarily; ex: rent expense and rent revenue

Franchises

local outlets that pay for the exclusive right to use the franchisor's name and to sell its products

Bank Reconciliation

matching the balance of cash in the bank account with the balance of cash in the company's own records; timing differences and errors

return on assets

measures the amount of income generated for each dollar invested in assets

Ethics

moral code for evaluating right and wrong behavior.

Impairment

occurs when the future cash flows (future benefits) generated for a long-term asset fall below its book value (the value has really crashed)

Premium

occurs when the issue price of a bond is above its face amount; stated>market

Securities and Exchange Comission (SEC)

only covers public and reported companies- not private companies; the 1934 act gives the SEC power to require companies that publicly trade their stock to prepare periodic financial statements for distribution to creditors and investors

Contra Revenue Account

opposite balance to that of its related revenue account

Book value (CV)

original cost - current balance in accumulated depreciation

Stockholder's equity

owner's claim to resources (stockholders are the owners)

Term Bonds

payment in full at the end of loan term

Balance Sheet

presents the financial position of the company on a particular date

Limited Liability

prevents stockholders from being held personally responsible for the financial obligations of the corporation; shareholders can lose no more that the amount they invested in the company

Posting

process of transferring the debit and credit info from the journal to individual accounts in the general ledger

Recurring Costs

property tax and property insurance; these are expensed; not part of the cost of equipment

amortization schedule

provides a summary of the cash paid, interest expense, and changes in carrying value for each semiannual period

Basket purchases

purchase of more than one asset for one purchase price; for one price, you are buying several things (lump sum)

Stated Interest Rate

rate quoted in bond contract used to calculate cash interest payments

Callable Bonds

redeemable by issuer at specified price

Sales Discount

reduced from the amount to be paid by a credit customer if payment is made within a specified period of time; increases sales volume, accelerate payments, reduce bad debts but reduce cash collected

Default risk

refers to the possibility that a company will be unable to pay the bonds face amount or interest payment as they become due; market rate is based on this

Goodwill

represents the value of a company as a whole, over and above the value of its identifiable net assets; any successful business has goodwill; the only time you will ever see good will on a balance sheet is if someone purchases it

Assets

resources that are expected to provide future benefits

Early extinguishment of debt

retirement of debt before its scheduled maturity

Net Income

revenues - expenses

Issued stock

shares actually sold

Authorized stock

shares available to sell

Statement of Stockholders' Equity

summarizes the changes in stockholders' equity over an interval of time; stockholders equity= common stock+ retained earnings

Future value of a single amount

tells us the value today of receiving some larger amount in the future

Present Value of a single amount

tells us the value today of receiving some larger amount in the future

paid-in capital

the amount invested by stockholders

Residual value (salvage value)

the amount the company expects to receive from selling the asset at the end of its service life

Depreciation

the process of allocating to an expense the cost of an asset over its service life

Discount rate

the rate at which we would be willing to give up current dollars for future dollars

Generally accepted accounting principles (GAAP)

the rules of financial accounting

Credit Sales

transfer products and services to a customer today and collecting payment in the future; aka sales on account or services on account

Market Interest Rate

true interest rate used by investors to value bond issue (the actual market rate right now); the higher the market interest rate, the lower the bond issue price will be

Collusion

two or more people acting together to circumvent internal controls

Bad debt expense

uncollectible accounts expense or provision for doubtful accounts

Angel Investors

wealthy individuals in the business community willing to risk investment funds on a promising business venture

Trademarks

word, slogan, or symbol that distinctively identifies a company, product, or service

Corporation

a company that is legally separate from its owners; have limited liability

Net Revenues

a company's total revenues less any discounts, returns, and allowances; aka net sales

Bonds

a formal debt instrument (a way to borrow money-it is a contractual agreement); borrower repays the principal or face amount, at a specified maturity date; most common form of corporate debt

Trial Balance

a list of all accounts and their balances at a particular date

T-account

a simplified form of a general ledger account

Accounting

a system of maintaining records of a company's operations and communicating that information to decision makers

Basic Accounting Equation

Assets = Liabilities + Stockholders' Equity

Expense

If it benefits only the current period

Statement of Cash Flows

Measures activities involving cash receipts and cash payments over an interval on time. Explains net change in cash during a period; can be classified into three categories (operating, investing, and financing)

Income Statement

Reports the company's revenues and expenses over an interval of time

Redeemable

Shares can be returned to the corporation at a predetermined price

Outstanding stock

Shares held by investors

Cummulative

Shares receive priority for future dividends if dividends are not paid in a given year

Treasury Stock

The corporation's own stock that it reaquired

Auditors

Trained individuals hired by a company as an independent party to verify accuracy of that company's financial statements