Accounting Chapter 2 pages 10-21

Property, Plant, and Equipment

Following the current assets is typically the _________ These are the fixed assets the company owns.

outright

For all of the assets of a company, the company either owns them _____ (meaning no debt is associated with these assets) or owes something on them (has a debt)

accrual

IFRS and GAAP require ________ accounting because it gives a more accurate picture of the results of the company's operations.

stockholders equity

In a corporation, the owners are those who hold company stock, and they are called the "stockholders" or "shareholders". In corporations, the equity accounts are called _____. This can always be divided into at least two categories: common stock and retained earnings.

notes

In addition to the four basic financial statements mentioned above, every complete financial report will also include _______. These have additional data to supplement the information in the formal statements. The purpose of this to give the reader additional information which does not have a place on the formal statements. There is no prescribed format for this, but they should be clear to a reader who is not familiar with the company.

Prepare the Income Statement first, then the Statement of Retained Earnings, and then the ending Balance Sheet. You must do it in this order to balance the ending Balance Sheet.

In this way, these three statements are tied together. Because of this, it is important that, when preparing these three statements, always do what ?

double underlined

Notice that at the end of the listing of assets is the total of all the company's assets, and this figure is usually _____

liquidity

Notice the asset accounts are typically listed first and are usually listed in their order of _____. The liquidity of an asset is a measure of how fast it is expected to be converted into cash.

invoice

Often these companies (the selling companies) will send an _______ at the end of the period. This____ is a listing of all charges the purchaser made during the period and the total amount now due to the seller

cash basis of accounting

Opposing this is the ________________, which means that revenue is recorded only when cash is received. While many small companies use this, all publicly-held and many privately-held companies are required to use the accrual method.

accrual method of accounting

Recording revenue when it is earned regardless of when cash is received is called the _________?

long-term liabilities

below current liabilities is _________those debts which are not expected to come due within the next 12 months. At the end of the liability section is a total of all liabilities (all debts) the company owes

in balance

The Balance Sheet is ___________ when total assets equal total liabilities plus stockholders' equity.

Assets = Liabilities + Equity

The Balance Sheet is based on the accounting equation:

Balance Sheet

The ______ is prepared as of a certain date and gives the company's status as of that date.

Balance Sheet

The _________ is the backbone of accounting. This financial statement ties the company's records together and gives readers outside the company a picture of its status.

Statement of Cash Flows

The _________ is the fourth financial statement. It does not tie into the other statements, so it can be prepared at any time, although it is often done at the same time as the rest of the Statements. It is a reconciliation that takes the reader from the beginning cash to the ending cash by adding in cash receipts and subtracting out cash payments made during the period.

double-entry bookkeeping

The accounting system is based on the concept of ________________ This term means that there are always at least two entries for each transaction of a business. This concept is crucial to keeping the accounting equation in balance. The _______system is based on the concept that, for every transaction, there are at least two accounts impacted by that transaction and therefore must be adjusted to correctly state the company's books

net income or net loss

The amount that is left after expenses have been deducted from revenues is called either ______(if it is a positive figure) or ________ (if it is a negative figure). Other names for net this are "net profit" or just "profit" as well as "earnings".

liabilities and stockholders' equity

The bottom half of the Balance Sheet is the right-hand side of the accounting equation: ?

intangible assets

The last category of assets is "______. The term _____ means that the asset has no physical substance. You cannot touch or feel it. Examples of this are patents, copyrights, trademarks, and goodwill.

equity

The remaining category of a Balance Sheet is _____. _______ is a measure of the portion of a company's assets that are owned outright, meaning that the company does not owe for this portion of its assets

total assets

The total liabilities plus the total stockholders' equity should equal the ?

the stockholders' equity section

The total of ending retained earnings and the common stock account make up _____________ of the Balance Sheet

It is an approximation of the portion of the assets that belong to the stockholders, who are the owners of the company.

The total of the stockholders' equity section of the Balance Sheet is important because _______?

Statement of Cash Flows

The_________ is different than the other three statements in that this is the only Statement prepared on the cash basis. It is necessary to use the cash basis for this Statement because it is the cash account that is being analyzing

-the Income Statement always covers a period of time - is that at the end of the period, the numbers on the Income Statement are eliminated, and the starting figures on the Income Statement for the next period are zero.

There are two concepts to be aware of regarding the Income Statement. One is that _________. It reports the net income the company earned over a period of time, such as over a month, a quarter, or a year and _____?

current and long-term

There are two kinds of liabilities: _____ & ________ .

matching

This is the accounting convention known as ______, which means that expenses are shown as deductions from the associated revenue.

Common stock

To be an owner of a corporation, an investor must purchase shares of stock. _____ is the name of the basic type of stock that all corporations must have.

revenues

Under both GAAP and IFRS the______ shown on the income statement are the total amount earned from the sales made during the period, whether or not cash was received.

Beginning retained earnings +Net income (or minus net loss) -Dividends =Ending retained earnings

What is the Retained Earnings equation?

The purpose of this Statement is to show the changes that have occurred in this important account during the period.

What is the purpose of the retained earnings statement ?

Cash, beginning of period +/- Operating cash flows +/- Financing cash flows +/- Investing cash flows Cash, end of period

What is the state of cash flows equation?

"outstanding"

When stock is issued and in the hands of investors, it is called _________. Investors may sell the shares to other investors, but this action is independent of the company. The company only receives payment when it originally sells the stock, and it is this transaction that is recorded on the company's books

assets, liabilities and equity

You can think of_____ as what the business owns, ______ are what the business owes, and _____ is the portion of the assets that the company owns outright

Expenses

______ are amounts that were used up during the period in order to generate the revenue. There is a wide array of this, including such things as the cost of products sold, payroll, insurance, taxes, utilities, rent, and supplies

Current liabilities

______ are debts that expected to become due within one year of the Balance Sheet date. This category includes accounts such as accounts payable, wages payable, and utilities payable.

Retained earnings

______ are the total profits of the company (minus any losses) and minus any amounts that have been paid to stockholders over the lifetime of the company.

Assets

______ are usually divided into one of four types: current assets, long-term investments, fixed assets, and intangibles

Long-term liabilities

________ are amounts that the company expects it will not need to pay until after one year from the date on the Balance Sheet. Examples of these are notes payable (which typically are loans from a bank) and bonds payable

Current assets

________ include cash and other assets that are expected to be converted into cash (or used up) in about one year or less from the Balance Sheet date. Common______ accounts include items such as cash, accounts receivable, inventory, and prepaid items, such as prepaid insurance or prepaid rent.

Revenues

_________ are amounts the company earns by doing what it is in business to do. This could be the fee income that comes from selling a service, such as is done by medical practices or law or accounting firms. Or, it could be from the sales associated with buying a product and reselling that same product for a higher price, such as is done by a retailer

Long-term investments

_________ are assets purchased by the company to be held as an investment. These assets are not to be used in the operations of the business. Common examples of this are stock investments and bond investments

Fixed assets

__________ (also called "Property, Plant, and Equipment") are assets that are purchased by the business to be used in its operations but are expected to last longer than one year and are not to be resold in the ordinary operations of the business. Examples of this are equipment used in the operations of the business, buildings used by the business, and the land on which the building sits.

Retained earnings

______________ is the earnings of the company (since it has been in business) that have been retained in the business, which means that they have not been paid to the stockholders as dividends

current assets

_________is assets that are expected to either be used up or converted into cash within about one year, so the ______ are listed at the top of the assets. Cash is usually listed at the top of the _____ since it is the most liquid of all assets.

Current liabilities

_______are those debts that are expected to be paid within one year, and typically they are listed first.

1) Balance Sheet 2) Income Statement 3) Statement of Retained Earnings 4) Statements of Cash Flows

According to both GAAP and IFRS, every company has to present four financial statements at least once a year. These are? (4 things)

stockholders' equity

After liabilities is the _________ section of the Balance Sheet.

That you have balanced every entry for every transaction you recorded. It also means that your math is correct on all of the statements.

An ending Balance Sheet that is in balance is always a good thing, but it doesn't mean that you have done everything perfectly. It does mean that what?

Balance Sheet

Another concept about the Income Statement that differs from the __________ is that at the end of the period, the numbers on the Income Statement are eliminated, and the starting figures on the Income Statement for the next period are zero.

1) Income Statement, (2) Statement of Retained Earnings, and (3) Balance Sheet. The Statement of Cash Flows can be prepared at any time.

At the end of the period when "financial statements" are required to be prepared, it is the Balance Sheet, Income Statement, Statement of Retained Earnings, and Statement of Cash Flows that must be produced. Remember that the first three must be done together and the order must be what?

snapshot

Balance Sheet is a picture at a point in time. Because of this, it is called a _____ of the business. It has this title because it is a listing of the assets, liabilities, and equity of the business at a specific point in time. The Balance Sheet is prepared at the close of business typically on the last day of the month, quarter, or year.

incurred

Both GAAP and IFRS require any expenses that were _________ during the period to be recorded on the Income Statement in that period. An expense is ___________ when it is used up.