Accounting 4a final "review"

Forms of business ownership

*Proprietorship- owned by one person liable for all debts *Partnership- two or more ppl, unlimited personal liability *Corporation - divided into shares of stock,

Ethics are the standards of conduct by which one's actions are judged as:

*Right or wrong *Honest or dishonest *Fair or not fair

Trademark

*Word, phrase, jingle, or symbol that identifies a particular enterprise or product. *Has legal protection for indefinite number of 10 year renewal periods

Reported in retained earnings statement

*cash and stock dividends. *net income and net loss. *some disposals of treasury stock below cost.

FOB shipping point

*seller places goods Free On Board the carrier. *Title transfers to buyer at sellers shipping dock *buyer pays freight costs

FOB destination

*seller places the goods Free On Board to the buyer's place of business. *Tittle transfers to buyer at buyers receiving dock *sellers pays freight costs

Current liability

: Company pays debt w/in 1 yr or <

Accounts receivable

Amounts owed by customers that result from the sale of goods and services.

Basic accounting equation

Assets=liabilities + stockholders equity

Which of the following financial statements is prepared as of a specific date?

Balance sheet.

Depreciation

Buildings, equipment, and vehicles (long-lived assets) are recorded as assets, rather than an expense, in the year acquired.

Transactions

Business economic events recorded by accountants

Which of the following statements correctly describes the reporting of cash?

Cash is listed first in the current assets section.

Liabilities

Claims against assets (debts and obligations) Creditors - party to whom money is owned Accounts payable notes payble

Note receivable

Claims for which formal instruments of credit are issued as proof of debt

The Sarbanes-Oxley Act

Companies must develop principles of control over financial reporting

A business organized as a separate legal entity under state law having ownership divided into shares of stock is a

Corporation

Understanding ending inventory will overstate

Cost of goods sold

Inventory turnover equation

Cost of goods sold / average inventory

Accounts having credit balance

Credits are greater than Debits,

Working capital Equation

Current assets -current liabilities

Consignee

Custody

Days in inventory

Days in year (365)/ inventory turnover

Accounts having debit balance

Debits are greater than Credits,

Operating Activities

Determine net cash provided/used by operating activities by converting net income from an accrual basis to a cash basis.

Electronic Funds Transfers

Disbursement systems that uses wire, telephone, telegraph, or computers to transfer cash balances between locations

Double-entry accounting system

Each transaction must affect two or more accounts to keep the basic accounting equation in balance. •DEBITS must equal CREDITS.

Deferrals

Either Prepaid expenses or Unearned revenues.

Patents

Exclusive right to manufacture, sell, or otherwise control an invention for a period of 20 years from the date of the grant

The cost flow method that often parallels the actual physical flow of merchandise is the

FIFO method

Employer payroll taxes include:

Federal unemployment taxes State unemployment taxes. FICA taxes

Copyrights

Give the owner the exclusive right to reproduce and sell an artistic or published work like plays ,music works,pictures. Granted for the life of the creator plus 70 years

Goodwill

Includes exceptional management, desirable location, good customer relations, skilled employees, high-quality products, etc.

Patents and copyrights are

Intangible assets.

In a period of inflation, the cost flow method that results in the lowest income taxes is the

LIFO method

Which of the following is not a long-term liability?

Long-term notes payable

Which of the following statements about small stock dividends is true?

Market value per share should be assigned to the dividend shares.

Purchase Allowance

May choose to keep the merchandise if the seller will grant an allowance (deduction) from the purchase price.

In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting:

Merchandise Inventory

Earring per share

Net income/ number of common shares outstanding

Other receivable

Nontrade" (interest, loans to officers, advances to employees, and income taxes refundable

Current Liabilities

Obligations the company is to pay within the coming year ;notes payable first, followed by accounts payable

To be classified as a current liability, a debt must be expected to be paid:

Out of existing current asset and by creating other current liabilities

ConsignOr

Owner

Stockholders equity

Ownership claim on total assets Paid in capital

Which is an example of a cash flow from an operating activity?

Payment of cash to lenders for interest.

Perpetual System

Purchases increase Merchandise Inventory

Periodic System

Purchases of merchandise increase Purchases

Which is an example of a cash flow from an investing activity?

Receipt of cash from the sale of equipment.

The account

Record of increases and decreases in a specific asset, liability, equity, revenue, or expense item. Debit = "Left" Credit = "Right"

Asserts

Resources business owns ( cash, supplies, equipment)

Purchase Return

Return goods for credit if the sale was made on credit, or for a cash refund if the purchase was for cash.

Unearned Revenue

Revenues that are received before the company delivers goods or provides services

Under the equity method, the investor records dividends received by crediting:

Stock Investments.

Goods in transit should be included in the inventory of the buyer when the:

Terms of sale are FOB shipping point

Accrual-Basis Accounting

Transactions recorded in the periods in which the events occur Revenues are recognized when earned, rather than when cash is received Expenses are recognized when incurred, rather than when paid.

Petty Cash Fund

Used to pay small amounts like establishing the fund, making payments from the fund and replenishing the fund.

An event related to an investment in debt securities that does not require a journal entry is:

a change in the name of the firm issuing the debt securities.

Liquidity

ability to pay obligations expected to be due within the next year.

In the stockholders' equity section, Common Stock Dividends Distributable is reported as a(n):

addition to capital stock.

Accounts that normally have debit balances are

assets, dividends, and expenses.

Working capital is calculated as:

current assets minus current liabilities.

The reconciling item in a bank reconciliation that will result in an adjusting entry by the depositor is:

d. bank service charges

The use of prenumbered checks in disbursing cash is an application of the principle of:

documentation procedures

Permitting only designated personnel to handle cash receipts

establishment of responsibility

Pension funds and banks regularly invest in debt and stock securities to:

generate earnings.

Monetary Unit Assumption

include in the accounting records only transaction data that can be expressed in terms of money.

Discount on Bonds Payable:

is a contra account.

Vertical analysisor common-size analysis,

is a technique that expresses each financial statement item as a percent of a base amount.

Retained earnings

is net income that a company retains for use in the business

Plant assets

land, land improvements , buildings, and equipment (machinery, furniture, tools)

The rate of interest investors demand for loaning funds to a corporation is the:

market interest rate.

Adjusting entries

needed to ensure that the revenue recognition and matching principles are followed.

The cost of goods sold is determined and recorded each time a sale occurs in:

perpetual inventory system only

Expenses

recognized in the period in which they are incurred.

Revenues

recorded in the period in which they are earned.

Economic Entity Assumption

requires that activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities.

Net income will result during a time period when:

revenues exceed expenses

Intangible assets

rights, privileges, and competitive advantages that do not possess physical substance.

The time period assumption states that:

the economic life of a business can be divided into artificial time periods.

Posting

transfers journal entries to ledger accounts.

Horizontal analysis

trend analysis, is a technique for evaluating a series of financial statement data over a period of time.

Cash-Basis Accounting

•Revenues are recognized when cash is received. Expenses are recognized when cash is paid.