Accounting Final Exam
Accruals
Occurs when revenue has been earned or an expense has been incurred but has not been recorded
Which of the following would NOT be recorded as an accounting transaction? a) receiving a deposit from a customer b) hiring a new employee c( putting a deposit down on a new vehicle d) receiving cash upon signing a note
hiring a new employee
Cost principles (measurement principle)
prescribes that accounting information is bases on actual cost Cost is measures on a cash or equal to cash basis
If an analysis want to examine a company's current ability to generate income, which of the following would be best considered? a) liquidity b) market share c) profitability d) solvency
profitability
Revenue recognition principle
provides guidance on when a company must recognize revenue
t-account
represents a ledger account and is a tool used to understand the effects on one or more transactions
Assets
resources a company owned or controls (receivable)
Segregation of duty means that a company assign responsibilities so that:
responsibilities for related activities are assigned to two or more people
Matching principle (expense recognition principle)
prescribes that a company records the expenses it incurred to generate the revenue reported
full disclosure principle
prescribes that a company report the details behind financial statements that would impact users decisions
How do you find the net income
total revenues-total expenses
What is the minimum number of accounts that must be involved in any transaction?
two
Notes payable
(liability) refers to a formal promise usually denoted but the signing of a promissory note to pay a future amount
Unearned revenue accounts
(liability) refers to a liability that is settled in the future when a company delivers its products or services
accounts payable
(liability) refuse to oral or implied promises to pay later, which usually arises from purchases of merchandise, supplies, equipment, and services
What belongs on a balance sheet and in what order?
1. Assets 2. Liabilities 3. Stockholders equity
what is the correct sequence for the accounting cycle
1. Prepare journal entries 2. Post to t-accounts 3. Prepare trial balance 4. Prepare financial statements
What are some examples of assets?
Cash, inventory,supplies, land, buildings, equipment, prepaid insurance, trade names
Trial Balance
a list of accounts and their balances for the double-entry accounting
current ratio
a measure of a firms ability to pay its current liability
Ledger
a record containing all accounts used by a company Classifies as either an asset, liability, or stockholder's equity
Liability Accounts
accounts payable, notes payable, unearned revenue, accused liabilities
Which account would be increased with a debit? a) accounts receivable b) retained earnings c) common stock d) notes payable
accounts receivable
What belongs on the Statement of retained earnings
add net income then subtract dividends
Accused liabilities
amounts owed the are not paid yet Ex) wage payable, taxes payable, and interest payable
accounting systems
analyze, record, and summarize the activities affecting it's financial condition
Supplies accounts
are assets until they are used which then are recorded as an expense
equipment accounts
are assets until they are used which then are recorded as an expense
contra-asset account
asset account where the balance with either be a credit balance or a zero balance
The accounting equation
assets=liabilities +Stockholder equity
Sarbanes-Oxley Act
passed by the congress in response to financial statement frauds that occurred in the early 2000s
Temporary Accounts
balances of accounts that are not carried over because they relate only to one period
Why is inventory reported as a current asset?
because it will be converted into cash within a year of the balance sheet date
Current assets
cash and other assets that are to be converted to cash or sold or used up usually within one year or less
assets accounts
cash, accounts receivable, notes receivable, prepaid accounts, supplies accounts, equipment accounts, building accounts, land
Which of the following is not an asset? a) Land b) Common Stock c) notes receivable d) cash
common stock
Which of the following would NOT be reported as a liability on the balance sheet? a) notes payable b) salaries and wages payable c) accounts payable d) common stock
common stock
accumulated depreciation is classified as a(n)
contra-asset account
a weak system of internal _______ provides the ________ to commit fraud
controls, opportunity
liabilities
creditors claims on assets (payable)
Depreciation
decrease in the usefulness of the equipment
Income statement
describes a company revenues and expenses along with the resulting net income or loss over a period of time due to earnings activities
Balance sheet
describes a company's financial position/types and amounts of assets, liability, and equity at a point in time
how do you get dividends
divide dollar value of the annual dividend by the current share price
Which of the following is typically NOT a benefit of corporations over other organizational forms? a) easier to raise large amounts of money b) easier to create with few legal fees c) easier to limit an owner's liability d) easier to transfer ownership
easier to create with few legal fees
Which of the following is NOT a current asset? a) supplies b) prepaid insurance c) cash d) equiptment
equiptment
A cost of doing business is a(n) __________ and it is necessary to earn _________
expense, revenue
Statement of owner's equity
explains changes in equity from net income (or loss) from any owner investments and withdrawals over periods of time
Journal
gives a complete record of each transaction on one place
beginning inventory+purchases=
goods available for sale
fixed assets
physical resources that are owned and used by a business and are permanent or have a long life
Statement of Cash Flows
identifies case inflows (recites) and cash outflows (payment) over a period of time
which of the following requires a credit? a) increases to assets b) decreases in liabilities c) decreases in SE d) increases to liabilities
increases to liabilities
Creditors
individuals that have rights to receive payments from a company
Business entity assumption
means that a business is accounted for separately from another business entities, including its owner
monetary unit assumption
means that we can express transaction and events in many or monetary units
"Better buy" purchases computers from companies like Hewlett Packart and IBM and sells them to customers Better boy is a ....
merchandising company at the retail level
Repayments of loans will be reported as..
negative cash flow under financing activities
examples of liabilities ?
notes payable, accounts payable, wages payable, unearned liabilities
Deferrals
occurs when cash related to a future revenue or expense has been initially recorded as a liability or an asset
net loss
occurs when expenses exceed revenues
net income
occurs when revenues exceed expenses
Equity Accounts
owner investments, owner withdrawals, revenue accounts, expense accounts
Accrual basis of accounting
revenues are reported on the income statement in the period in which a service has been performed or a product has been delivered
What goes on in the income statement and in what order
revenues, expenses, net income
within the debit/credit framework, the best interpretation of the word "credit" is:
right side of the account
accused expenses
the amount of accused but unpaid items at the end of an accounting period
For a manufacturer, inventory turnover refer to how many times:
the company produces and delivers its inventory of goods to customers
Expenses
the cost necessary to earn revenues
Account balance
the difference between total debts and total credits for an account including any beginning balance
equity
the owners claim to assets
revenues
the sale of products or services to customers