ACCOUNTING FINAL EXAM REVIEW

Net Income Equation?

(Revenues + Gains) - (Expenses + Losses) = Net Income

Retained Earnings Equation?

Beg. Retained Earnings + Net Income (Current Year) (-) Dividends (Current Year) = End Retained Earnings

Equity Equation?

Contributed Capital + Ending Retained Earnings

Historical Cost for a liability?

Equivalent price established by the exchange transaction.

Full Disclosure Principle?

Financial statements should include sufficient information to allow knowledgeable users to make informed decisions about the financial condition of the enterprise in question.

What is the Historical Cost measurement base?

Original cost of asset or liability.

What type of account is Accounts Receivable and on which financial statement is it reported? Account type____ reported on the ________

Asset on the Balance Sheet

Accounting Equation?

Assets=Liabilities + Equity

Historical Cost for an asset?

Cash or cash equivalent price plus any other expenditures to get the asset up and ready for its intended use.

The left side of a T-account is always the: A. increase side. B. decrease side. C. credit side. D. debit side.

D. debit side

Liabilities are: A. the outflow of resources that decrease common stock. B. a form of paid-in capital. C. future economic benefits to which a company is entitled. D. debts payable to outsiders called creditors.

D. debits payable to outsiders called creditors.

What type of account is Dividends and on which financial statement is it reported? Account type____ reported on the _____

Equity on the Balance Sheet

Direct Matching?

Expense follows the revenue; the revenue must be recognized before the expense can be matched (same accounting period). Examples: Warrantee expense matches to the sales revenue for the current period.

What is the Measurement Principle?

How we value the assets and liabilities of the firm.

Indirect Matching?

Match expenses with a particular period instead of a revenue. Examples: Depreciation on a building, CEO salary, Utility expense, Rent expense, Insurance expense.

Gross Profit Equation?

Sales - Costs of Goods Sold

Matching principle (Expense Recognition Principle)?

When to incur expenses.

What is the Revenue Recognition Principle?

When to recognize revenue and gains. Firms record revenue when revenue is: EARNED: when a good is delivered or a service is performed Realized or Realizable: cash has been received, and/or cash is expected to be received and can be measured