Everything Accounting 230
temporary accounts
all revenue, expense, and dividend accounts; account balances are maintained for a single period and then closed (or zeroed out) and transferred to the balance of the retained earnings account at the end of the period.
accelearated depreciation method
allocates a higher depreciation in the earlier years of the asset's life and lowe rdepreciation in later years.
activity-based method
allocates an asset's cost based on its use
straight-line method
allocates an equal amount of depreciation to each year of the asset's service life
depletion
allocation of the cost of a natural resource over its service life.
amortization
allocation of the cost of an intangible asset over its service life.
S corporation
allows a company to enjoy limited liability as a corporation, but tax treatment as a partnership.
publicly held corporation
allows investment by the general public and is regulated by the Securities and Exchange Commission.
cash
also at the end of the period, the petty ____ fund may need to be replenished.
separation of duties
authorizing transactions, recording transactions, and maintaining control of the related assets shouldbe separated among employees.
classified balance sheet
balance sheet that groups a company's assets into current assets and long-term assets and that separates liabilities into current liabilities and long-term liabilities
FICA taxes
based on the Federal Insureance Contribution Act; tax withheld from employees' paychecks and matched by employers for Social Security and Medicare.
cash
because ____ is the asset of a company most susceptible to employee fraud, controls over ____ receipts and ____ disbursements are an important part of a company's overall internal control system.
cash dividend
because cash is the asset most easily distributed to stockholders, most corporate dividends are _____________.
auditors
because of the huge demand for ________, many accounting majors choose auditing, also referred to as public accounting, as their first career.
indirect method
begins with net income and then lists adjustments to net income in order to arrive at operating cash flows
unsecured bonds
bonds that are not supported by specific assets pledged as collateral
secured bonds
bonds that are supported by specific assets pledged as collateral
term bonds
bonds that require payments of the full principal amount at the end of the loan term.
commercial paper
borrowing from another company rather than from a bank.
partnership
business owned by two or more persons
cash
by the end of may, the petty ____ fund has distributed $330, leaving $170 in the fund, along with receipts for $330.
checks
cash disbursements include not only disbursing physical cash, but also writing _______ and using credit cards and debit cards to make payments.
cash equivalents
cash includes ________________.
cash
On the other hand, having too much ____ leads to inefficient use of funds and could be a signal that a company's management does not see additional opportunities for profitable expansion.
T-account
a simplified form of a general ledger account with space at the top for the account title and two sides for recording debits and credits.
Record date
a specific date on which the company will determine the registered owners of stock and, therefore, who will receive the dividend.
statement of cash flows
a summary of cash inflows and cash outflows during the reporting period sorted by operating, investing, and financing activities.
account
a summary of the effects of all transactions related to a particular item over a period of time
accounting
a system of maintaining records of a company's operations and communicating that information to decision makers.
unemployment taxex
a tax to cover federal and state unemployment costs paid by the employer on behalf of its employees.
monetary unit assumption
a unit or scale of measurement can be used to measure financial statement elements.
trademark
a word, slogan, or symbol that distnctively identifies a company, product, or service.
timing of cash flows
according to U.S. GAAP, though, discounting of cash flows is allowed when _____________________ is certain.
retained earnings
cumulative amount of net income earned over the life of the company that has not been distributed to stock holders as dividends.
investing activities
includes cash transactions involving the purchase and sale of long-term assets and current investments.
cash
like credit cards, debit cards offer customers a way to purchase goods and services without a physical exchange of ____.
franchise
local outlets that pay for the exclusive right to use the franchisor company's name and to sell its products within a specifed geographical area.
intangible assets
long-term assets that lack physical substance, and whose existence is often based on a legal contract.
checks
make sure ______ are serially numbered and signed only by authorized employees. Require two signatures for larger ______.
cash
management can withdraw ____ of $330 from the checking account and give it to the petty ____ custodian so the fund's physical balance will once again be $500.
cash
management establishes a petty ____ fund by writing a check for ____ against the company's checking account and putting that amount of withdrawn ____ in the hands of an employee who becomes responsible for it.
cash disbursement
managers should design propercontrols for __________________ to prevent any unauthorized payments and ensure proper recording.
cash dividends
many profitable companies choose not to pay ______________.
average inventory
many students use ending inventory rather than _________________ in claculating the inventory turnover ratio.
bank reconciliation
matching the balance of cash in the bank account with the balance of cash in the company's own records
gross profit ratio
measure of the amount by which the sale price of inventory exceeds its cost per dollar of sales. It equals gross profit divided by net sales.
profitability ratios
measure the earnings or operating effectiveness of a company.
cash
accounting for the petty ____ fund involves recording transaction to 1 establish the fund, 2 recognize expenditures from teh fund, and 3. replenish the fund as the ____ balance becomes sufficiently low.
faithful representation
accounting information that is complete, neutral, and free from material error.
relevance
accounting information that possesses confirmatory value and/or predictive value.
Fringe benefits
additional employee benefits
fringe benefits
additional employee benefits paid for by the employer
stock dividends
additional shares of a company's own stock given to stockholders.
direct method
adjusts the items on the income statement to directly show the cash inflows and outflows from operations, such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes.
closing entries
after we post the _________________ to the T-accounts in the general ledger, the balance of Retained Earnings equals the amount shown in the balance sheet.
permanent accounts
all accounts that appear in the balance sheet; account balances are carried forward from period to period
general ledger
all accounts used to record the company's transactions
economic entity assumption
all economic events with a particular economic entity can be identified.
financial accounting
measurement of business activities of a company and communication of those measurements to external parties for decision-making purposes.
earnings per share
measures the net income earned per share of common stock.
accelerated depreciation method
method of depreciation, with higher depreciation in the earlier years of the asset's life and lower depreciation in later years.
percentage-of-receivables method
method of estimating uncollectible accounts based on the percentage of accounts receivable expected not to be collected.
lower-of-cost-or-market (LCM) method
method where companies report inventory in the balance sheet at the lower of cost or market value, where market value equals replacement cost.
cash
more likely, though, you've written a check or have _____ receipts that haven't yet reached the bank, or maybe the bank has made an adjustement you haven't yet recorded.
cash return on assets
net cash flows from operating activities divided by average total assets; measures the operating cash flow generated per dollar of assets.
cash flow of sales
net cash flows from operating activities divided by sales revenue; measures the operating cash flow generated per dollar of sales.
receivables turnover ratio
net credit sales divided by average accounts receivable; the number of times during a year that hte average accounts receivable balance is collected ("turns over").
return on equity
net income divided by average stockholders' equity; measures the income generated per dollar of equity
return on equity
net income divided by average stockholders' equity; measures the income generated per dollar of equity.
reutrn on equity
net income divided by average stockholders' equity; measures the income generated per dollar of equity.
return on assets
net income divided by average total assets; measures the amount of net income generated for each dollar invested in assets
return on assets
net income divided by average total assets; measures the income generated per dollar of assets.
profit margin
net income divided by net sales; indicates the earnings per dollar of sales
profit margin
net income divided by net sales; indicates the earnings per dollar of sales.
return on the market value of equity.
net income divided by the market value of equity.
MACRS
net income in the income statement is not the same amount as taxable income reported to the Internal Revenue Service (IRS). Net cincome is based on finanacial accounting rules, while taxable income in the corporte tax return is based on tax accounting rules. For instance, most companies use straight=line depreciation in financial accounting, but a different depreciation method (called _____________) for tax accounting.
cash return on assets ratio
net income/average total assets=
cash
notice that bank statements refer to an increase (or deposit) in the ____ balance as a credit and a decrease or withdrawal as a debit
asset turnover
net sales divided by average total assets, which measures the sales per dollar of assets invested.
cash
next, we need to reconcile the company's ____ balance.
direct write-off method
recording bad debt expense at the time we know the account is uncollectible.
trade discount
reduction in the listed price of a product or service
sales discount
redution in the amount to be paid by a credit customer if payment on account is made within a specified period of time.
net change in cash
the total of the net cash flows from operating, investing, and financing activities equals the ___________________ during the period: change in cash=operating cash flows+investing cash flows+financing cash flows.
cash
some students try to update the _____ account for deposits outstanding, checks oustanding, or a bank error.
cash account
some students try to update the ___________ for deposits outstanding, checks outstanding, or a bank error.
cash
stated another way, ____ outflows related to expense activities exceed ____ inflows related to revenue activities.
preferred stock
stock with preference over common stock in the payment of dividends and the distribution of assets
limited liability
stockholders in a corporation can lose no more than the amount they invested in the company.
Stockholder's equity
stockholders', or owners', claims to resources, which equal the difference between total assets and total liabilities.
growth stocks
stocks that have high expectation of future earnings groth and fherefore usually trade at igher PE ratios.
value stocks
stocks that have lowe rshare prices in relationship to their fundamental ratios and therfore trade at lower (bargain) PE ratios.
growth stocks
stocks that tend to have higher price earnings ratios and are expected to have higher future earnings.
value stocks
stocks that tend to have lower price-earnings ratios and are priced low in relation to current earnings
statement of stockholders' equity
summarizes the changes in the balance in each stockholders' equity count over a period of time.
cash
suppose that at the beginning of May, Starlight Drive-In establishes a petty ____ fund of $500 to pay for minor purchases.
auditor
the _______'s report indicates that the financial statements for the period mentioned have been prepared in conformity with GAAP.
basic accounting equation
the ________________________ must always remain in balance: The left side (assets) equals the right side (liabilities plus stockholders' equity.)
direct write-off method
the ______________________________________ is not acceptable for financial reporting.
allowance for uncollectible accounts
the _________________________________________ is sometimes referred to as the allowance for doubtful accounts.
earnings quality
the ability of net income to help predict future performance of the company.
decision usefulness
the ability of the information to be useful in decision making.
comparability
the ability of users to see similarities and differences between two different business activities.
business valuation
the accounting equation illustrates a fundamental model of __________________.
independent auditor
the accuracy of account balances is essential for providing useful information to decision makers, such as investors and creditors. That's why the Securities and Exchange Commission (SEC) requires all companies with publicaly traded stock to have their reported account balances verified by an ____________________.
auditor
the accuracy of account balances is essential for providing useful information to decision makers, such as investors and creditors. That's why the Securities and Exchange Commission (SEC) requires all companies with publicly traded stock to have their reported account balances verified by an independent _______.
occupational fraud
the use of one's occupation for personal enrichment through the deliberate misue or misapplication of the employing organization's resources
classified balance sheet
the final section of the ________________________ is the stockholders' equity section.
Initial public offering
the first time a corporation issues stock to the public
monitoring, control activities, risk assessment, control environment
the four components of internal control
corporation, sole proprietorship, partnership, or limited liability corporation
the four forms of business
chart of accounts
the general ledger includes all accounts used to record the company's transactions. The name of these accounts are listed in the __________________.
materiality
the impact of financial accounting information on investors' and creditors' decisions.
cash
the important point to understand is that ____ and ____ equivalents usually are combined and reported as a single asset in the balance sheet of most companies.
cash flows
the income statement provides important information in determining _________ from operating activities.
early extinguishment of debt
the issuer retires debt before its scheduled maturity date
audit partner
the lead auditor in charge of auditing a particular company (referred to as the _____________ must rotate off that company within five years and allow a new ___________ to take the lead.
auditor rotation
the lead auditor in charge of auditing a particular company (referred to as the audit partner ) must rotate off that company within five years and allow a new audit partner to take the lead.
par value
the legal capital assigned per share of stock.
stated value
the legal capital assigned per share to no-par stock.
capital structure
the mixture of liabilities and stockholders' equity a business uses is called its _________________.
capital structure
the mixture of liabilities stockholders' equity in a business.
outstanding stock
the number of shares held by investors; excludes treasury shares.
issued stock
the number of shares sold to investors; includes treasury shares
Inventory turnover ratio
the number of times afirm sells its average inventory balance during a reporting period. It equals cost of goods sold divided by average inventory.
cash
the other debits are needed to record the items related to ____ outflows-- equipment purchased and expenses incurred.
cash dividend
the payment of ______________ decreases dividends payable and decreases cash.
additional paid-in capital
the portion of the cash proceeds above par value
depreciation
the process in accounting of allocating to an expense the cost of an asset over its service life.
posting
the process of transferring the debit and credit information from the journal to individual accounts in the general ledger.
default rsik
the risk that a company will be unable to pay the bond's face amount or interest payments as it becomes due.
Generally accepted accounting principles (GAAP)
the rules of financial accounting
discontinued operation
the sale or disposal of a significant component of a company's operations.
accounts, accounting equation, debit or credit, record, post, trial balance.the six steps in measuring external transactions
the six steps in measuring external transactions
International Financial Reporting Standards (IFRS)
the standards being developed and promoted by the International Accounting Standards Board.
articles of incorporation
the state incorporation laws guide corporations as they write their _____________________________ somtimes called the corporate charter.
cash
the statement of ____ flows reports all -___ activities for the period.
price-earnings ratio
the stock price divided by earnings per share so that both stock price and earnings are expressed on a per share basis.
auditor's report
the term ________________ is also commonly referred to as the auditor's opinion.
cash flows
the three primary categories of ___________ are 1. ___________ from operating activiites, 2. ___________ from investing activities, and 3. _________ from financing activities.
net cash flows
the total ______________ from operating activities are identical under both methods.
authorized stock
the total number of shares available to sell, stated in the company's articles of incorporation.
consistency
the use of similar accounting procedures either over time for the same company, or across companies at the same point in time.
goodwill
the value of a company as a whole, over and above the value of its identifiable net assets. Goodwil equals the purchase price less the fair value of the net assets required.
liability accounts
these accounts include Accounts Payable, Salaries Payable, Utilities payable, and taxes payable.
asset accounts
these accounts include cash, supplies, and equipment. All transactions affecting cash are summarized in the Cash account; all transactions affecting supplies are summarized in the Supplies account; and so on.
cash flow
they are included in operating activities because each is a _________ from an activity reported in the income statement-- interest revenue, dividend revenue, and interest expense.
check cards
they differ, however, in that most debit cards (sometimes referred to as ___________) work just like a check and withdraw funds directly from the cardholder's bank account at the time of use.
cash
this employee is often referred to as the petty ____ custodian.
accidental error
this might occur if the company mistakenly were to record a check being written for $117 as $171 in its records, or if the bank improperly processed a deposit of $1,100 as a $1,010 deposit.
cash
this terminology is the opposite of that used in financial accounting, where debit refers to an increase in ____ and credit refers to a decrease in ____.
cash
throughout this course, we refer to an increase in ____ as a debit to ____.
depreciable cost
to calculate depreciation expense for a given year, we simply divide the _________________ by the number of years in the asset's life.
average inventory
to compute the inventory turnover ratio we need the _________________, which is the beginning amount of inventory plus the ending amount, divided by 2.
cash
to pay for minor purchases, companies keep some ____ on hand in a petty ____ fund.
bank reconciliation
to see how a ___________________ is prepared, let's start by examining the bank statement of Starlight Drive-In.
unearned revenues
when a company receives cash in advance from a customer for products or services to be provides in the future.
cash
whether a customer uses ____ or a check to make a purcahse, the compnay records the transaction as a _____ sale.
cash
with regard to the three types of business activities, the ____flow that's related most directly to the company's profitability is net ____ flows from operating activities.
notes payable
written promises to repay amounts borrowed plus interest.
cash basis accounting
Under _____________________, we record revenues and expenses at the time we receive or pay cash.
Warren Buffet
"You have to understand accounting and you ave to understand the nuances of accounting. It's the language of business and it's n imperfect language, but unless you are willing to put in the effort to learn accounting-- how to read and interpret financial statements-- you really shouldn't select stocks yourself."--_______________
international accounting standards board
(IASB): an international accounting standard-setting body responsible for the convergence of accounting standards worldwide.
cash basis accounting
____________________ is not allowed for financial reporting purposes for most major companies.
bonds
A ____ is a formal debt instrument that obligates the borrower to repay a stated amount, referred to as the principal or face amount, at a specified maturity date.
classified balance sheet
A _______________________ groups a company's asset and liability accounts into several standard categories.
classified balance sheet
A _________________________ groups a company's asset and liability accounts into several standard categories.
cash
A company's ____ balance as recorded in its books rarely equals the ____ balance reported in the bank statement.
prepaid rent
A current asset account that reports the amount of future rent expense that was paid in advance of the rental period. The amount reported on the balance sheet is the amount that has not yet been used or expired as of the balance sheet date.
supplies
A current asset representing the cost of supplies on hand at a point in time. The account is usually listed on the balance sheet after the Inventory account.
Committee of Sponsoring Organizations
A framework for designing an internal control system was provided by the ____________________________________________________________________________.d
chart of accounts
A list of all account names used to record transactions of a company is referred to as the __________________.
Warren Buffett
________________, a self-made billionaire based in Omaha, Nebraska, is regarded as one of the world's top investors.
SINKING FUND
AN INVESTMENT FUND USED TO SET ASIDE MONEY TO BE USED TO PAY DEBTS AS THEY COME DUE.
authorized stock
_________________ is the total number of shares avaiable to sell, stated in the company's articles of incorporation.
Association of Certified Fraud Examiners
According to research conducted by the ______________________________________________, U.S. organizations lose an estimated $1 trillion (or 7% of their total revenue) to employee fraud each year.
balance sheet approach
Accoutants often call FIFO the ______________________: The amount it reports for ending inventory (which appears in the balance sheet) better approximates te current cost of inventory.
cash
Again, because ____ is especially susceptible to theft, internal control of ____ is a key issue.
cash
All these forms of payment constitute ____ disbursements and require formal internal control procedures.
adjusted trial balance
An ______________________ is a list of all accounts and their balances at a particular date, after we have updated account balances for adjusting entries.
ethical dilemma
An ethical dilemma is a complex situation that often involves an apparent mental conflict between moral imperatives, in which to obey one would result in transgressing another.
AMT (Alternative minimum tax)
Any copanies today find that purchasing equipment causes them to be faced wit han extra income tax burden under the ______________________ calculations.
bank reconciliation
As a finalstep in the reconciliation process, a company must update the balance in its Cash account, to adjust for the items used to reconcile the company's cash balance. We record these adjustments once the __________________ is complete. Remember, these are amounts the company didn't know until it received the bank statement.
cash
As uncertainty in the business environment increases, companies hold more ____ to prevent bankruptcy caused by short-term negative shocks in the business cycle.
basic accounting equation
Assets=Liabilities+Stockholders' Equity
bad debt expense
At the end of 2016, Mr. Nadal estimated that future bad debts will be 6% to 10% of current accounts receivable.He decided to play it safe and recorded an allowance equal to 10% of current accounts receivable.Mr. Djokovic proposes changing the estimate to be 6% of accounts receivable, or $90,000Tis change would increase net accounts receivable and decrease ________________ by $60,000.
cash
By the end of the period, the expenditures from the petty ____ fund must be recorded.
cash
At the end of the period, expenditures from the petty ____ fund are recorded, and the fund is replenished.
cash
Available ____ also helps a compnay respond quickly to new, profitable opportunities before competitors do.
serial bonds
BONDS THAT REQUIRE PAYMENT OF THE PRINCIPAL AMOUNT OF THE BOND OVER A SERIES OF MATURITY DATES
cash-basis accounting
Because ____________________ violates both the revenue recognition principle and the matching principle, it is generally not accepted in preparing financial statements for most major companies.
Certified Public Accountant
Becoming a ______ can provide a big boost in salary and long-term job opportunities
Warren Buffett
Berkshire Hathaway is founded by billionaire investor _________________.
depreciable cost
_________________ represents the total depreciation to be taken over the asset's useful life.
cash
Companies report ____ as an asset in the balacne sheet.
cash dividends
Companies with large expansion plans, called growth companies, prefer to reinvest earnings in the growth of the company rather than distribute earnings back to investors in the form of ______________.
business consulting
____________________ is pherhaps the most lucrative activity of accountants.
cash
Deposits oustanding are ____ receipts of teh company that have not been added to the bank's record of teh company's balance.
cash
Eagle has also received ____ from bank borrowing, which must be repaid.
bad debt expense
First, _______________ represents the cost of the estimated future bad debts.
cash
First, we will consider ____ transaction recorded by a company, but not yet recorded by its bank.
cash
For Eagle Golf Academy, net ____ flows from operating activities are $3900. This means that ____ outflows related to operating activities exceed inflows.
balance sheet
For example, Eagle's income statement shows revenue and expense activity occurring from December 1 to December 31; its _____________ shows assets, liabilities, and stockholders' equity of the company on December 31.
common stock
For example, assume that Canadian Falcon issues 1,000 shares of $0.01 par value ____________ at $30 per share. The company credits the ______________ account for par value.
Certified Public Accountant
For example, someone who is a ______________________________________ and has a law degree is especially desirable in the job market.
cash
For example, suppose a company is unable to account for $100 of missing ____. In this event, the company records the following transaction, increasing miscellaneous expense and decreasing ____.
cash
For example, when a movie theatre pays its popcorn supplier $2,000 by check, the company reocrds a decrease in ____ immediately, but the bank doesn't record a decrease in ____ until the popcorn supplier later deposits the check.
common stock
For instance, American Eagle's ______________ has a par value of $0.01 per share but a market value over $15 per share.
available-for-sale securities
For investments classified as trading securities, unrealized holding gains and losses are included in net income. For investments classified as ______________________________, unrealized holding gains and losses included as other comprehensive income.
bond
For loans of $20 million or more, the interest rate savings often exceed the additional ____ issuance costs, making a ___ issue more attractive.
bonds
For most large corporations, _____ are sold, or underwritten by investment houses.
career-in-accounting.com
For salary and other job-related information, consult the website of the U.S. Bureau of Labor Statistics or go to _________________________.
basic accounting equation
For the ________________________ (Assets= Liabilities+Stockholders' Equity,) assets (left side) increase with debits.
basic accounting equation
For the __________________________ (Assets=Liabilities+Stockholders' Equity), assets (left side) increase with debits. Liabilities and stockholders' equity (right side) increase with credits.
Committee of Sponsoring Organizations
Formed in 1985, ________ is dedicated to improving the quality of financial reporting through, among other things, effective internal controls.
cash
From the seller's perspective, the only difference between a ____ sale and a credit card is that the seller must pay a fee to the credit card company for allowing the customer to use a credit card.
cash
Here, we discuss how companies report ____ activities to external parties.
bonds
However, issuing ____ entails significant ___ issue costs that can exceed 5% of the amount borrowed.
bond
However, issuing bonds entails significant ____ isue costs that can exceed the savings from a lower interest rate, making it more economical to borrow from a bank.
cash
However, it's nice to have a little ____ in your wallet for emergency or impulse expenditures.
LIFO conformity rule
IRS rule rquiring a company that uses LIFO for tax reporting to also use LIFO for financial reporting.
commercial paper
If a company borrows from another company rather than from a bank, the note is referred to as _________________.
common stock
If it issues no-par value stock the corporation credits the equity account entitled _____________.
cash
If the supplier waits a week before depositing the check, the balance of ____ in the compnay's records will be reduced one week earlier than will the bank's.
cash
If you have your own checking account, you know that the balance of ____ in your checkbook often does not equal the balance of ____ in your bank account.
cash
If you were considering an investment in Eagle Golf Academy would you consider net income $1200 to be a reliable indicator of the profit-generating potential of the company, given that it has net ____ flows from operating activities of -$3900? Which nmber is more useful in helping us to predict the long-term profitability of the company? We refer to the ability of current net income to help us predict the future performance of a company as earnings quality.
cause-and-effect relationships
Implied in matching principle is a ________________________________ between revenue and expense recognition.
cash
Important controls over ____ disbursements include payments by check, credit card, separation of duties, and various authorization and documentation procedures.
cash
Important controls over ____ reipts include separation of duties for those who handle ____ and independent verification of ____ receipts.
cash
Important elements of a ____ disbursement control system include the following policies: 1. Make all disbursements, other than very small ones, by check, debit card, or credit card. This provides a permanent record of all disbursements. 2. Authorize all expenditures before purchase and verify the accuracy of the purcahse itself. The employee who authorizes payment should not also be the employee who prepares the check. 3. Make sure checks are serially numbered and signed only by authorized employees. Require two signatures for larger checks. 4. Periodically check amounts shown in the debit card and credit card statement s against purchase receipts. The employee verifying the accuracy of the debit card and credit card statements should not also be the employee responsible for actual purchases. 5. Set maximum purchase limits on debit cards and credit cards. Give approval to purchase above these amounts only to upper-level employees. 6. Employees responsible for making ____ disbursements should not also be in charge of ____ receipts.
common stock
In order to attract wider investment, some corporations issue preferred stock in addition to ____________.
cash
In recent years, ____ holdings of U.S. companies have increased enormously.
bonds
In return, those investing in the _____ receive interest over the life of the ____, say 20 years, and repayment of the principal aomount at the end of the ____' life.
cash
a simple way to calculate a company's free ____ flow is to consider its operating ____ flows plus investing ____ flows during the period.
cash
In this case, the bank's balance for ____ reflects a ___ transaction before the company's balance can reflect the same transaction.
cash
Internal control over ____ recepits could include the following policies: 1. open mail each day, and make a list of checks received, including the amount and payer's name, 2. designate an employee to deposit ____ and checks into the company's bank account each day, different from the person who receives ____ and checks. 3. Have another employee record ____ recepits in the accounting records as soon as possible. Verify ____ receipts by comparing the bank deposit slip with the accounting records. 4. Accept credit cards or debit cards, to limit the amount of ____ employees handle.
First-in, first-out method (FIFO)
Inventory costing method that assumes the first units purchased (the first in) are the first ones sold (the first out).
cash
Investors and creditors closely monitor the amount of ____ a company holds.
carrying value of bonds
Is the _____________________ payable reported on the balance sheet really what the bonds are worth? Yes, but only on the date issued and on the final maturity date.
asset turnover ratio
Is the company effectively generating sales from its assets? Accounting information: ___________________. A higher asset turnover indicates a company generates a higher sales volume per dollar of assets invested.
bonds
Issue costs for private placements are lower because these ____ are not subject to the costly and lengthy process of registering with the SEC that is required of all public offerings.
board of directors
On December 4, 2012, the __________________ of American Eagle Outfitters, Inc., decleared a dividend of $0.11 per share payable on December 28, 2012, to shareholders of record as of December 19, 2012.
closing process
It may seem unusual that the Retained Earnings account has a balanace of $0. Those three accounts have balances at this point, but those balances haven't yet been transferred to retained earnings. This transfer is known as the ________________. Since this is the first period of the company's operations, retained earnings will start at $0.
cash
It's the merchant's ____ account, not yours, that increases and is debited.
inventory
Items a company intends for sale to customers.
check
Make all disbursements, other than very small ones, by _____, debit card, or credit card. This provides a permanent record of all disbursements.
cash
Managers should design proper controls for ____ disbursements to prevent any unauthorized payments and ensure proper recording.
code law
Many _________ countries have political and economic ties that began with Germany in World War II.
carrying value of bonds
On June 30, California Coasters records interest expense, an increase in the _______________________payable, and the cash paid for interest as follows.
cash
as the name implies, include ____ investments in long-term assets and investment securities.
cash
Meanwhile, the credit card company deposits ____ in the company's bank for the amount of the sale, less service fees.
Certified Public Accountant
Most public accountants become ______________________________.
Certified Public Accountant
Most states require that you have 150 semester hours (225 quarter hours) of college credit to take the exam.
cash
Moviegoers don't pay ____ to the theatre at the time of sale, but MasterCard deposits ___, less the service fee expense, into the theatre's account usually within 24 hours.
beginning balances
Normally, __________________ for Common Stock and Retained Earnings equal ending balances from the previous period.
board of directors
Note that it is the __________________ that declares the cash dividend to be paid.
cash dividend
Note that it is the board of directors that declares the ____________ to be paid.
cash
Only when inspecting the bank statement will the company become aware of the ____ reduction.
cash
Similarly, a withdrawal of ____ from the bank is viewed by the company as a decrease to its ____ account, so it is recorded with a credit, but the bank views this withdrawal as a decrease to the amount owed to the company, so it debits its liability.
cash
Similarly, once the bank receives the checks oustanding, the bank's ____ balance will decrease.
cash
Similarly, we calculate the company's balance for 1 ____ transaction already recorded by the bank but not yet recorded by the company and 2. company errors.
available-for-sale securities
Referring to our previous example, if Nathan's Sportswear accounts for its investment in Canadian Falcon as ______________________________, it will report the $2 increase in fair value at the end of the year as part of other comprehensive income rather than as part of net income: Most revenues, expenses, gains, and losses, are included in net income that is reported in the typical income statement.
cash
Regardless of whch method of payment customers use, the theatre records all the those ticket sales as ____ sales.
basic accounting equation
Remember, the __________________________ shows that resources of the company (asset accounts) equal claims tho those resources by creditors (liability accounts) and owners (stockholders' equity accounts).
commercial paper
Since a company is borrowing directly from another company, the interest rate on ________________ is usually lower than on a bank loan. Because of this, _________________ has thus become an incresaingly popular way for large companies to raise funds.
cash
Some customers pay ____ for those tickets, while otehr use a check.
basket purchases
Sometimes companies purchase more than one asset at the same time for one purchase price. This is known as a ______________.
Association of Certified Fraud Examiners
Specifically related to business activities, the _____________________________________________________ defines occupational fraud as the use of one's occupation for personal enrichment thorugh the deliberate misuse or misapplication of the employer's resources.
net cash flows
Step 1. Calculate _____________ from operating activities, using information from the income statement and changes in current assets (other than cash) and current liabilities from the balance sheet. Step 2. Determine the ______________ from investing activities, by analyzing chanes in long-term asset accounts from the balance sheet. Step 3. determine the ______________ from financing activities, by analyzing changes in long-term liabilities and stockholders' equity accounts from the balance sheet. Step 4. Combine the operating, investing, and financing activities, and make sure the total change from these tree activities agrees with the net increase and decrease in cash shown at the bottom of the statement of cash flows.
STATED INTEREST RATE
THE RATE QUOTED IN THE BOND CONTRACT USED TO CALCULATE THE CASH PAYMENTS FOR INTEREST
natural resources
assets like oil, natural gas, and timber that we can physcially use up or deplete.
balance sheet
The ____________ is a financial statment that presents the financial position of the company on a particular date.
balance sheet
The ____________, incontrast, reports assets, liabilities, and stockholders' equity at a point in time.
balance sheet
The ______________ demonstrates that the company's resources (assets) equal creditors' claims (liabilities) plus owners' claims (stockholders' equity) to those resources on a particular date.
auditor's report
The ______________ indicates that the financial statement for the period metnained have been prepared in conformity with GAAP.
post-closing trial balance
The ___________________________ is a list of all accounts and their balances at a particular date after we have updated account balances for closing entries.
direct write-off method
The ____________________________ reduces accounts receivable and records bad debt expense at the time the account receivabele proves uncollectible.
cash
The acceptance of credit cards provides an additional control by reducing employees' need to directly handle ___.
cash
The amount is typically reported as a current asset and represents ____ available for spending at the end of the reporting period.
cash
The company needs enough ____, or enough other assets that can quickly be converted to ____, to pay obligations as they become due.
bonds
Traditionally, interest on ____ is paid twice a year (semiannually) on designated interest dates, beginning six months after the original ___ issue date.
carrying value of bonds
The difference between interest expense and the cash paid increases the _______________________.
characteristics of bonds
The distinguishing ________________________ include whether they are backed by collateral (secured or unsecured), become due at a single specified date or over a series of years (term or serial), can be redeemed prior to maturity (callable), or can be converted into common stock (convertible).
net cash flow
The final line in each section shows, in the right-most column, the difference between inflows and outflows as _____________ for that type of activity.
chart of accounts
The general ledger includes all accounts used to record the company's transactions. The names of these accounts are listed in the ________________.
common stock
The number of shares of ____________ in a corporation are described as being authorized, issued, or outstanding.
commercial paper
The recording for __________________ is exactly the same as the recording for notes payable described earlier.
corporate charter
The state incorporation laws guide corporations as they write their articles of incorporation (somtimes called the _________________).
bond
The three largest ____ underwriters are JPMorgan Chase, Citigroup, and Bank of America
cash
There are two ways to do this: borrow ____ from lenders or raise ____ from stockholders.
cash
Therefore, the theatre records the $2,000 credit card transaction as $1,940 ____ received and $60 service fee expense.
cash basis accounting
Under ____________________, we record revenues at the time we receive cash and expenses at the time we pay cash.
cash
These fees immediately reduce the bank's record of the company's balance for ____.
cash
This measure represents the ____ that is free to repay debt and distribute to stockholders.
balance sheet method
This method sometimes is referred to as the _____________________, because we base the estimate of bad debts on a balance sheet amount--accounts receivable.
cash
Timing differences in ____ occur when the company records transactions either before or after the ____ records the same transactions.
cash
To maintain the control objective of separation of duties, the petty-____ custodian should not be involved in accounting for, nor in the process of writing or approving, replenishment checks.
cash
To pay for these minor purchases, companies keep some minor amount of ____ on hand in a petty ____ fund.
cash
To this point, we've considred several interanl controls related to ____.
interest on bonds
Traditionally, ________________ is paid twice a year on dsignated interest dates, beginning six months after the original bond issue date.
cash basis accounting
Under ______________________, the cruise line would report revenue in November 2015, at the time Calvin pays cash for the cruise, and it would record expenses as it pays cash for them over several months (rather than recording revenue in April 2016 in accord with the revenue recognition principle and related expenses in April 2016 in accord with the matching principle.)
cash basis accounting
Under ______________________, we record revenues when we receive cash and expenses when we pay cash.
Common stock
Unlike ____________, most preferred stock does not have voting rights, leaving control of the company to common stockholders.
cash
We also consider ____ outflows to repay debt and ____ dividends to stockholders to be finacning activities.
cash basis accounting
_____________________ may seem appealing because it is essentially how we think about the inflow and outflow of cash from our bank accounts.
cash
We credit notes receivable because the company has collected ____ from the note, decreasing that asset account.
common stock
We credit the ______________ account for the number of shares issued times the par value per share (as before), and we credit additional paid-in capitalfor the portion of the cash proceeds above par value.
consolidated balance sheets
We have audited the accompanying _____________________________ of American Eagle Outfitters, Inc. (the Company) as of February 2, 2013 and January 28, 2012, and the relatd consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended February 2, 2013.
average inventory
We put ________________ in the denominator to compute the inventory to compute the inventory turnover ratio.
closing entries
_________________ serve two purposes: 1. to transfer the balances of temporary accounts (revenues, expenses, and dividends) to the Retained Earnings account, and (2) to reduce the balances of these temporary accounts to zero to prepare them for measuring activity in the next period.
adjusted trial balance
We'll use the number from the _____________________ to present the classified balance sheet for Eage golf Academy.
classified balance sheet
We'll use the number from the adjusted trial balance to preset the ________________________ for Eagle Golf Academy.
cash
Wehn the movie theatre pays $1000 to advertise its show times, it records the following tranaction, regardless of whether it pays with ____, a check, or a debit card.
cash
What if only $150 physically remains in the petty ____ fund, when there should be $170? It could be that $20 was stolen from the fund, or the fund could be missing a receipt for $20 to show where it was spent.
cash
When a company makes a deposit, it views this as an increase to ___, so it records a debit to the ____ account.
checks
When the movie theatre pays $1,000 to advertise its show times, it records the following transaction, regardless of whether it pays with cash, a _____, or a debit card.
Warren Buffett
While still an ouspoken critic of stock dividends and stock splits, even ________________ is giving in a little.
investors in bonds
__________________ are creditors who have loaned money to the corporation.
depreciable cost
__________________ is the asset's cost minus its estimated residual value.
vertical analysis
__________________ of the balance sheet is useful, too. For this, we divide each balance sheet itme by total assets to get an idea of its relative significance
bad debt expense
__________________ represents the cost of the estimated future bad debts.
beginning balances
____________________ are zero only because this is the first month of operations for Eagle.
bonds
Why do some companies issue ____ rather than borrow money directly from a bank? A company that borrows by issuing ____ is effectively bypassing the bank and borrowing directly from the investing public-- usually at a lower interest rate than it would in a bank loan.
Certified Public Accountant
You become a ______ by passing the four parts of the ______ exam and meeting minimum work experience requirements.
AICPA (American Institute of Certified Public Accountants)
You can learn more about a career in accounting by visiting the website of the __________.
balance sheet method
You learned that this method is the percentage-of-receivables method or the ______________________, because we base the estimate of bad debts on a balance sheet amount--accounts receivable.
cash
_____ activities of a business enterprise are the most fundamental events upon which investors and lenders base their decisions: Where does a company get its ____? Where does a company usually spend its ____? These are important issues in determinign management's efficient use of a company's resources and in predicitng future performance.
cash
_____ includes not only currency, coins, balances in checkign accounts, and checks and money orders received fom customers, but also ____ equivalents, defined as investments that mature within three moths from the date of purcahse ( such as money market funds, Treasury bills, and certificates of deposit).
cash
_____ includes not only currency, coins, balances in checking accounts, and checks and money orders received from customers, but also ____ equivalents, defined as investments that mature within three months from the date of purchase (suchas money market funds, treasury bills, and certificates of deposit.)
bonds
_____ may be secured or unsecured, term or serial, callable, or convertible.
bonds
______ are very similar to notes.
checks
______ are written instruments instructing a bank to apy specific amount from the check maker's account.
Bonds
______ though, usually are issued to many lenders, while notes most often are issued to a single lender such as a bank.
code law
________ derives from Roman law, in which rules are an all-embracing set of requirements and procedures.
auditors
________ play a major role in investors' and creditors' decisions by adding credibility to a company's financial statements.
Committee of Sponsoring Organizations
________ suggests that internal control consists of five components.
code law
__________ countries have similar rules for financial accounting and tax accounting and rely more on debt financing.
code law
__________ countries such as those in Central Europe and Japan also are influenced by the same factors, but in contrasting ways.
cash flows
__________ from operating activities include the elements of net income, but reported on a cash basis.
buildings
__________ include administrative offices, retail stores, manufacturing facilities, and storage warehouses.
collusion
___________ occurs when two or more people act in coordination to circumvent internal controls.
common law
____________ countries such as the United States, the United Kingdom, Australia, and Canada, share many similarities.
common law
_____________ derives from English case law, in which rules are established over time primarily through private-sector professional organizations.
closing entries
______________ do not affect the balances of permanent accounts (asets, liabilities, and permanent stockholders' equity accounts) other than retained earnings.
asset account
_______________ include cash, supplies, and equipment.
closing entries
_______________ transfer the balances of all temporary accounts (revenues, expenses, and dividends) to the balance of the retained earnings account.
Warren Buffett
________________ is best known for his attention to details, carefully examining each line in the financial statemtns. _________________ seeks to invest in copanies with a durable competitive advatnage.
Warren Buffett
________________ is one of the world's wealthiest individuals, with investments in the billions.
Warren Buffett
________________ is widely recognized as the most successful investor ever. In 1999, asurvey by the Carson Group named ________ the toop mone manager of the twentieth century.
capital leases
________________ occur when the lessee essentially buys an asset and borrows the money through a lease to pay for the asset.
bad debt expense
________________ sometimes is referred to as uncollectible accounts expense or provision for doubtful accounts.
independent auditors
________________________ use their understanding of accounting principles and business practices to provide an opinion of reasonable assurance that account balances are free from material mistatements resulting from errors and fraud.
available-for-sale securities
_____________________________ are securities held for reasons other than attempting to profit from tarding in the near future and are classified as current or noncurrent asets.
available-for-sale securities
______________________________ are investments that do not fit the other two categories; they are not expected to be sold in the near future, yet they are not expected to be held to maturity either.
automatic dividend reinvestment
________________________________ works similar to compound interest in a savings account.
estimating uncollectible accounts
____________________________________ based on the percentage of accounts receivable expected not to be collected is known as the percentage-of-receivables method.
vertical analysis of the balance sheet
__________________________________________ is useful, too. For this, we divide each balance sheet item by total assets to get an idea of its relative significance.
bank reconciliation
a ___________________ connects the company's cash balance tothe bank's cash balance by identifying differences due to timing and errors.
bank reconciliation
a ___________________ matches the balance of cash in the bank account with the balance of cash in the compay's own records.
cash
a bank reconciliation connects the company's ____ balance to the bank's ____ balance by identifying differences due to timing and errors.
cash
a bank reconciliation matches the balance of ____ in the bank account with the balance of ____ in the company's own records.
callable
a bond feature that allows the borrower to repay the bonds before their scheduled maturity date at a specified call price.
covertible
a bond feature that lawlows the lender or investor to convert each bond into a specified number of shares of common stock.
premium
a bond's issue price is above the face amount
discount
a bond's issue price is below the face amount.
sole proprietorship
a business owned by one person
journal
a chronological record of all transactions affecting a firm.
ethics
a code or moral system that provides criteria for evaluating right and wrong behavior.
residual value
a company might estimate ______________ from prior experience or by researching the resale values of similar types of assets.
internal controls
a company's plans to (1) safeguard the company's assets and (2) imrove the accuracy and reliability of accounting information.
net revenues
a company's total revenues less any discounts, returns, and allowances.
verifiability
a consensus among different measurers.
accumulated depreciation
a contra asset account representing the total depreciation taken to date.
Accelerated depreciation methods
a contra asset account, meaning that it reduces an asset account
lease
a contractual arrangement by which the lessor (owner) provides the lessee (user) the right to use an asset for a specified period of time.
double taxation
a corporation pays income taxes on its earnings, and when dividends are distributed to stockholders, the stockholders pay taxes a second time on the corporate dividends they receive.
treasury stock
a corporation's own stock that it has reacquired
accumulated deficit
a debit balance in Retained Earnings.
statement of cash flows
a financial statement that measures activities involving cash receipts and cash payments over an interval of time.
balance sheet
a financial statement that presetns the financial position of the company on a particular date.
income statement
a financial statement that reports the company's revenues and expenses over an interval of time.
statement of stockholders' equity
a financial statement that summarizes the changes in stockholders' equity over an interval of time.
bond
a formal debt instrument that obligates the borrower to repay a stated amount, referred to as the principal or face amount, at a specified maturity date.
stock split
a large stock dividend that includes a reduction in the par or stated value per share.
Unearned revenue
a liability account used to record cash received in advance of the sale or service.
post-closing trial balance
a list of all accounts and their balances at a particular date after we hae updated account balances for closing entries.
trial balance
a list of all accounts and their balances at a particular date, showing that total debits equal total credits.
liability
a present responsibility to sacrifice assets in the future due to a transaction or other event that happened in the past
revenues
amounts earned from selling products or services to customers.
liabilities
amounts owed to creditors
declining balance method
an accelearted depreciation method that records more depreciation in earlier years and less depreciation in later years
declining-balance method
an accelerated depreciation method. Declining-blance depreciation will be higher than straight-line depreciation in earlier years, but lower in later years.
contra account
an account with a balance that is opposite, or "contra" to that of its related accounts.
contra revenue account
an account with a balance that is opposite, or "contra," to that of its related revenue account.
LIFO adjustment
an adjustment used to convert a company's own inventory records maintained on a FIFO basis to LIFO basis for preparing financial statements
debt covenant
an agreement between a borrower and a lender that requires that certain minimum financial measures be met or the lender can recall the debt.
corporation
an entity that is legally separate from its owners
extraordinary item
an event that is (1) unusual in nature and (2) infrequent in occurrence.
copyright
an exclusive right of protection given to the creator of a published work such as a song, film, painting, photograph, book, or computer software.
patent
an exclusive right to manufacture a product or to use a process
contingent gain
an existing uncertain situation that might result in a loss
multiple-step income statement
an income statement that reports multiple levels of income or profitability
financial accounting standards board (FASB)
an independent, private body that has primary responsibiltiy for the establishment of GAAP in the United States.
line of credit
an informal agreement that permits a company to borrow up to a prearranged limit without having to follow formal loan procedures and prepare paperwork.
horizontal analysis
analyzes trends in finanacil statement data for a single company ove rtime.
cash
another important control used by nearly all companies to help maintain control of ____ is a bank reconciliation.
bank reconciliation
another important control used by nearly all companies to help maintain control of cash is a __
average collection period
approximate number of days the average accounts receivable balance is outstanding. It equals 365 divided by the receivables turnover ratio.
average days in inventory
approximate number of days the average inventory is held. It equals 365 days divided by the invetory turnover ratio.
angel investors
are wealthy individuals in the business community, like those featured in the television show Shark Tank, willing to riks investment funds on a promising business venture.
cash
as a final step in the reconciliation process, a company must update the balance in its ____ account, to adjust for the items used to reconcile the company's ____ balance.
cash account
as a final step in the reconciliation process, a company must update the balance in its ____________, to adjust for the items used to reconcile the company's cash balance.
MACRS
as a result, most companies use the straight-line method for fianancial reporting and the Internal Revenue Service's prescribed accelerated method (called __________) for income tax purposes. Thus, companies record higher net income using straight-line depreciation and lower taxable income using __________ depreciation. __________ combines decling-balance methods in earlier years with straight-line in later years to allow for a more advantageous tax depreciation deduction. congress, not accountants, approved __________ rules to encourage greater investment in long-term assets by U.S. companies
cash equivalents
cash includes not only currency, coins, balances in checking accounts, and checks and money orders received from customers, but also ________________, defined as investments that mature within three months from the date of purchase (such as money market funds, treasury bills, and certificates of deposit).
annuity
cash payments of equal amounts over equal time periods.
dividends
cash payments to stockholders.
deposits outstanding
cash receipts of the company that have not been added to the bank's record of the company's balance.
acid-test ratio
cash, current investments, and accounts receivable divided by current liabilities; measures the availability of liquid current assets to pay current liabilities.
NSF checks
checks drawn on nonsufficient funds, or bad checks from customers.
checks outstanding
checks the company has written that have not been subtracted from the bank's record of the compnay's balance.
cash flows
classifying each ________b source (operating, investing, or financing activities) is more informative than simply listing the various __________.
no-par value stock
common stock that has not been assigned a par value
cash
companies report information about ____ receipts and payments during the period in a statement of ____ flows.
cash
companies whose free ____ flow is declining relative to the trend in net income are likely to have lower-quality earnings.
price-earnings (PE) ratio
compares a company's share price with its earnings per share.
raw materials
components that will become part of the finished product but have not yet been used in production.
expenses
consider another example. Deckers outdoor creates brand awareness and increases market value through advertising, but under accounting rules, it ________ all its advertising costs as it incurs them.
cash
consistent with our discussion of ____ receipts, ____ disbursements include not only disbursing physical ____, but also writing checks and using credit cards and debit cards to make payments.
cash disbursement
consistent with our discussion of cash receipts, __________________ include not only disbursing physical cash, but also writing checks and using credit cards and debit cards to make payments.
allowance for uncollectible accounts
contra asset account representing the amount of accounts receivable that we do not expect to collect.
capital lease
contract in which the lessee essentially buys an asset and borrows the money through a lease to pay for the asset.
operating lease
contract in which the lessor owns the asset and the lessee simply uses the asset temporarily
Freight-out
cost of freight on shipments to customers, which is included in the income statement either as part of cost of goods sold or as a selling expense.
inventory turnover ratio
cost of goods sold divided by average inventory; the number of times the firm sells its average inventory balacne during a reporting period.
Cost of goods sold
cost of the inveotry that wassold during the period
Freight-in
cost to transport inventory to the company, which is included as part of inventory cost.
expenses
costs of providing products and services.
balance sheet
creditors also need to understand the _____________; it's the company's assets that will be used to pay liabilities (the amounts due creditors) as they become due.
cash
currency, coins, balances in savings and checking accounts, items acceptable for deposit in these accounts (such as checks received from customers), and cash equivalents.
current ratio
current assets divded by current liabilities; measures the availability of current assets to pay current liabilities.
sales return
customer returns a product
uncollectible accounts
customers' accounts that no longer are considered collectible.
operating activities
includes cash receipts and cash payments for transactions relating to revenue and expense activities.
cash
debit cards also provide an additional control for ____ receipts.
current portion of long-term debt
debt that will be paid within the next year.
current liabilities
debts that, in most cases, are due within one year. However, when a company has an operating cycle of longer than a year, its current liabilities are defined by the length of the operating cycle, rather than by the length of one year.
financing activities
includes cash transaction resulting from the external financing of a business.
articles of incorporation
describes the nature of the firm's business activities, the shares to be issued, and the composition of the initial board of directors.
net income
difference between revenues and expenses
dividends
distributions by a corporation to its stockholders.
privately held corporation
does not allow investment by the general public and normally has fewer stockholders
residual value
due to the difficulty in estimating residual value, it's not uncommon to assume a _______________ of zero.
cash disbursement
employees responsible for making _________________ should not also be in charge of cash receipts.
closing entries
entries that transfer the balances of all temporary accounts (revenues, expenses, and dividends) to the balance of the Retained Earnings account.
adjusting entries
entries used to record events that occur during the period but that have not yet bee recorded by the end of the period.
book value
equal to the original cost of the asset minus the current balance in Accumulated Depreciation
accounting equation
equation that shows a company's resources (assets) equal creditors' and owners' claims to those resources (liabilities and stockholders' equity.)
internal transactions
events that affect the finanancial position of the company but do not include an exchange with a separate economic entity
repairs and maintenance
expenses that maintain a given level of benefits in the period incurred.
vertical analysis
expresses each item in a financial statement as a percentage of the same base amount.
cost effectiveness
financial accounting information is provided only when the benefits of doing so exceed the costs.
cash
financing activities include transactions designed to raise ____ or finance the business.
vertical analysis
for ____________________, we express each item as a percentage of the same base amount, such as a percentage of sales in the income statement or as a ercentage of total assets in the balance sheet.
cash
for example, comparing ____ receipts recorded by Starlight to those reported as deposits in the bank statement reveals that ____ sales receipts of $2200 on March 31 are not yet reflected in the bank's balance by the end of March.
Airline industry
for instance, a fringe benefit in the _________________ is free flights for employees and their families.
notes receivable
formal credit arrangements evidenced by a written debt instrument, or note
sarbanes-oxley act (SOX)
formally titled the Public Company Accounting Reform and Investor Protection Act of 2002, this act provides regulation of auditors and the types of services they furnish to clients, increases accountability of corporate executives, addresses conflicts of interest for securities analysts, and provides for stiff criminal penalties for violators.
collusion
fraud cases that involve __________ are typically several times more severe than are fruad cases involving a single perpetrator. This suggest that __________ is effective in circumventing control procedures.
big bath
recording all losses in one year to make a bad year even worse.
cash
from the statement of ____ flows, investors and creditors can see that the major source of ____ inflow for Eagle is the issuance of common stock, a financing activity.
cash
from the statement of ____ flows, investors know a company's ____ inflows and ____ outflows related to 1. operating activities, 2. investing activities, 3. and financing activities.
cash
furthermore, it would be time-consuming to run to the bank for a $10 ____ withdrawal.
cash
given appropriate documentation, suchas a receipt for the purchase of the $10 pizza for the staff meeting or of office supplies, the petty-____ remaining in the fund plus all receipts documenting how money was spent should equal the amount of the fund.
gross profit ratio
gross profit divided by net sales; measures the amount by which the sale price of inventory exceeds its cost per dollar of sales.
liquidity
having sufficient cash (or other assets convertible to cash in a relatively short time) to pay currently maturing debts.
service life
how long the compnay expects to receive benefits from the asset before disposing of it; also referred to as useful life.
cash
however, the timing of revenues and expenses recorded under accrual-basis accounting may differ from the timing of operating ____ flows.
cash
however, using your debit card will result in a decrease in your ____ account.
book value
impairemnt occurs when the future cash flows (future benefits) generated for a long-term asset fall below its __________ (cost minus accumulated depreciation.)
cash
important controls over ____ receipts include segregation of duties for those who handle ____ and independent verification of ____ disbursements include payment by check, credit card, or debit card, separation of duties, and various authorization and documentation procedures.
cash disbursements
important controls over _________________ include payment by check, credit card, or debit card, separation of duties, and various authorization and documentation procedures.
land improvements
improvements made to land such as paving, lighting, and landscaping that, unlike land itself, are subject to depreciation.
bank reconciliation
in a ___________________ we calculate the bank's balance for (1) cash transactions already recorded by the company but not yet recorded by the bank and (2) bank errors.
cash
in a bank reconciliation we calculate the bank's balance for 1. ____ transaction already recorded by the company but not yet recorded by the bank and 2. bank errors.
cash
in a bank reconciliation we calculate the bank's balance for 1. ____ transactions already recorded by the company but not yet recorded by the bank and 2. bank errors.
cash flows from operating activities
in other words, _____________________________________ include the elements of net income, but reported on a cash basis.
cash
in other words, operating activities include the ____ effect of the same activities that are reported in the income statement to calculate net income.
going concern assumption
in the absence of information to the contrary, a business entity will continue to operate indefinitely
book value
in the balance sheet, we report equipment at its current ___________, which equals its original cost less accumulated depreciation.
cash
in the same way, most companies like to keep a small amount of ____ on hand at the company's location for minor purchases such as postage, office supplies, delivery charges, and quick business meal expenses.
cash
in the third step, we update the balance of the company's _____ ccount by recording transaction that have occurred but have not yet been recorded.
installment payment
includes both an amount that represents interest and an amount that represents a reduciotn of the outstanding balance.
quick assets
includes only cash, current investments, and accounts receivable.
auditors
independent _______ use their understanding of accounting principles and business practices to provide an opinion of reasonable assurance that account balances are free from material misstatements resulting from errors and fraud.
Timeliness
information being available to users early enough to allow them to use it in the decision process.
capitalized interest
interest costs recorded as assets rather than interest expense
annual interest rate
interest=face value*_______________________*fraction of the year.
weighted-average cost method
inventory costing method that assumes both cost of goods sold and ending inventory consist of a random mixture of all the goods available for sale.
last-in, first-out method (LIFO)
inventory costing method that assumes the last units purchased (the last in) are the first ones sold (the first out).
specific identification method
inventory costing method that matches or identifies each unit of inventory with its actual cost.
finished goods
inventory items for which the manufacturing process is complete.
perpetual inventory system
inventory system that maintains a continual record of inventory purchased and sold.
periodic inventory system
inventory system that periodically adjusts for purchases and sales inventory at the end of the reporting period based on a physical count of inventory on hand.
average inventory
inventory turnover ratio=cost of goods sold/___________________
cash
investing activities include ____ investments in long-term assets and investment securities.
cash
it does not provide any details regarding ____ receipts and payments during the period.
cash
it's easiest to understand ____ flow information by looking at the underlying transactions.
Sarbanes-Oxley Act
known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly referred to as SOX; the act established a variety of new guidelines related to auditor-client relations and internal control procedures.
material
large enough to influence a decision
book value
notice two unusual features of declining-balance depreciation. First, we multiply the rate by ___________ (cost minus accumulated depreciation), rather than by the depreciable cost (cost minus residual value).
receivables turnover ratio
number of times during a year that the average accounts receivable balance is collected (or "turns over"). It equals net credit sales divided by average accounts receivable.
debt financing
obtaining additional funding from lenders.
equity financing
obtaining additional funding from stockholders
addition
occurs when a new major component is added to an existing asset.
impairment
occurs when the future cash flows (future benefits) generated for a long-term asset fall below its book value (cost minus accumulated depreciation.)
cash
once the bank receives the deposits oustanding, the bank's ____ balance wil increase.
cash
one of the more common techniques used by investors for measuring earnings quality relies on comparing the trend in a company's reported net income to its trend in free ____ flow.
Certified Public Accountant
only a ______ may sign an audit opinion.
cash
only transactions involving ___ affect a company's ____ flows.
cash
operating activities include ____ transactions involving revenue and expense events during the period.
free cash flow
operating cash flows plus investing cash flows during the period
cash flow to sales
operating cash flows/net sales
income before income taxes
operating income plus nonoperating revenues less nonoperating expenses.
bonds
perhaps your local school board issued ____ to build a new football stadium for the high school, or maybe your hometown isseud ____ to build a new library.
financing statements
periodic reports published by the company for the purpose of providing information to external users.
allowance method
recording an adjustment at the end of each period to allow for the possibility of future uncollectible accounts. The adjustment has the effects of reducing assets and increasing expenses.
aggressive accounting practices
practices that result in reporting higher income, higher assets, and lower liabilities
conservative accounting practices
practices that result in reporting lower income, lower assets, and higher liabilities.
work-in-process
products that have started the production process but are not yet complete at the end of the period.
operating income
profitability from normal operations that equals gross profit less operating expenses.
venture capital firms
provide additional financing, often in the millions, for a percentage ownership in the company.
amortization schedule
provides a summary of the cash interst payments, interest expense, and changes in carrying value for debt instruments.
basket purchase
purchase of more than one asset at the same time for one purchase price
times interest earned ratio
ratio that compares interest expense with income available to pay those charges.
matching principle
recognize expenses in the same period as the revenues they help to generate.
cash
reconciling the bank account involves three steps: 1. adjust the bank's ____ balance, 2. adjust the company's ____ balance, and 3. update the company's _____ account by recording items identified in step 2.
capitalize
record an expenditure as an asset
revenue recognition principle
record revenue in the period in which it's earned
cash-basis accounting
record revenues at the time cash is received and expenses at the time cash is paid.
accrual-basis accounting
record revenues when earned (the revenue recognition principle) and expenses with related revenues (the matching principle.
liquidity
refers to a company's ability to pay its current liabilities
solvency
refers to a company's ability to pay its long-term liabilities
quality of earnings
refers to the ability of reported earnings to reflect the company's true earnings, as well as the usefulness of reported earnings to predict future earnings.
retained earnings
represents all net income, less all dividends, since the company began.
market interest rate
represents the true interest rate used by investors to value a bond.
assets
resources owned by a company
expenses
revenues and ________ reported in the income statement.
private placement
sale of debt securities directly to a single investor.
asset turnover
sales revenue divided by average total assets; measures the sales revenue generated per dollar of assets.
sales tax payable
sales tax collected from customers by the seller, representing current liabilities payable to the government.
sales allowance
seller reduces the customer's balance owed or provides at least a partial refund because of some deficiency in the company's product or service.
covertible
shares can be exchanged for common stock.
redeemable
shares can be returned to the corporation at a fixed price.
cumulative
shares receive priority for future dividends, if dividends are not paid in a given year.
cash equivalents
short-term investments that have a maturity date no longer than three months from the date of purchase.
noncash activities
significant investing and financing activities that do not affect cash.
cash
similarly, we calculate the company's balance for 1. cash transactions already recorded by the bank but not yet recorded by the company and 2. company errors.
petty cash fund
small amount of cash kept on hand to pay for minor purchases.
cash
the amount of ____ recorded in a company's balance sheet includes currency, coins, and balances in savings and checking accounts, as well as items acceptable for deposit in these accounts, sucha s cehcks received from custoemrs.
accounts receivable
the amount of cash owed to the company by its customers from the sale of products or services on account
net realizable value
the amount of cash the firm exepcts to collect.
bad debt expense
the amount of the adjustment to the allowance for uncollectible accounts, representing the cost of estimated future bad debts charged to the current period.
paid-in capital
the amount stockholder have invested in the company.
residual value
the amount the company expects to receive from selling the asset and the end of th its service life; also referred to as salvage value.
operating cycle
the average time between purcasing or asquiring inventory and receiving cash proceeds from its sale.
cash
the balance of ____ also includes cash equivalents, which are defined as short-term investments that have a maturity date no longer than three months from the date of purchase.
cash equivalents
the balance of cash also includes _______________, which are defined as short-term investments that have a maturity date no longer than three montsh from the date of purchase.
cash
the balance sheet provides only the final balance for ____.
carrying value
the blance in the bonds payable account, which equals the face value of bonds payable minus the discount or the face value plus the premium.
cash equivalents
the company considers all highly liquid debt instruments with an original maturity of three months or less when purchased to be _______________.
cash equivalents
the company considers all highly liquid investments purchased with a remaining maturity of three montsh or less to be _______________.
cash
the company must adjust its balance of ____ downward to reverse the increase i ____ it recorded at the time of deposit.
allowance for uncollectible accounts
the contra asset account ______________________________________ represents the amount of accounts receivable we do not expect to collect.
improvement
the cost of replacing a major component of an asset
replacement cost
the cost to replace an inventory item in its identical form.
prepaid expenses
the costs of assets acquired in one period that will be expenses in a future period.
payment date
the date of the actual cash distribution of dividends
declaration date
the day on which the board of directors declares the cash dividend to be paid.
cash dividend
the declaration of ______________ decreases retained earnings and increases dividends payable.
cash dividend
the declaration of a _____________ creates a binding legal obligation for the comopany declaring the dividend.
residual value
the depreciation process also requires accountants to estimate what an asset's value will be at the end of its service life. Called _________________, or salvage value, this value is the amount the company expects to receive from selling the asset at the end of its service life.
double-declining method
the depreciation rate we use under the declining-balance method is a multiple of the straight-line rate, such as 125%, 150%, or 200%, which we refer to as the ________________________________ since the rate is double the straight-line rate.
cash basis accounting
the difference between accrual basis and ______________________ is timing.
working capital
the difference between current assets and current liabilities.
carrying value of bonds
the difference between interest expense and the cash paid increases the _________-_________________.
Gross profit
the difference between sales revenue and cost of goods sold
allowance for uncollectible accounts
the difference between the total accounts receivable and the _____________________________________ is referred to as net accounts receivable, which is net realizable value.
net accounts receivable
the difference between total accounts receivable and the allowance for uncollectible accounts.
property dividend
the distribution of a noncash asset to stockholders.
periodicity assumption
the economic life of an enterprise (presumed to be indefinite) can be divided into artificial time periods for financial reporting.
cash
the final amount reported in the statement of ____ flows, 6900, is the same amount of ____ reported in the balance sheet.
debt to equity ratio
total liabilities divided by total stockholders' equity; measures a company's risk.
organization chart
traces the line of authority within the corporation
auditors
trained individuals hired by a company as an independent party to express a professional opinion of the accuracy of that company's financial statements.
financing activities
transactions involving external sources of funding.
operating activities
transactions involving the primary operations of the company, such as providing products and services to customers and the associated costs of doing so, like utilites, taxes, advertising, wages, rent, and maintenance.
investing activities
transactions involving the purchase and sale of (1) long-term resources such as land, buildings, equipment, and machinery and (2) any resoureces nt directly related to a company's normal operations.
external transactions
transactions the firm conducts with a separate economic entity
credit sales
transfer of products and services to a customer today while bearing the risk of collecting payment form that customer in the future.
collusion
two or more people acting in coordination to circumvent internal controls.
contingencies
uncertain situations that can result in a gain or a loss for a company.
cash basis accounting
under both accrual basis and ______________________, all revenues and expenses are eventually recorded for the same amount.
allowance method
under the ________________________, companies are required to estimate future uncollectible accounts and record those estimates in teh current.
dividends in arrears
unpaid dividends on cumulative preferred stock
understandability
users must understand the inormation within the context of the decision they are making.
aging method
using a higher percentage for "old" accounts than for "new" accounts when estimating uncollectiable accounts.
allowance method
using the _________________ we account for events (customers' bad debts) that have not yet occured but that are likely to occur.
allowance for uncollectible accounts
we adjust for future bad debts by making an _____________________________________.
allowance method
we collect for uncollectible accounts using what's called the _________________.
balance sheet
we look at the change in asset, liability, and stockholders' equity accounts from the end of the last period to the end of this period to find __________ from operating, investing, and financing activities.
cash
we record items that increase the company's ____ with a debit to _____.
payment of cash dividends
we report the _________________________ as a cash outflow from financing activities.
allowance for uncollectible accounts
we report the _____________________________________ in the asset section of the balance sheet, but it represents a reduction in the balance of accounts receivable.
angel investors
wealthy individuals in the business community willing to risk investment funds on a promising business venture.
accrued revenue
when a company has earned revenue but hasn't yet received cash or recorded an amount receivable.
accrued expense
when a company has incurred an expense but hasn't yet paid cash or recorded an obligation to pay.
common stock
when a company receives cash from issuing ____________, it debits cash.
unearned revenue
when a company receives cash in advance from a customer for products or services to be provided in the future.