Intro to Accounting
Balance Sheet Equation
Assets = Liabilities + Stockholders' Equity
Under the cost of goods sold model, which of the following representations are correct?
Cost of goods available for sale - Ending inventory = Cost of goods sold Beginning inventory + Net purchases = Cost of goods available for sale Cost of goods sold + Ending inventory = Cost of goods available for sale
An unqualified, or, clean, independent auditor's opinion does which of the following?
Explains that the audit was conducted in accordance with the standards of the GAAP (United States) States that it is the independent auditor's responsibility to express an opinion about the financial statements States that the named financial statements "present fairly, in all material respects" the entity's cash flows for the period
The "other income and expense" category is normally reported after income from operations and includes which items?
Losses Interest income
current Liabilities
Those liabilities due to be paid within one year of the balance sheet date.
True or false: The growing complexity of federal, state, municipal, and foreign income tax laws has led to a demand for professional accountants who are specialists in various aspects of taxation.
True
The balance in the Wages Payable account increased from $13,000 at the beginning of the month to $20,000 at the end of the month. Wages accrued during the month totaled $82,000.
Wages paid during the month totaled $75,000
Recall 3 questions financial statement users may want to know when reviewing the income statement ?
What were the financial results of the firms operations for the fiscal period? How much profit or loss did the firm have? Are sales increasing relative to cost of goods sold and other operating expenses?
Identify the correct statements about the matching principle.
-Expenses are measured by the cash or other asset used up to obtain the economic benefit they represent. -Expenses such as depreciation result from an allocation of the cost of an asset to the periods that are expected to benefit from its use. -Some expenses (administrative salaries, for example) are recognized in the period in which they are incurred.
Income Statement
-statement of earnings -profit and loss statenent -statement of operations
what five questions can you ask yourself while analyzing the transactions on a financial statement?
1. What's going on? 2. What accounts are affected? 3. How are they affected? 4. Does the balance sheet balance? Do the debits equal the credits? 5. Does my analysis make sense?
Rearrange the following accounts or captions in the order in which they appear on the income statement: 1. Income from operations 2. Income taxes 3. Cost of goods sold 4. Gross profit
3,4,1,2
Unquiet Hands, Inc. borrowed $30,000 on October 1, 2019 at 6% interest with both principal and interest due on September 30, 2020. How much should be in Unquiet Hands, Inc's interest payable account at December 31, 2019?
450
ledger
A book or file of accounts.
Example of Equity
A car or house owner refers to equity as the market value of the car or house less the loan or mortgage balance.
Journal
A day by day chronological record of transactions.
Credit Balance
an account that has a balance on its right side
Accounts Payable
A liability representing an amount payable to another entity, usually because of the purchase of merchandise or services on credit.
Account
A record in which transactions affecting individual assets, liabilities, stockholders' equity, revenues, and expenses are recorded.
For liabilities and stockholders' equity how is it recorded?
debit decreases and credit increases
Financial reporting is primarily aimed at meeting the needs of:
external users of accounting information who do not otherwise have access to the firm's records.
Financial statements are primarily oriented toward the ____(external/internal) user and are primarily concerned with _____ (past/present/future) information.
external, past
Debit entries:
increase expense and loss accounts and decrease revenue and gain accounts.
debit means:
left
Assets = Liabilities + ______.
stockholders' equity
accounts payable + other accrued liabilities + short term debt =
total current liabilities
Unquiet Hands, Inc. borrowed $30,000 on October 1, 2019 at 6% interest with both principal and interest due on September 30,2020. Which of the following journal entries should the firm use to accrue interest at the end of each month?
Dr. - Interest Expense Cr. Interest Payable
The entry typically recorded when revenues are earned is:
Dr. Cash (or Accounts Receivable) Cr. Sales (or Service Revenue)
The entry to record the recognition of cost of goods sold is:
Dr. Cost of Goods Sold Cr. Inventory
Which entry can be recorded as an accrual adjusting entry? Multiple choice question.
Dr. Interest receivable Cash 200 Cr. Interest Income 200 Reason: Dr. Interest Receivable 200 Cr. Interest Income 200 Period-end adjustments affect both the balance sheet and the income statement. Cash is never involved in an adjusting entry.
To accrue $7,100 of employee salaries for the last week of February, the employers journal entry is:
Dr. Salaries Expense 7,100 Cr. Salaries Payable 7,100
Net Assets and stockholder equity are express in the form of an equation:
Net Assets = stockholder equity
The following accounting data is obtained from the financial statements of Excellent Company: Net income $560,000 Depreciation expense 340,000 Cash dividends paid 409,000 Gain on sale of machinery 1,200 Decrease in accounts receivable 14,000 Increase in inventories 9,000 Decrease in accounts payable 3,500 Proceeds from sale of land 40,000. Using the indirect method of cash flow presentation, calculate the net cash flow provided (used) by operations for Excellent Company for the period.
Net cash provided by operating activities amounts to $900,300. Net cash flow provided by operations = (Net income + Depreciation expense - Gain on sale of machinery + Decrease in accounts receivable - Increase in inventories - Decrease in accounts payable = ($560,000 + $340,000 - $1,200 + $14,000 - $9,000 - $3,500) = $900,300
If Purchases = $3,500, Freight-in = $400, Purchase discounts = $100, and Purchase returns and allowances = $200, calculate the Net purchases.
Net purchases = $3,500 + $400 - $100 - $200 = $3,600
Which statements are true in regard to the five questions of transaction analysis methodology?
"Does my analysis make sense?" is a feedback loop to ensure that the entry you recorded is consistent with your understanding of "What's going on?" "What accounts are affected?" is where you identify the specific accounts affected by the transaction. "Does the balance sheet balance?" is essentially the same question as "Do the debits equal the credits?"
Based on the following information (amounts in thousands), calculate income from operations: Income tax expense = $10 General and administrative expenses = $30 Loss on sale of equipment = $5 Selling expenses = $20 Gross profit = $110 Interest expense = $15
$110 - $20 - $30 = $60 = $60,000
Based on the following information (amounts in thousands), calculate income from operations: Cost of goods sold = $120 Marketing and selling expenses = $20 Gain on sale of land = $30 Administrative expenses = $15 Net sales = $200 Interest expense = $5 Research and development expenses = $10
$200 - $120 - $20 - $15 - $10 = $35 = $35,000
Sales on account during the month totaled $78,000. Cash collections of accounts receivable during the month totaled $72,000. The balance in the accounts receivable account at the end of the month was $31,000. No accounts receivable were written off as uncollectable during the month. The balance in the Accounts Receivable account at the beginning of the month was:
$25,000
The process of identifying, measuring, and communicating an organization's economic information for the purpose of making decisions and informed judgments is called _______ (bookkeeping/accounting).
accounting
A(n) (accrual/reclassification) period-end adjustment is required when a revenue has been earned but not yet received in cash.
accrual
Wisdom Co. has a note payable to its bank. An adjustment is likely to be required on Wisdom's books at the end of every month that the loan is outstanding to record the:
accrued interest expense for the month
Period-end adjustment entries:
affect both the balance sheet and the income statement. result in recording expenses in the period during which they were incurred.
Dividends
are distribution of earnings to the stockholders of the firm.
How many impacts can occur on each accounting transaction?
at least two
accounting equation
Assets = Liabilities + Stockholders' equity (A = L + SE). The fundamental relationship represented by the balance sheet and the foundation of the bookkeeping process.
An expanded version of the accounting equation could be:
Assets = liabilities + Paid in Capital + Beginning Retained Earnings + Revenues - Expenses - Dividends
If debits equal credits, what will be shown on the balance sheet?
Assets will equal the sum of liabilities and stockholders' equity.
Transactions
Example a sale/purchase, or a receipt of cash by a borrower and the payment of cash be a lender. Transactions are summarized in accounts.
Starting with gross sales and arriving at net sales, which of the following statements are true?
Sales discounts are subtracted. Sales returns and allowances are subtracted.
Decribe the "T" (account format)
On one side of the "T" additions to the account are recorded and on the other side of the T, subtractions are recorded.
The financial position of an entity is reported at a(n) ______ in time.
Point
assets
Probable future economic benefits obtained or controlled by an entity as a result of past transactions or events.
Bookkeeping
Procedures for sorting, classifying and presenting
If Freight-in = $600, Purchase discounts = $300, Purchase returns and allowances = $200, and Net purchases = $5,000, calculate the Purchases.
Purchases = $5,000 + $200 + $300 - $600 = $4,900
A firm has a 20 percent gross profit ratio, Net sales = $100,000, and Cost of goods available for sale = $88,000. Based on this information, which of the following statements are correct?
Reason: $100,000 x 20% = $20,000 Reason: $100,000 x 80% = $80,000 Reason: $88,000 - $80,000 = $8,000 Gross profit = $20,000 Cost of goods sold = $80,000 Ending inventory = $8,000
A retail store's cost for a particular toy is $15.00, and the store owners have a 25 percent desired gross profit ratio. What selling price should be established for this toy?
Reason: $15.00 / (1 - 25%) = $20.00
A firm has a 40 percent gross profit ratio, Net sales = $200,000, and Cost of goods available for sale = $170,000. Based on this information, which of the following statements are correct?
Reason: $200,000 x 40% = $80,000 Reason: $170,000 - $120,000 = $50,000 Gross profit = $80,000 Ending inventory = $50,000
A grocery store's cost for a particular cheese variety is $3.00 per pound, and the store owners have a 40 percent desired gross profit ratio. What selling price should be established per pound for this cheese?
Reason: $3.00 / (1 - 40%) = $5.00
A shoe store's cost for a particular pair of boots is $50.00, and the store owners have a 60 percent desired gross profit ratio. What selling price should be established for a pair of these boots?
Reason: $50.00 / (1 - 60%) = $125
Which accounts would be closed during the year-end closing process?
Rent Expense Sales Loss on Sale of Buildings Dividends Wages Expense
Which transactions would require a reclassification adjusting entry?
Rent received in advance Prepaid insurance
In the closing process, all income statement accounts (revenues, expenses, gains, and losses) and dividends are closed. What is the name of the account into which all those accounts are closed?
Retained Earnings
Assets = Liabilities + Paid-in capital + ______
Retained earnings (beginning of period) + Revenues (during the period) - Expenses (during the period)
By reporting discontinued operations on the income statement as a separate item, net of taxes, all the effects of the discontinued business segment are excluded from the ____ of continuing operations. More than one answer may be correct.
Revenues Expenses
Which statements are true of liability accounts?
They decrease with debit entries. They normally have a credit balance. They increase with credit entries.
Which statements are true of expense accounts?
They increase with debit entries. They decrease with credit entries. They normally have a debit balance.
What accounts are affected?
Think about whether one of the accounts is an asset, liability, stockholders' equity, revenue or expense;then apply that same logic to the other account involved in the transaction
What key interpretations are typically made from the statement of cash flows? More than one answer may be correct.
Whether the company's cash balance increased or decreased during the year Whether net cash flows provided by operations exceed the company's cash used for investing activities
Which of these are true, in regard to investing activities in the statement of cash flows? More than one answer may be correct.
Whether the company's cash balance increased or decreased during the year Whether net cash flows provided by operations exceed the company's cash used for investing activities
The process that results in the preparation and reporting of financial statements for an entity is referred to as _______ (financial/managerial/tax) accounting.
financial accounting
Fill in the blank question. Increases in an entity's net assets resulting from incidental transactions or nonoperating activities are referred to as (revenues/receivables/gains).
gains
Managerial accounting and cost accounting when compared to financial accounting:
have primarily an internal orientation, and the data are more likely to be used in a future-oriented way
Although revenues and expenses are reported on the income statement, they also:
impact stockholders' equity on the balance sheet
Investing activities in the statement of cash flows:
include the receipt of cash from the sale of land, buildings, and equipment. include the purchase and sale of long-term investments in debt and equity securities of other companies.
An entity's earnings for a reporting period are reported on the:
income statement
where are revenues and expenses reported?
income statement
Stockholders' Equity consist of
paid in capital + retained earnings + revenue - expenses
stockholders' equity consist of
paid in capital and retained earning
Managerial accounting provides information for:
planning, control, and decision-making
If cash is not expected to be received within a year, revenue usually is measured by the (present/future/market) value of the amount expected to be
present
The report format of the balance sheet ______. Multiple choice question.
presents assets above liabilities and stockholders' equity items
The account format of the balance sheet:
presents assets on the left and liabilities and stockholders' equity items on the right.
the net income can also represent the entities?
profit
The primary purpose of the statement of cash flows is to _____.
provide relevant information about the cash receipts and cash payments of an enterprise during a period
To be recognized, revenues must meet both the (realization/measurable/earned/materiaity) and (realization/measurable/earned/materiaity) criteria.
realization earned
A(n) (accrual/reclassification) period-end adjustment is required when the cash related to a revenue has been received but the revenue has not yet been recognized.
reclassification
account balances are set up so that if debits equal credits, the balance sheet will?
remain in balance
an adjusting journal entry recording an accrual
results in a better matching of revenues and expenses
net income is added to
retained earnings
what part of the financial statement are dividends deducted from?
retained earnings as shown on the statement of changes in retained earnings.
the net income is the difference between
revenue and expenses
Although _______ and ______ are reported on the income statement, they also impact the ending balance of retained earnings shown on the balance sheet.
revenues and expenses
credit means
right
statement of stockholders' equity consist of two main parts:
common stock and retained earning
The firm borrowed $15 from a bank, whats the impact on the accounting equation?
company asked the bank for more money: cash increased -Notes payable increases because company borrowed money from the bank
revenue - expenses =
net income
In a horizontal financial statement, the arrow from net income to stockholders' equity indicates that ______.
net income affects retained earnings, which is a component of stockholders' equity
Whats another term used when referring to stockholders equity?
net worth
On January 1, the beginning of its fiscal year, Wiggins Inc. had 100,000 shares of common stock outstanding. On April 1, 30,000 additional shares were issued for cash. On October 1, 20,000 shares of common stock were acquired as treasury stock (and are no longer outstanding). Calculate the weighted average number of shares outstanding for the year.
(100,000 x 3/12) + (130,000 x 6/12) + (110,000 x 3/12) = 117,500
Assume that in the current year a company performed $100 of services for a client but only $30 was collected in cash at the time the services were performed. This transaction would be recorded in the horizontal model with:
+30 Cash and +70 Accounts Receivable in the Assets column and +100 Service Revenue in the Revenues column.
Assume that in the current year a company collected $70 in cash from a customer for services that were performed in a prior period. This transaction would be recorded in the horizontal model with: Multiple choice question.
+70 Cash and -70 Accounts Receivable in the Assets column.
Equipment costing $25 was purchased for cash, whats the impact on the accounting equation?
- cost means that the company paid out: cash decreased -Equipment cost Increases
When revenues are earned, how are the financial statement affected? More than one answer may be correct.
-An increase to Sales or Service Revenues -An increase to net income -increase to accounts receivable
Merchandise costing $20 was purchased for inventory; $10 cash was paid, and $10 of the cost was charged on account, whats the impact on the accounting equation?
-Company paid for merchandise cost: merchandise inventory increases - company used cash, so cash decreases -company used card which is borrowed money: accounts payable increases
Generally accepted accounting principles and auditing standards require that the financial statements of an entity show what?
-Financial position at the end of the period - Earnings for the period -Cash flows during the period - Investments by and the distributions to owners (stockholders) during the period.
What principal categories of other operating expenses are frequently reported on the income statement?
-Research and development expenses -General and administrative expenses -Selling expenses
Which statements are true regarding the time orientation of financial statements?
-The income statement is prepared for a period of time. -The heading of a statement of cash flows might read "For the year ended December 31, 2018."
Which statements are true of stockholders' equity accounts?
-They decrease with debit entries. They normally have a credit balance. They increase with credit entries.
Tax practitioners typically develop specialization in the taxation of which of the following? (Check all that apply).
-Trusts and estates -International tax law issues
The financial statement effects of recognizing cost of goods sold include:
-a decrease to current assets. -an increase to expenses. -a decrease to net income.
List Current Liabilities as displayed on the balance sheet:
-accounts payable -other accrued liabilities - short term debt
Identify the statements that are correct about reclassification year-end adjustments.
A reclassification year-end adjustment is required when cash for a revenue has been received but the revenue has not been recognized yet. A reclassification year-end adjustment is required when cash has been paid for an expense but the expense has not been incurred yet.
Debit Entry
A record of a transaction involving a posting to the left side of an account
horitzontal model
A representation of the balance sheet and income statement relationship that is useful for understanding the effects of transactions and adjustments on the financial statements. The model is as follows:
Which of the following are acceptable/correct expressions of the balance sheet equation?
Assets = Liabilities + Paid-in capital + Retained earnings Assets = Liabilities + Paid-in capital + Retained earnings (beginning of period) + Revenues (during the period) - Expenses (during the period) Assets - Liabilities = Stockholders' equity Assets = Liabilities + Stockholders' equity
In the closing process, all income statement accounts (revenues, expenses, gains, and losses) and dividends are closed. What is the name of the account into which all those accounts are closed?
All expense accounts are closed by crediting each account for an amount equal to the adjusted year-end debit balance. Losses and dividends are closed in the same way that expenses are closed. All revenue accounts are closed by debiting each account for an amount equal to the adjusted year-end credit balance.
Which statement is true regarding the closing process?
All expense and loss accounts, as well as dividends, are credited for amounts equal to their year-end debit balances.
Which statements are true regarding the closing process?
All expense and loss accounts, as well as dividends, are credited for amounts equal to their year-end debit balances. All revenue and gain accounts are debited for amounts equal to their year-end credit balances. Losses and dividends are closed in the same way that expenses are closed.
T- Account
An account format with a debit (left) side and a credit (right) side.
Identify the statements that are correct about accrual year-end adjustments.
An expense is accrued when the expense has been incurred but not yet paid for in cash. A revenue is accrued when the revenue has been earned but not yet received in cash.
Charts of Accounts
An index of the accounts contained in a ledger and each account is numbered to facilitate the frequent written references that are made to it.
Investors organized the firm and invested $30, thus becoming the initial group of stockholders, whats the impact on the accounting equation?
Analyze: - investor invested $30 that means that cash was brought into the -(Transaction) Cash will be increasing - Paid in Capital increases
Equations to recall
Assets = Liabilities + Stockholders' equity Assets = Liabilities + Paid-in capital + Retained earnings Assets = Liabilities + Paid in capital + Retained earnings (beginning of period) + Revenues (during the period) - Expenses (during the period)
What happens to the amounts in the balance sheet equation if the entity operates at a profit?
Assets (cash) will increase ↑ and if the equation is to balance (and it must), then stockholder's equity must increase ↑.
What formula should you use to find the stockholders equity?
Assets - Liabilities = Stockholders equity
What are some common causes of inventory shrinkage?
Theft Obsolescence Errors
If Ending inventory = $500, Net purchases = $2,800, and the Cost of goods available for sale = $3,000, calculate the Beginning inventory (BI) and the Cost of goods sold (CGS).
BI = $3,000 - $2,800 = $200 CGS = $3,000 - $500 = $2,500
Every financial transaction that is accounted for will cause a change somewhere in what financial statement?
Balance Sheet
Merchants who send you a notice that they have "charged" your account are really communicating that they have (debited/credited) your account in their accounting records to (increase/decrease) your account balance, which is shown as a(n) (asset/liability) from their perspective, since you owe them money.
Blank 1: debited Blank 2: increase Blank 3: asset o
When a bank (debits/credits) your account for the service charges incurred during the month, what it is really communicating is that it is (increasing/decreasing) the (asset/liability) recorded in its accounting records to represent your account from its perspective.
Blank 1: debits Blank 2: decreasing Blank 3: liability
Accounts are summarized in financial (statements/entities/transactions), whereas (statements/entities/transactions) are summarized in accounts.
Blank 1: statements Blank 2: transactions
Current Assets
Cash and those assets that are likely to be converted to cash or used to benefit the entity within one year of the balance sheet date.
Name tangible assets
Cash, merchandise inventory (things on the shelf in stores), equipment (used to keep the business going) cash register, laptop, printer, phone etc., accounts receivable
transactions
Economic interchanges between entities that are accounted for and reflected in financial statements.
Which entry can be recorded as a reclassification adjusting entry?
Dr. Supplies 300 Cr. Supplies Expense 300 Reason: Correct. Period-end adjustments affect both the balance sheet and the income statement.
Which entry can be recorded as an accrual adjusting entry?
Dr. Wages Expense 100 Cr. Wages Payable 100 Reason: Period-end adjustments affect both the balance sheet and the income statement.
Chicago Consulting, an engineering consulting firm, provided $6,000 of services to a client; the client paid $2,000 when the bill was submitted and will pay the balance within a week. Chicago Consulting will record this transaction by
Dr.-- Cash-- 2,000 Dr. -- Fees receivable- 4,000 Cr. --Fees revenue $6,000
If Beginning inventory = $300, Cost of goods sold = $1,800, and Net purchases = $2,000, calculate the Cost of goods available for sale (GAS) and the Ending inventory (EI).
GAS = $300 + $2,000 = $2,300 EI = $2,300 - $1,800 = $500
If Ending inventory = $600, Cost of goods sold = $1,400, and Net purchases = $1,500, calculate the Cost of goods available for sale (GAS) and the Beginning inventory (BI).
GAS = $600 + $1,400 = $2,000 BI = $2,000 - $1,500 = $500
The goal of the (IASB/IASC/IFRS) is to develop a single set of high-quality, understandable, enforceable, and globally accepted financial reporting standards.
IASB
charge
In bookkeeping, a synonym for debit.
Identify a subtotal that is reported in a multiple-step income statement.
Income before taxes
The net income is reported on what two financial statements?
Income statement and the statement of changes in stockholders' equity
A debit entry will:
Increase an expense account
List the correct (normal) order of the five questions of transaction analysis methodology shown below: 1 What accounts are affected? 2 How are the accounts affected? 3 Does my analysis make sense? 4 What's going on? 5 Does the balance sheet balance?
Insurance Expense, Service Revenue, Loss on Sale of Equipment, and Sales
Which group of accounts would all be closed in the year-end closing process?
Interest Income, Supplies Expense, Dividends, and Gain on Sale of Land
Which of these statements accurately describe a chart of accounts?
It is usually sequenced with assets listed first, followed by liabilities, stockholders' equity, revenues, and expenses. It serves as an index to a company's ledger.
Which of the following are true regarding the Financial Accounting Standards Board (FASB) Accounting Standards Codification?
It made it easier to access and research authoritative accounting standards. It superseded the FASB's SFAS series and other divergent sources of U.S. generally accepted accounting principles (GAAP). It became effective in July 2009.
What does it mean when a balance sheet has been prepared for an organization?
It means that the organization's financial position at a point in time has been determined and summarized.
what affect does the profit has on the balance sheet?
Stockholders' equity increase ↑, and to keep the equation in balance, assets will increase ↑ OR liabilities will decrease ↓.
Concerning the direct method presentation of the statement of cash flows, which of the following statements are true? More than one answer may be correct.
The FASB encourages companies to use the direct method. The operating activity transactions include cash paid to employees, cash payments of interest, and cash payments for taxes. The direct method involves listing each major class of cash receipts transactions and cash disbursements transactions for each side of three activity areas.
Account Balance
The arithmetic sum of the additions and subtractions to an account through a given date.
Which of the following statements are true regarding the time orientation of financial statements?
The balance sheet is focused on a point in time. The statement of cash flows is prepared for a period of time.
What process should we understand to make decisions and informed judgments from the financial statements.
The bookkeeping process
Is the building that occupied by a company listed as an asset and why?
The building is not shown as an asset unless the company owns the building. If the business owner doesnt own the property it will not be listed as an asset.
debit
The left side of an account. An increase in asset and expense accounts; a decrease in liability, stockholders' equity, and revenue accounts.
transaction analysis methodology
The process of answering five questions to ensure that a transaction is understood:
Post
The process of recording a transaction in the respective ledger accounts using a journal entry as the source of the information recorded.
credit
The right side of an account. A decrease in asset and expense accounts; an increase in liability, stockholders' equity, and revenue accounts.
1. Section 404 of the Sarbanes-Oxley Act of 2002 requires all SEC-regulated companies to include in their annual reports:
a report by management on the effectiveness of the company's internal control over financial reporting.
In a manual bookkeeping system each account is:
a separate page in a sequence to facilitate the posting process
Balance Sheet
a statement of financial position
How does banks use the term debit and credit?
banks use it to describe additions to or subtractions from an individual's checking account.
Fill in the blank question. Revenues generally are measured by the amount of (stock/inventory/cash) received or expected to be received from the transaction.
cash
how are decreases in assets are recorded as?
credit entries to these accounts
In bookkeeping and accounting, debit means ______ and means _______ .
credit means right
Fill in the blank question. The name(s) and amount(s) of any accounts to be (debited/credited) are indented and shown to the right.
credited
how are increases in assets recorded?
debit entries to these accounts
The name(s) and amount(s) of any accounts to be (debited/credited) are listed first and shown to the left.
debited
Merchants who send you a notice that they have "charged" your account are really communicating that they have:
debited your account to increase your account balance, which is shown as an asset (accounts receivable) in their accounting records.
When a bank debits your account for the service charges incurred during the month, what it is really communicating is that it is:
decreasing your account balance, which is shown as a liability from its perspective.
Fill in the blank question. When a segment, or major portion of a business, is disposed of, it is appropriate to disclose separately the impact that the (extraordinary/discontinued) operation has had on the current operations of the firm, as well as its impact on any previous year results that are shown for comparative purposes.
discontinued
Fill in the blank question. When an entity has completed, or substantially completed, the activities it must perform to be entitled to the revenue benefits (the increase in cash or some other asset, or the satisfaction of a liability), the (realization/earned/measurable) criterion has been met.
earned
In period-end adjustment entries, ______.
either the debit or the credit affects the income statement
When using the horizontal model for a transaction that affects both the balance sheet and the income statement, the balance sheet will balance when the ______.
income statement effect on stockholders' equity is considered
The accountant at WooSah! USA made an adjusting entry at the end of February to accrue interest on a note receivable from a customer. The effect of this entry is to
increase ROI for February
A credit entry will:
increase a liability account
A newspaper ad submitted and published this week, with the agreement to get paid for it next week would, in the newspaper's records:
increase assets and increase revenues
In an advertiser's records, a newspaper ad submitted and published this week with the agreement to pay for it next week would:
increase liabilities and increase expenses
The effect of an adjustment on the financial statements is usually to
increase the accuracy of both the balance sheet and income statement
A credit entry will
increase the balance of a revenue account
A debit entry will:
increase the balance of an expense account
Gains are (increases/decreases) in an entity's net assets resulting from incidental transactions or non-operating activities.
increases
When a bank credits your account for the interest earned during the month, what it is really communicating is that it is:
increasing your account balance, which is shown as a liability from its perspective.
Transactions are
initially recorded in a journal and then posted to a ledger.
what helps you understand the effect of any transaction on the financial statements?
is having the ability to analyze the transaction
How are they affected?
is the word increasing or decreasing
Which of the following is not one of the 5 questions of transaction analysis?
is this an accrual
A Journal:
is where transactions are initially recorded
A ledger
is where transactions are posted to after they are initially recorded
what is a charge account?
its when merchandise or services were purchased on credit from local merchants who personally trusted their customers. these customers receive the merchandise now and pay later.
A chart of accounts serves as an index to a company's (journal/ledger/income statement/transactions).
ledger
After transactions are recorded in the journal they are then recorded to a
ledger
After transactions have been recorded in a journal, they are posted to a (roster/ledger/log).
ledger
what does debit and credit mean in bookkeeping and accounting?
left and right
to charge an account is to:
make a debit entry to the account
The accounting concept/principle being applied when an adjustent is made is usually
matching revenue and expense
Accounting
selection of alternative methods of reflecting the effects of certain transactions using financial statements (chpt 4)
A chart of accounts
serves as an index to the ledger, with each account numbered to facilitate frequent references that are made to it.
The statement of cash flows _____.
shows why cash changed during a period by reporting net cash provided or used by operating, investing, and financing activities
Inventory (shortage/shrinkage/salvage) is the term used to describe inventory losses from obsolescence, errors, and theft and usually is included in cost of goods sold unless the amount involved is material.
shrinkage
Starting with gross sales, the sales returns and allowances and sales discounts are (added/subtracted) to arrive at (net/total) sales for reporting purposes.
subtracted,net
what is another principal element of stockholders equity?
the amount of capital invested by the owners/stockholders-- paid in capital thats listed on the statement of changes in stockholders' equity
what factor causes a change in the retained earnings part of the statement of changes in stockholders' equity?
the net income from the income statement
The management process is illustrated through a series of key management activities referred to as:
the planning and control cycle
net income profit or loss is the difference between?
the revenues and expenses reported on its income statement
what is the sequence shown in bookkeeping?
the sequence is assets, liabilities, stockholder's equity, revenues, and expenses.
Under accrual accounting, year-end adjustments are made: (Select all that apply).
to ensure that expenses are recognized in the year in which they are incurred. because revenue receipts may occur before or after the event that causes revenue recognition.
Under accrual accounting, year-end adjustments are made: (Select all that apply).
to ensure that revenues are recognized in the year in which they are earned. because the cash disbursement for expenses may occur before or after the event that causes expense recognition.
The effect of an adjustment is
to increase the accuracy of the financial statements
True or false: The key to using the horizontal model is to keep the balance sheet in balance.
true
True or false: The principal categories of other operating expenses frequently reported on the income statement can be combined in a variety of ways for financial reporting purposes, such as, "Marketing and selling expenses," "Administrative expenses," and "Research and development expenses."
true
what's going on?
understand the transaction-- to understand the activity that is taking place between the entity for which the accounting is being done and the other entity involved in the transaction.
Credit transaction
when a credit card is used as a payment to a merchant and that transaction (credit transaction) refers to the increase in the purchaser's liability to the credit card company.
Some of the key interpretations to be made from the statement of cash flows include the determination of:
whether net cash flows provided by operations are sufficient to pay adequate dividends to the company's shareholders. whether the relative totals of operating, investing, and financing cash flows were similar to those observed in the prior year. whether the company has generated positive net cash flows from operations.
how often does retained earnings change
year by year
Which of the following statements is true regarding the statement of cash flows?
- Cash received from the sale of long-term debt is a financing activity, and the activity is a source of cash. - Cash received from the sale of buildings or equipment is an investing activity, and the activity is a source of cash. - Depreciation expense is added back to net income in the operating activities section. - The increase in accounts payable for the year is a source of cash and is shown as an operating activity.
What are the four statements that is also classified as Income Statement:
- Income Statment - Statement of earnings -profit and loss statement -statement of operations
Which of the following items are considered key elements of ethical behavior for a professional accountant?
- Maintaining independence, both in appearance and in fact. - Maintaining objectivity: being impartial and free from conflicts of interest. - Having competence by acquiring and maintaining the professional knowledge and skill to adequately perform the work assigned. - Maintaining integrity: being honest and forthright in one's dealings and communication with others. - Accepting an obligation to serve in the best interests of the employer, the client, and the public.
An unqualified, or "clean," independent auditor's opinion does which of the following?
- States that the named financial statements "present fairly, in all material respects" the financial position of the entity - States that the named financial statements "present fairly, in all material respects" the entity's results of operations for the period - Describes briefly the work that is involved in performing an audit
2. An unqualified, or "clean," independent auditor's opinion does which of the following?
Describes briefly the work that is involved in performing an audit States that the named financial statements "present fairly, in all material respects" the entity's results of operations for the period States that the named financial statements "present fairly, in all material respects" the financial position of the entity
What asset is not readily available as cash?
accounts receivable or temporary cash investments to earn interest
Long Term Debt represents
amounts borrowed from banks or others that will not be repaid within one year from the balance sheet date
short term debt represents
amounts borrowed, probably from the banks that will be repaid within one year of the balance sheet date.
Accounts Receivable represent
amounts due from customers who have purchased merchandise on credit and who have agreed to pay within a specified period or when billed by a business.
Accrued liabilities represent
amounts owed to various creditors, including any wages owed to employees for services provided to the business. through the balance sheet date
Statement of operations
another term for income statement
A primary objective of financial reporting is to provide timely information about a firm's _____ (earnings/assets/liabilities) and cash flow.
earnings
The first known text to describe a comprehensive double-entry bookkeeping system was called the: Multiple choice question.
method of Venice System
The cash flow activities for an entity are reported for a(n) _____ of time.
period
Financial accounting generally refers to the:
process that results in the preparation and reporting of financial statements for an entity
Accrual accounting results in:
recognition of revenues when they are earned (at the point of sale) and recognition of expenses when they are incurred
4. The Financial Accounting Standards Board (FASB) Accounting Standards Codification
represents a single source of U.S. generally accepted accounting principles (GAAP)
What information is needed in order to determine if the entity made a profit?
revenue - expenses = profit
A report by management on the effectiveness of the company's internal control over financial reporting is required for all Securities and Exchange Commission-regulated companies under:
section 404 of the Sarbanes-Oxley Act of 2002.
The statutory authority to establish accounting principles for companies whose securities are publicly traded in the United States rests with the and Commission.
securities and exchange commission
An unqualified, or "clean" independent auditor's opinion:
states that the auditor's work requires the application of generally accepted auditing standards (GAAS).
Equipment as an asset represents
the cost to a business of the display such as cases, racks, shelving and other store equipment purchased and installed in the rented building in which it operates
Example of Accumulated depreciation (business sense)
the items purchased loses it value over time. its the portion of the cost of the equipment that is estimated to have been used up in the process of operating the business. This cost is subtracted from the assets when determining the Total Asset Amount.
To understand how different transactions affect the financial statement and make sense of the information in the financial statement its important to understand what?
the mechanical operation of the bookkeeping process.
Equipment
the necessary items for a particular purpose of the business, its items that are used to keep the business going. Computers, telephone, cash register
A firm prepares comparative financial statement so that _____.
the users of the data can easily spot changes in the firm's financial position and in its results of operations
the bookkeeping/account process begins with:
transactions
Which of the following items are normally included as key components of a corporation's annual report?
- The reporting firm's financial statements for the year - Management's discussion and analysis of the financial statements - Highlights for the year, including net revenues, diluted earnings per share, and return of stockholders' equity
Which of the following statements is true regarding what each financial statement of an entity reports?
- The statement of cash flows reports the entity's cash flows during a period. - The balance sheet reports an entity's financial position at the end of a period. - The income statement reports an entity's earnings for a period.
Which of the following statements are true regarding the objectives of general-purpose external financial reporting for government-sponsored entities engaged in activities that are not unique to government?
- They should be similar to those of nonbusiness organizations engaged in similar activities. - They should be similar to those of business enterprises engaged in similar activities.
Cash represents:
- cash on hand -in the business bank accounts -or banks used (creditors)
An internal auditor: (Check all that apply).
- in some cases performs functions much like those performed by an independent (external) auditor, but perhaps on a smaller scale. - may be responsible for analyzing the operating efficiency of one of the company's divisions.
The Financial Accounting Standards Board (FASB) Accounting Standards Codification: (Check all that apply).
- represents a single source of U.S. generally accepted accounting principles (GAAP). - is updated with changes communicated through an Accounting Standards Update (Update or ASU).
Statement of changes in stockholders equity
- statement of stockholders equity -statement of equity statement of -changes in capital stock -statement of changes in retained earnings
Financial Statements are:
-Balance Sheet -Income Statement -Statement of cash flows -Statement of changes in stockholders equity
Name two principle sections of the balance sheet
1. Assets 2. Liabilities and Stockholders equity
Net assets
Also referred to as stockholders equity The difference between assets and liabilities; also referred to as stockholders' equity or owners' equity.
Liabilities (in other words)
Amounts owed to other entities (suppliers, creditors)
Accrued Liabilities
Amounts that are owed by an entity on the balance sheet date.
Accounts receivable
An asset representing a claim against another entity, usually arising from selling goods or services on credit.
balance sheet equation
Another term for accounting equation.
statement of financial position
Another term for balance sheet; a listing of the entity's assets, liabilities, and stockholders' equity at a point in time.
Statement of Earnings
Another term for income statement; it shows the revenues, expenses, gains, and losses for a period of time and thereby the entity's results of operations for that period of time
Net worth
Another term for net assets or stockholders' equity or owners' equity, but not as appropriate because the term worth may be misleading.
In 2001, the ______ , (IASB/IASC/IFRS), which operates under the _______ , (IASB/IASC/IFRS) Foundation, was formed in a restructuring effort and has since assumed the responsibilities of the ______ (IASB/IASC/IFRS), which was disbanded at that time.
Blank 1: IASB Blank 2: IFRS Blank 3: IASC
Liabilities
Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.
Assets (in other words)
Represent resources that are owned
An unqualified, or, clean, independent auditor's opinion does which of the following?
States that it is the independent auditor's responsibility to express an opinion about the financial statements States that the named financial statements "present fairly, in all material respects" the entity's cash flows for the period Explains that the audit was conducted in accordance with the standards of the GAAP (United States)
profit
The excess of revenues and gains over expenses and losses for a fiscal period; another term for net income.
Balance sheet
The financial statement that is a listing of the entity's assets, liabilities, and stockholders' equity at a point in time. Sometimes this statement is called the statement of financial position.
Income Statement
The financial statement that summarizes the entity's revenues, expenses, gains, and losses for a period of time and thereby reports the entity's results of operations for that period of time.
Equity
The ownership right associated with an asset. See stockholders' equity.
Stockholders' Equity
The stockholders' claim in the assets of the entity. Sometimes called owners' equity or net assets; the difference between assets and liabilities.
Accumulated depreciation
The sum of the depreciation expense that has been recognized over time. Accumulated depreciation is a contra asset—an amount that is subtracted from the cost of the related asset on the balance sheet.
Example of creditors
The supplier can be classified as a creditor or the firm by supplying merchandise on an account
Accounts Payable ( in other words)
The supplier has a claim against the firm for the amount that Main Street inc has agreed to pay for the merchandise until the day it is paid for
Example of Accounts payable
The suppliers shipped merchandise to main street inc and this merchandise will be paid at some point in the future.
Example of what would be reported as "accounts receivable"
You purchase furniture and sign an agreement to pay the full amount by a specified date. The receipts of this agreement between you and the company can be reported as an Asset but in the "accountants receivable" category until the company receive the cash payment's be
A primary objective of financial reporting is to provide timely information about a firm's earnings and ______ (employee turnover/cash flow).
cash flow
Fill in the blank question. It is important to recognize that financial accounting information is developed at a ____ (cost/benefit) and that the ____ (cost/benefit) to the user of the information should exceed the cost of providing it.
cost, benefit
5. Financial reporting is:
done for individual firms or entities.
Financial accounting when compared to managerial and cost accounting:
has primarily an external orientation and are based primarily on past historical cost data
Fill in the blank question. The consulting practices of several large auditing firms have been split off into separate entities in an effort to help achieve ____ (profitability/independence/control/liquidity) in fact and appearance.
independence
Depreciation in accounting
is the process of spreading the cost of an asset over its useful life to the entity-- it is not an attempt to recognize the economic loss in value of an asset because of its age or use.
Profit or Loss Statement
its another term for income statement
What is the principal purpose of the income statement
its to answer the question, Did the entiry operate at a profit for the period of time under consideration?