Accounting exam 1

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Accounting exam 1
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accounting exam 1
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  1. Financing cash flows
    Include cash transactions with lenders, such as borrowing money and repaying debt, and with stockholders, such as issuing stock and paying dividends.
  2. Investing cash flows
    Generally includes cash transactions for the purchase and sale of investments and productive long-term assets.
  3. Operating cash flows
    Include cash receipts and cash payments for transactions involving revenues and expenses.
  4. Statement of cash flows
    A financial statement that measures activities involving cash and cash receipts and cash payments over an interval of time.
  5. Balance sheet
    A financial statement that presents the financial position of the company on a particular date.
  6. Retained income
    Represents the cumulative amount of net income, earned over the life of a the company, that has not been distributed to stockholders as dividends.
  7. Statement of stockholders equity
    A financial statement that summarizes the changes in stockholders equity over an interval of time.
  8. Income statement
    A financial statement that reports the company's revenues and expenses over an interval of time.
  9. Financial statements
    Periodic reports published by the company for the purpose of providing information to external users.
  10. Dividends
    Cash payments to stockholders
  11. Net loss
    If expenses exceed revenues, as happens from time to time, the difference between them is known as a:
  12. Net income
    The difference between revenues and expenses.
  13. Expenses
    The costs of providing products and services
  14. Revenues
    The amounts earned from selling products or services to customers.
  15. What is the basic accounting equation?
    Assets= liabilities+ stockholders equity
  16. Stockholders equity
    For a corporation, we refer to owners' claims to resources as:
  17. Liabilities
    Amounts owed to creditors
  18. Assets
    Resources owned by a company
  19. Operating activities
    Include transactions that relate to the primary operations of the company, such as providing products and services to the customers and the associated costs of doing so, like utilities, taxes, advertizing, wages, rent and maintenance.
  20. Investing activities
    • Include the purchase and sale of
    • 1. Long term resources such as land, buildings, equipment, and machinery.
    • 2. Any resources not directly related to a company's normal operations.
  21. Financing activities
    Transactions involving external sources of funding.
  22. Financial accounting
    Used to measure the business activities of a company and to communicate those measurements to external parties for decision making purposes.
  23. Managerial accounting
    Deals with the methods accountants use to provide information to an organization's internal users-that is,it's own managers.
  24. Accounting
    A system of maintaining records of a company's operations and communicating that information to decision makers.
  25. Limited liability
    The stockholders are not held personally responsible for the financial obligations of the corporation.
  26. What are the four primary financial statements?
    • 1. Income statement
    • 2. Statement of stockholders equity
    • 3. Balance sheet
    • 4. Statement of cash flows
  27. What is the formula for net income?
    Revenues-expenses=net income.
  28. Are dividends considered an expense in running a business?
    No, they are a distribution of net income.
  29. What is the best indicator of a companies stock performance?
    No single piece of company information better explains companies' stock price performance than does financial accounting net income. A company's debt level is an important indicator of management's ability to respond to business situations and the possibility of bankruptcy
  30. The rules of financial accounting are called
    Generally accepted accounting principles (GAAP)
  31. Today, financial accounting and reporting standards in the United States are established primarily by the:
    Financial Accounting Standards Board (FASB)
  32. International Accounting Standards Board
    An international accounting and standard-setting body responsible for the convergence of accounting standards worldwide.
  33. International Financial Reporting Standards
    The standards being developed and promoted by the international Accounting Standards board.
  34. Securities and Exchange Commission
    A government agency created to the power to require companies that publicly trade their stock to prepare periodic financial statements for distribution to investors and creditors.
  35. Auditor
    Trained individuals hired by a company as an independent party to express a professional opinion of the accuracy of that company's financial statements.
  36. What is the primary objective of financial accounting?
    To provide useful information to investors and creditors in making decisions.
  37. Sarbanes-Oxley Act (SOX)
    provides for the 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
  38. Public accounting firms
    are professional service firms that traditionally have focused on three areas: auditing, tax preparation/planning, and business consulting.
  39. Private accounting
    Providing accounting services to the company that employs you
  40. External transactions
    Transactions the firm conducts with a separate economic entity.
  41. Internal transactions
    Events that affect the financial position of the company but do not include an exchange with a separate economic entity.
  42. Account
    Provides a summary of the effects of all transactions related to a particular item over a period of time.
  43. Chart of accounts
    A list of all account names used to record transactions of a company.
  44. What are the 6 steps in measuring external transactions?
    • 1. Use source documents to identify accounts affected by an external transaction.
    • 2. Analyze the impact on the accounting equation
    • 3.Assess whether the transaction results in a debit or credit to the account balance.
    • 4.Record the transaction
    • 5.Post the transaction to the T- account in the general ledger.
    • 6. Prepare a Trial balance
  45. What is 1st the step in measuring external transactions?
    Use source documents to identify accounts affected by an external transaction.
  46. What is the 2nd step in measuring external transactions?
    Analyze the impact on the accounting equation
  47. What is the 3rd step in measuring external transactions?
    Assess whether the transaction results in a debit or credit to the account balance.
  48. What is the 4th step in measuring external transactions?
    Record the transaction
  49. What is the 5th step in measuring external transactions?
    Post the transaction to the T- account in the general ledger.
  50. What is the 6th step in measuring external transactions?
    Prepare a trial balance.
  51. Notes payable
    Notes payable represent amounts owed to creditors, which makes them a liability.
  52. Cash
    Cash is a resource owned by the company, which makes it an asset
  53. Common stock
    Common stock is a stockholders' equity account
  54. Unearned revenue: liability or asset?
    a liability
  55. What does paying dividends do to the accounting equation?
    It decreases the retained earnings of a company.
  56. Equation for retained earnings
    Revenues-expenses-dividends
  57. Equation for stockholders equity
    common stock+retained earnings
  58. T account
    A simplified presentation of an account, in the shape of the letter T.
  59. Debits
    Increases in accounts on the left side of the accounting equation—assets. On the right side: liabilities.
  60. For the basic accounting equation (Assets = Liabilities + Stockholders' Equity), accounts on the left side are increased with debits. Accounts on the right side are increased with credits. The opposite is true to decrease any of these accounts
    For the basic accounting equation (Assets = Liabilities + Stockholders' Equity), accounts on the left side are increased with debits. Accounts on the right side are increased with credits. The opposite is true to decrease any of these accounts
  61. What does dead mean?
    • Dividends
    • Expenses
    • Assets
    • increase with a Debit
  62. What does lorc mean?
    • Liabilities
    • Owners equity
    • Revenues
    • increase with a credit
  63. chart giving examples of what accounts are classified as.
  64. Journal
    Provides a chronological record of all transactions affecting a firm.
  65. What is the format for a journal entry?
  66. General Ledger
    Includes all accounts used to record the company's transactions
  67. What does a general ledger look like?
  68. Posting
    The process of transferring the debit and credit information from the journal to individual accounts in the general ledger.
  69. A t count is basically 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.
  70. Example of a general ledger account(ignore the numbers)
  71. Trial balance
    A list of all accounts and their balances at a particular date, showing that total debits equal total credits.
  72. Example of a trial balance.
  73. What is the order of accounts in a trial balance?
    Assets,then liabilities, then owners equity.
  74. Accrual Basis accounting
    When we record revenues when we earn them (the revenue recognition principle) and we record expenses with related revenues (the matching principle).
  75. Revenue recognition principle
    States that we record revenue in the period in which we earn it
  76. Matching principle
    States that we recognize expenses in the same period as the revenues they help to generate.
  77. Cash basis accounting
    When we record revenues at the time we receive cash and expenses at the time we pay cash.
  78. Why isn't cash basis accounting generally not accepted in preparing financial statements?
    Violates both the revenue recognition principle and the matching principle.
  79. What is the difference between accrual basis accounting and cash basis accounting?
    timing
  80. What are the four steps in the accounting cycle?
    • 1. Record and post external transactions
    • 2. Record and post adjusting entries
    • 3. prepare financial statements
    • 4. Record and post closing entries.
    • Repeat cycle next period
  81. Adjusting entries
    To record events that have occurred but that we have not yet recorded.
  82. What are the two categories of adjusting entries?
    • 1.Prepayments
    • 2.Accruals
  83. What are the two subcategories of prepayments?
    • 1.Prepaid expenses
    • 2. Unearned revenues
  84. What are the two subcategories of accruals?
    • 1. Accrued expenses
    • 2. Accrued revenues
  85. Prepaid expenses
    The costs of assets acquired in one period that will be expensed in a future period (like the insurance coverage mentioned previously).
  86. contra account
    An account with a balance that is opposite, or “contra,” to that of its related accounts.(aka a decrease is a debit, and an increase is a credit)
  87. Unearned revenues
    When a company receives cash in advance from a customer for products or services to be provided in the future.
  88. How do we record an unearned revenue?
    Debit cash and credit credit a liability. When adjusting the entry debit the the liability and credit the revenue account.
  89. When do accruals occur?
    When the cash flow occurs after either the expense is incurred or the revenue is earned
  90. Accrued expense
    When a company has incurred an expense but hasn't yet paid cash or recorded an obligation to pay.
  91. How do you record an accrued expense?
    debit expense account and and credit a liability account.
  92. Accrued revenue
    When a company has earned revenue but hasn't yet received cash or recorded an amount receivable.
  93. Example of an adjusted trial balance
  94. classified balance sheet
    groups a company's assets, liabilities, and stockholders' equity accounts into several standard categories: We can separate assets into those that provide a benefit over the next year (current assets) and those that provide a benefit for more than one year (long-term assets).
  95. Operating cycle
    The average time between purchasing or acquiring inventory and receiving cash proceeds from its sale.
  96. Temporary accounts
    All revenue, expense, and dividend accounts;account balances are maintained for a single period and then closed and transferred to the balance of retained earnings account at the end of the period.
  97. Permanent accounts
    All accounts that appear in the balance sheet; account balances are carried forward from period to period.
  98. closing entries
    transfer the balances of all temporary accounts (revenues, expenses, and dividends) to the balance of the Retained Earnings account.
  99. Post closing trial balance
    a list of all accounts and their balances at a particular date after we have updated account balances for closing entries.
  100. Occupational fraud
    The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization's resources.
  101. Internal controls
    A company's plan to (1) safeguard the company's assets and (2) improve the accuracy and reliability of accounting information.
  102. What are the major provisions of the Sarbanes-oxley act of 2002?
  103. what are some common examples of preventative controls?
    • 1.Separation of duties
    • 2.Physical controls
    • 3. Proper authorization
    • 4.Employee management
  104. collusion
    Occurs when two or more people act in coordination to circumvent internal controls.
  105. The amount of cash recorded in a companies balance sheet includes:
    currency, coins, and balances in savings and checking accounts, as well as items acceptable for deposit in these accounts, such as checks received from customers.
  106. cash equivalents
    Short-term investments that have a maturity date no longer than three months from the date of purchase
  107. What are the 5 internal controls over cash receipts?
    • 1Record all cash receipts as soon as possible. Theft is more difficult once a record of the cash receipt has been made.
    • 2. Open mail each day, and make a list of checks received, including the amount and payer's name.
    • 3. Designate an employee to deposit cash and checks into the company's bank account each day, different from the person who receives cash and checks.
    • 4. Have another employee record cash receipts in the accounting records. Verify cash receipts by comparing the bank deposit slip with the accounting records.
    • 5. Accept credit cards or debit cards, to limit the amount of cash employees handle
  108. Bank reconciliation
    Matches the balance of cash in the bank account with the balance of cash in the company's own records
  109. Deposits outstanding
    Cash receipts of the company that have not been added to the bank's record of the company's balance.
  110. Checks outstanding
    Checks the company has written that have not been subtracted from the bank's record of the company's balance.
  111. NSF checks
    customers' checks written on “nonsufficient funds,”
  112. Petty cash
    Small amount of cash kept on hand at a company for minor purchases.
  113. Statement of cash flows
    Transactions involving cash
  114. Earnings quality
    Ability of current net income to help us predict the future performance of a company.
  115. Free cash flows
    Operating cash flows plus investing cash flows during the period.

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