Accounting Assessment Review

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Accounting Assessment Review
2015-06-06 13:55:24
Study for Accounting Assessment Test
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  1. Fundamentals of the Accounting Equation
    • A = L + E
    • Assets = Liabilities + Common Stock + Retained Earnings [ - Dividends + Revenue - Expenses]
  2. What are assets
    Future Benefits
  3. What are liabilities
    Debt [creditors claim on assets]
  4. What is the concept of a contra-account
    • Offsets the accounts (account linked with another account and have opposite normal balances)
    • Ex. Accumulated Depreciation and Depreciation Expense
  5. What are the normal balances of accounts
    • Assets is debt normal balance
    • Liabilities is credit normal balance
    • Equity:
    • Common Stock is credit normal balance
    • Revenue is credit normal balance
    • Expense is debit normal balance
    • Dividends is debit normal balance
  6. Who uses financial information
    • External Users - shareholders, lenders, directors, customers, suppliers, regulators, lawyers, brokers, press
    • Internal Users - managers, budget auditors, sales staff, controllers
  7. What does financial information capture
    • Income statement - how the company is doing [Revenue and Expenses]
    • Statement of Retained Earnings - net income and dividends
    • Balance Sheet - company's financial position (Assets, Liabilities, Equity) how strong the company is
    • Statement of Cash Flows - cash inflow and cash outflow (receipts and payments)
  8. When do companies report financial information
    • Quarterly - 4x a year
    • Monthly - 1x a month
    • Semiannual - 2x a month
    • Annually - 1x a year
    • Fiscal year consists of any 12 months
    • Natural business year (sales activities are at their lowest level of the year)
  9. What is the matching principle
    (Expense recognition principle) record expenses
  10. What is the revenue principle
    • (Revenue recognition principle) recognize revenue
    • 1) revenue recognized when earned
    • 2) proceeds from selling products and services need not be in cash
    • 3) revenue is measured by cash received plus cash value of any other items received
  11. Record a liability
    • Purchasing supplies on credit:
    • Supplies debit
    • Accounts payable credit
  12. Record an asset
    • Purchase equipment for cash:
    • Equipment debit
    • Cash credit
  13. What are cash dividends
    • Cash dividends are not reported as expense because it's not part of company's earning process, NOT including in computing net income
    • Record:
    • Dividends debit
    • Cash credit
  14. What accounts are affected from adjusting journal entry
    • Revenue, expenses, assets, and liabilities are correctly reported as necessary
    • Paid/receive cash BEFORE expense/revenue recognized: Prepaid (deferred) expense (includes depreciation) and¬†Unearned (deferred) revenue
    • Paid/receive cash AFTER expense/revenue recognized: Accrued expenses and Accrued revenue [accrued unpaid and unrecorded]
  15. What is net income
    Amount earned after subtracting all expenses matched with sales period aka income, profit earnings
  16. Calculate and report interest expense and interest revenue
    • Interest expense - principle amount x annual rate x fraction of year since payment
    • Ex: $6,000 x 6% x 30 days = 6,000 x .06 x 30/360 = $30
    • Record: interest expense dr 30 Interest payable cr 30
    • Interest revenue
    • Record: salary payable dr 30 salary expense dr 490 Cash cr 700
  17. Calculate and record depreciation expense using straight line depreciation
    • Straight line depreciation - allocates equal amounts of the asset's net cost to the deprecation during useful life
    • Ex: Depreciation Expense dr and Accumulated Depreciation - Equipment cr
  18. Record a simple common stock and APIC transaction
    • Simple Common Stock: Cash dr Common Stock cr
    • APIC (additional paid-in capital) - paid excess of par value by investors and is reported as a part of EQUITY Ex: Cash Dr; Common Stock, $10 par value Cr (par-value x share); Paid in Capital in Excess of Par Value, Common Stock Cr (issue price - par value) x share
  19. Record a cash dividend transaction
    • date of declaration; date of record; and date of payment
    • To record: Dividends Dr; Cash Cr
  20. What are the different trial balances and when are they used
    • Lists of accoutns and their balances at a point in time
    • Follow up on any abnormal or unusual balances
  21. Understand the closing process
    • Closing process is done after financial statements have been completed
    • identify accounts for closing
    • record and post the closing entries
    • prepare a post-closing trial balance
    • Purpose is to reset revenue, expense, and dividends to zero at end of each period; helps in summarizing a periods revenues and expenses
    • Permanent accounts ARE asset, liability, and equity accounts NOT CLOSED
    • Temporary accounts include income statement accounts, the dividends account, and income summary¬†
    • Income summary - contains cr for sum of all revenues and dr for sum of all expenses. Its balance equals net income or net loss and is transferred to Retained Earning
    • Revenue, Expense, Dividends, and Income Summary have zero balances