ACC Quiz 1

Created by markod18 

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Quiz 1 ACC - 9/10/2013

Sole Proprietorship

one owner, easy to set up, tax advantages, transfer of ownership is difficult

Partnership

two owners, formed b/c individual doesn't have enough resources to initiate/expand business, shared control

Corporation

business organization as separate legal entity owned by stockholders, investors share stock making it easy to sell/raise funds, largest revenue

Taxes and Legal Liability

corporations have less favorable tax treatment but corporation stockholders not as liable as sole prop and partnerships

Hybrid

combine tax advantages with limited liability

Internal Users of ACC

within organization, such as marketing, HR

External Users of ACC

outside of organization, such as investors, creditors

Sarbanes-Oxley Act (SOX)

2002, new regulations for ACC including: top management certifying accuracy of financial info, more severe penalties, increased independence of outside auditor

3 Principal Activities

1. Finance Activities: borrow from creditors (liabilities) and sell stock to shareholders
2. Invest: assets required to operate
3. Daily Operations: revenue, supply, inventory and expenses

4 Financial Statements

Income Statement, Retained Earnings, Balance Sheet, Statement of Cash Flows

Income Statement

Revenue - Expenses = Net Income/Loss

Retained Earnings

Beginning Retained Earnings + Net Income/Loss - Dividends = Ending Retained Earnings

Balance Sheet

Liabilities + Stockholder's Equity = Assets

Statement of Cash Flows

Annual Report: financial statements, update of company to stockholders

IFRS

International Financial Reporting Standards

FASB

Financial ACC Standards Board

Classified Balance Sheet

Current Assets + Property, Plant and Equipment = Total Assets
Current Liabilities + Long Term Liabilities + Stockholder's Equity = Total Liabilities and Stockholder's Equity

Current Assets

turned into cash fastest or used up in less than a year; cash, accounts receivable, inventory, prepaid insurance, short-term investments, supplies (ordered by liquidity)

Long-Term Investments

assets turned into cash over a year

Property, Plant and Equipment (PPE)

long, useful lives; land, buildings, equipment, furniture, fixtures; depreciation is subtracted

Intangible Assets

no physical substance; patent, goodwill (one company buys another company), copyrights

Current Liabilities

obligations to be paid in coming year; notes/accounts/wages/salaries/bank loans/interest/taxes payable; Notes is always first, then Acct

Long-Term Liabilities

paid after one year; bonds/mortgage/long-term notes payable, lease/pension liabilities

Stockholder's Equity

Common Stock and Retained Earnings

Ratio Analysis

relationship among selected items of financial statement data

Intracompany

two years of same company

Industry Average

average ratios for particular industries

Intercompany

with competitor of same industry

EPS

Earnings per Share; EPS = net income - preferred dividends / avg # of shares outstanding
AVG # of shares outstanding =
beginning + ending / 2

What goes to shareholders?

Dividends

Liquidity

within next year

Working Capital

current assets - current liabilities

Current Ratio

current assets / current liabilities (anything > 1 is good)

Solvency

pay interest as it comes due to repay the balance of debt

Debt to Asset Ratio

= total liabilities / total assets

Free Cash Flow

= cash flow from operating activities - cash used for capital expenditures - dividends paid

Generally Accepted ACC Principles (GAAP)

set of rules and practices of ACC

Securities and Exchange Commission (SEC)

oversee stock exchange and markets

Financial ACC Standards Board (FASB)

sets precedents/rules

Intl ACC Standards Board (IASB)

Intl Financial Reporting Standards (IFRS)

Qualities

Relevance vs. Faithful Representation

Relevance

1. Predict Future
2. Confirm or correct prior expectation
3. Materiality

Faithful Representation

accurately depicts what really happened
1. Complete
2. Neutral
3. Free from Error

Enhancing

1. Comparability: diff co. uses same ACC principles
2. Consistency: co. uses same ACC principles year to year
3. Verifiable
4. Timely
5. Understandability

Monetary Unit Assumption

only transactions in cash are in ACC reports

Econ Entity Assumption

separately identified and accounted for

Periodicity Assumption

business divided into artificial time periods

Going Concern Assumption

business will remain in operation for forseable future

Cost Principle

assets recorded recorded at original costs

Fair Value Principle

assets and liabilities reported at fair value

Full Disclosure Principle

all circumstances that could make a differernce are disclosed

Cost Contraint

Cost vs. Benefit

ACC Info System

collects and processes transactions, will affect at least 2 accounts

Debit (DEAD)

Expenses, Assets, Dividends

Credit (CLER)

Liabilities, Equity, Revenue

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