102 terms

Accounting Exam 2

gather and analyze financial data, talk to executives, monitor markets, predict earnings per share/sales
information services
provide online information to be useful is should be relevent, reliable, consistent and comparibility
Form 10k Annual Report
filed annually with annual results, must be filed with 60 days of fiscal year end, F/S with notes
Form 10Q Quarterly Report
filed within 30 days of quarter end, F/S with notes but less detail and usually not audited
Form 8K current report
current events of significance, change in auditor or executive, sale of large # of stock
capable of influencing a desicion, predictive value, feedback value, timeliness
accurate, unbiased, verifiable, presentational faithfulness, nuetrality
for a company, they have used similar accounting methods over time
similiar accounting methods have been applied by companies, can compare two different companies
expected to be converted into cash or used up within one year
listed in order of liquidity
long-term investment
purchases of securities (stocks,bonds,etc) of other firms expected to be held more than 1 year
property, plant and equipment
physical assets expected to be useful for more than one year (fixed assets)
intangible assets
patents, trademarks
contributed capital
monies raised by selling stock to the public (stockholders)
common stock par value
legal capital
additional paid in capital common stock
amount received above par value
liquidity measure
ability to meet its current maturing debts
working capital
current assets- current liabilities
current ratio
current assets/current liabilities, how many times can is pay of CL with CA, want to be more then one
total liabilites/total SE, for every $1 of SE have $X of debt, higher ratio= greater risk
gross profit percentage
(net sales-COGS)/net sales, gross profit/sales, need higher gross profit to cover other costs and to generate income
income tax expense
income before tax*tax rate
discontinued operations
sale of a major segment of the business 1. operating income/ loss of discontinued segment for the period 2. Gain on loss on the sale of the segment
extraordinary items
gains or losses that are both unusual and infrequent in occurence, rare flood
net income- the bottom line
comprehensive income= your net income+- items such as unrealized G/L on adjustments, foreign currency translations
return on assets
net income/ avg. total assets, how much net income does each $1 of assets generate
return on equity
net income/ avg SE, how much income does each $1 of equity generate
operating activities
activities related to cash inflows and outflows resulting from the normal operations of the firm, CA and CL changes effect this
investing activities
from the buying or selling of any long term assets. ST and LT investments and making and collection loans
financing activities
from transactions with owners and creditors who supply "funds" to operate the firm and a return to the overs LT and ST loans payable, buy back on stock
increase in assets
decrease in cash
increase in liabilities
increase in cash
revenue recorded
this should happen when an exchange has taken place, earning process is nearly complete, collection is probable
FOB shipping point
Free on board at the shipping point, the buyer is paying the frieght and takes control when the good is shipped- record sale when good is shipped
FOB destination
free on board at the destination point, so the seller pays the freight and the buyer takes control when the good reaches the destination, record sale when good reached dest. should be consistent and disclose the policy
net sales
sales- sales discounts- sales returns and allowances- credit card discounts
accounts recievable
open account from customers credit sales, customer is allowed to buy continually as long as they pay balances when due
notes receivable
specific instrument signed with specific maturity date and interest rate stated
normal course of business
an advance to an officer or employee is an example
bad debt
results from credit customers who will not pay the business the amount they owe, regardless of collection efforts
net realizable value
accounts recievable- allowance for doubtful accounts
recievables turnover ratio
net sales/ avg. accounts receivable, number of times you collect your A/R in a period, higher ratio indicates quicker collection of accounts receivable and lower indicates that company may be giving customers too long to pay which could lead to poor cash flow
average age of accounts receivable
365/receivables turnover ratio, number of days it takes to collect accounts receivable on average, typically would like to see this 30-60 day range
bad debt as a percentage of sales ratio
bad debt expense/ net sales, calculate bad debt expense in future years
cash and cash equivalents
cash, checks, money order, bank draft, certificates of deposit, US goverment treasury bills
internal controls
policies and procedures designed to safeguard all assets of the business to ensure the accurary of financial records
separation of duties
a internal control of cash, separate jobs, separate procedures, separate those that handle cash and those that account for it
separate jobs
of receiving and distributing cash, otherwise one could take and keep cash easily
separate procedures
of accounting for cash reciepts and cash disbursements, without these one could cover up theft of cash
separate those to handle cash and those who account for it
second counting of cash for extra control
daily deposit
control to keep minimum cash on hand to avoid loss if theft occurs
separate approval for purchases and for payments
once purchase is approved, resources are committed to payments to prevent buying unneeded iteams
prenumbered checks
contril that can account for every supporting document and can trigger journal entries
check signatures
control, check approval by different parties to assure disembursement is properly approved
mandatory vacations
control, if you have to take a vacation fraud may surface because person cant cover it
bank reconciliations
control, done by someone other then the person handling deposits and disbursements, allows checking of other peoples work
outstanding checks
check written and recorded on the books to get books cash balance but is not yet cleared the bank and thus is not deducted from bank statement
deposits in transit
collections recorded on the books but dont show up in the bank statement, could be in the deposit box or recorded after bank statement was produces
bank service charges
charges by the bank deducted on bank statement, not yet recorded on the books
interest earned
one the bank statement, not on the books
NSF checks
received by the company and recorded on the books, deposited at the bank but bounced, must decrease cash on the book
only on the book side, one subracting entry and one adding entry
collection of cash
a decrease in A/R or increase in Unearned revenue indicates
earned but cash not yet received
an increase in A/R and an decrease in Unearned revenue
assets held for resale or for use in the production of goods for sale
merchandise inventory
goods purchased for resale
raw material inventory
RMI, items acquired for processing into finished goods (lumber, steel)
Work in Progress inventory
WIP, goods in the process of being manufactured but not yet completed
Finished Good Inventory
FG, completed good ready for sale
inventory cost
includes all costs incurred (ordinary and nessescary) to get inventory in usuable or salable condition
Cost of Goods Sold COGS
number of units sold times the cost assigned to each unit, a major expense item for most non-service businesses
cost goods available for sale, BI+Purchases
periodical inventory system
only periodically determine ending inventory and can only calculate COGS when we know EI
perpetual inventory system
all purchase increase inventory and all sales decrease inventory with every event, CGAS and COGS are updated daily is not an hourly process
first in first out
last costs in, first costs out
Average Unit Cost
total cost of goods available for sale/total units available
replacement cost
current purchase, price for an identical item
inventory turnover
COGS/average inventory, measure of efficiency and effectiveness of managing inventory, higher ratio= more effective
number of days inventory held
365/ inventory turnover ratio, number of days it takes to sell inventory
property, plants and equipment, subject to depriciation
intangible assets
subject to amortization, ex- patent trademarks
capital expenditure
to record as an asset in account, major overhaul, extends life beyond original estimate or increase productivity
revenue expenditure
to record as an expense, maintains normal operating conditions
acquisition cost
historical cost at purchase, includes ordinary costs to put the assets into service
estimated useful life
estimating how long the item will last (deterioriation and obsolescence)
straight line rate
residual value
at end of use
depreciable base
cost - residual value (C-R), used to determine amount to be expensed over each depreciation period
1/life x (cost-salvage)
gain or loss on sales
difference between the net book value (cost-accumulated depreciation at time of sale) and selling price
accelerated depreciation
double declining balance, Net Book Value x 2 SLR
units of production
(cost-salvage)/total estimated units produced x units produced
fixed asset turnover ratio
net sales (operating revenue)/ Avg. net fixed assets, measure of how efficiently a company utilizes its investments in PP&E over time
average age of PP&E
accumulated depreciation/ Depreciation Expense, general idea of years an asset has been used to date, straight line method
impairment of assets
estimated future cash flows of assets is less than the book value of the asset
intangible assets not on balance sheet
internally generated research and development, advertisings, reputation, market value of trademarks, patents, copyrights
intangible assets on balance sheet
patents, trademarks, copyrights, technology, franchises
excess of purchase price over identifiable net assets of the firm acquired, amortize is no longer permitted of this asset, indefinate life and must be evaluated for impairment at least annually