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55 terms

ACC Quiz 1

Quiz 1 ACC - 9/10/2013
Sole Proprietorship
one owner, easy to set up, tax advantages, transfer of ownership is difficult
two owners, formed b/c individual doesn't have enough resources to initiate/expand business, shared control
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
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
International Financial Reporting Standards
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
two years of same company
Industry Average
average ratios for particular industries
with competitor of same industry
Earnings per Share; EPS = net income - preferred dividends / avg # of shares outstanding
AVG # of shares outstanding =
beginning + ending / 2
What goes to shareholders?
within next year
Working Capital
current assets - current liabilities
Current Ratio
current assets / current liabilities (anything > 1 is good)
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)
Relevance vs. Faithful Representation
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
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