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Accounting Final Exam

Terms in this set (53)

Accounting Equation
Assets= Liabilities + Equity
Financial Accounting
accounting information and analyses prepared for serving people outside the organization. (external users)
Managerial Accounting
accounting used to provide information and analyses to managers inside the organization to assist them in decision making. (internal users)
Effects of an error on the trial balance
If cash is incorrectly debited $1,000:
-You must credit it $1,000 to balance back to 0
-Then you must credit another $1,000 to correct the error
*Therefore, it was out of balance by $2000
If Arrow contributed $130,000 in cash and land worth $70,000 to open a new business, what would the journal entry be?
Cash: $130,000
Land: $70,000
Common Stock: $200,000
Sequence of steps in the accounting cycle
1. Analyze Transactions
2. Journalize
3. Post
4. Prepare unadjusted trial balance
5. Adjust and post accounts
6. Prepare adjusted trial balance
7. Prepare financial statement
8. Close accounts
9. Prepare post-closing
10. Reverse and Post (optional step)
Current Assets
cash and other assets expected to be exchanged for cash or consumed within a year
example: cash or accounts receivable
non-example: land or office equipment
Current Liabilities
Obligations that a company expects to pay within the next year or operating cycle, whichever is longer.
example: accounts payable and dividends
non-example: long term loans and deferred tax payments
What accounts are considered quick assets?
cash, short-term investments, and current receivables
Definition of market when applying to the lower cost or market method of inventory valuation
required method to report inventory at market replacement cost when that market cost is lower then recorded cost
Liquidity
Availability of resources to meet short-term cash requirements.
What is the difference between establishing a petty cash fund and adding/subtracting to one?
To increase: debit petty cash, credit cash
To decrease: debit cash, credit petty cash
importance of bank reconciliation
It proves the accuracy of the depositor's and bank's records
The Triple Threat of Fraud
1. Opportunity: internal control weakness
2. Pressure: financial, societal, familial pressures to succeed
3. Rationalization: employee justifying behavior
The Direct Write-off method
Method that records the lose from an uncollectible account receivable at the time it is determined to be uncollectible; no attempt is made to estimate bad debt
Percentage of Sales Method
Based on the idea that a percent of a company's credit sales for a period is uncollectible
Percentage of Accounts Receivable Method
Use balance sheet relations to record bad debts- mainly the relation between accounts receivable and the allowance method
Aging of Account Receivable Method
The process of classifying accounts receivable by how long they are past due for the purposed of estimated uncollectible accounts
Units of production method
Method that charges a varying amount to depreciation expense for each period of an asset's useful life depending on its usage.
straight line depreciation method
Method that allocates an equal portion of the depreciable cost of plant asset (cost minus salvage) to each accounting period in its useful life.
double declining balance method
method that determines depreciation charge for the period by multiplying a depreciation rate (often twice the straight-line rate) by the assets beginning period book value
Natural resources
assets physically consumed when used (ex. wood)
Depletion
Process of allocating the cost of natural resources to periods when they are consumed and sold.
Intangible assets
Long-term assets (resources) used to produce or sell products or services; usually lack physical form and have uncertain benefits.
Amortization
Process of allocating the cost of an intangible asset to expense over its estimated useful value
Book value
Asset's acquisition costs less its accumulated depreciation (or depletion, or amortization); also sometimes used synonymously as the carrying value of an account.
Gross Pay
Total compensation earned by an employee.
Net Pay
gross pay minus deductions (take-home pay)
Contingent liabilities
obligations to make a future payment if, and only if, an uncertain future event occurs.
ex. potential lawsuits and product liabilities
Federal Unemployment Tax Act (FUTA)
Payroll taxes on employers assessed by the federal government to support its unemployment insurance program.
State Unemployment Tax Act (SUTA)
payroll tax on employers to support their unemployment insurance programs
Present value of a loan computation:

A company borrowed $50,000 cash from the bank and signed a six year note at 7%: (present value factor is 4.7665) (annual payments are 10490)
10490 * 4.7665 = $50,000

(It is going to be the number borrowed. If a cash loan is taken out then that amount is the present value.)
Bond Indenture
Contract between the bond issuer and the bondholders; identifies the parties' rights and obligations.
Operating Lease
Short-term (or cancelable) lease in which the lessor retains risks and rewards of ownership.
capital lease
Long-term lease in which the lessor transfers substantially all risk and rewards of ownership to the lessee.
Annuity
a series of equal payments at equal intervals
pension plan
Contractual agreement between an employer and its employees for the employer to provide benefits to employees after they retire; expensed when incurred.
non-cumulative preferred stock
Preferred stock on which the right to receive dividends is lost for any period when dividends are not declared.
cumulative preferred stock
Preferred stock on which undeclared dividends accumulate until paid; common stockholders cannot receive dividends until cumulative dividends are paid.
authorized stock
Total amount of stock that a corporation's charter authorizes it to issue.
Issued Stock
the portion of authorized shares sold
outstanding stock
issued stock held by stockholders
Preemptive rights
Stockholders' right to maintain their proportionate interest in a corporation with any additional shares issued.
Treasury Stock
A corporation's own stock that has been reacquired by the corporation and is being held for future use.
date of declaration
Date the directors vote to pay a dividend.
Date of Record
Date directors specify for identifying stockholders to receive dividends.
Date of Payment
Date the corporation makes the dividend payment.
preferred stock
Stock with a priority status over common stockholders in one or more ways, such as paying dividends or distributing assets.
paid-in capital in excess of par calculation:

A company issued 50 shares of $100 par value stock for $7,000 cash. The total amount paid in capital in excess of par is what?
50 Shares, $100 par value, $7,000 cash

7000 - (50 * 100) = $2,000
Statement of cash flow purpose
A financial statement that lists cash inflows (receipts) and cash outflows (payments) during a period; arranged by operating, investing, financing
cash equivalents
Short-term investment assets that are readily convertible to a known cash amount or sufficiently close to their maturity date (usually within 90 days) so that market value is not sensitive to interest rate changes.
Direct Method
Presentation of net cash from operating activities for the statement of cash flows that lists major operating cash receipts less major operating cash payments.
indirect method
Reports net income and then adjusts it by adding and subtracting items to yield net cash from operating activities on the statement of cash flows
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