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ACCT 2001 Peters Exam 1

Terms in this set (63)

What is NOT apart of complete journal entry?

balance of each account affected by transactions

all accounts (assets, liability, stockholders equity, revenue, and expenses)

transferring journal entries to ledger account

Cost of goods sold goes under

expense account

Issuing common stock is

financing activity

Expenses paid in cash

decreases assets

land on hold/held

long term investments

Financial statements can be prepared directly from

adjusted trial balance

Sole Proprietorship (barber shops, law offices, auto repair shops)

simple to establish, owner controlled, tax advantages,

partnerships (lawyers, doctors, architects)

simple to establish, shared control, broader skills and resources, tax advantages

Corporation (stockholders)

Easier to transfer ownership, raise funds, no personal liability

information system that identifies, records, and communicates the economic events of an organization to users

internal users (managers, directors, supervisors)

answers questions relevant to job, plan, organize, and run business

external users (investors/owners, creditors, regulatory authorities)

make investing decisions, evaluate risk of lending, ensure complications to regulations

Sarbanes-Oxley Act

reduce unethical corporate behavior and decrease the likelihood of future corporation scandals

Key SOX provisions

1. Top Management must certify finical statements 2. increase penalties for fraudulent finical activity 3. Increased the independence of outside auditors

effective financial reporting depends on

ethical behavior

Financing Activities (takes money to make money)

raising money from outside sources, borrowing money, issuing stock

Investing Actives (purchase assets needed to operate)

PPE, investing, cash/assets, cash raised from financing activity

Operating Activities (revenues, short-lived assets)

day to day operation to produce and sell product, provide service

resources owned by a business

amounts owed to credits in form of other debt obligations

Stockholer's Equity

owners claim to asset

increase in assets or decrease in liabilities resulting from sale of good, service done, or normal course of business

the cost of assets consumed or serviced used I process of generating revenues

payment of cash from a corporation to its stockholders

current asset order of liquidity

cash, investments, receivables, inventories, prepaid insurance

expresses the mathematical relationship between one quality and another

profitability ratio (ex: earning per share)

measure income or operating success or a company for a given period of time

liquidity ratio (ex: current ratio and working capital)

measure the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash

solvency ratio (debt to asset ratio)

measure the ability of the company to service over a long period of time

Earnings Per Share

net income - preferred dividends / weighted average common shares outstanding

An increase in EPS is

liquidity is the ability to pay obligation within

the current year

Working Capital

current assets - current liabilities

current asset / current liabilities

A current ratio above 1 indicates

more current asset than current liability

Debt to asset ratio (measure solvency)

total liabilities / total assets

Genrally Accepted Accounting Principles (GAAP)

set of rules and practices, having substantial authoritative support that the accounting profession recognizes as a general guide for finical reporting purposes

According to FASB

to fundamental qualities are relevance and faithful representation

Step 1 (accounting cycle)

analyze business transaction

adjusting entires

adjusted trial balance

financial statement

closing entries

post-closing trial balance

revenues increase

stockholders equity

expenses and dividends decrease

stockholders equity

purpose of trial balance is to

prove debits equal credits

a trial balance may balance even when

1. A transaction is not journalized
2. A correct journal entry is not posted
3. A journal entry is posted twice
4. Incorrect accounts are used in journalizing or posting
5. Offsetting errors are made in recording the amount of a transaction

Periodicity Assumption

requires accountants to divide the economic life of business into artificial time periods

Revenue Recognition Principle

recognize revenue when performance obligations is satiated (when performed/provided)

Expense Recognition Principle

exepsnes matched with revenues in the period when expected to generate revenues

Accrual-Basis Accounting (accepted by GAAP)

transactions recorded in period when event occurs, (revenue when performance satisfied (even if cash was not received) expenses when incurred)

adjusting entries:

report correct amounts on balance sheet and income statement, adjust every time it prepares a financial statement, (one income statement and one balance sheet account)

cash received/paid BEFORE (prepaid expenses, unearned revenue)

cash received/paid AFTER (accrued revenues, accrued expenses)

trial balance is prepared...

from ledger accounts after all adjusting entries are journalized and posted

primary basis for preparation of finical statements

adjusted trial balance

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Assume Happy Feet Corporation completed the following transactions: a. Sold a store building for $680,000. The building cost Happy Feet$1,600,000, and at the time of the sale, its accumulated depreciation totaled $920,000. b. Lost a store building in a fire. The building cost$360,000 and had accumulated depreciation of $210,000. The insurance proceeds received by Happy Feet totaled$190,000. c. Renovated a store at a cost of $130,000. d. Purchased store fixtures for$60,000. The fixtures are expected to remain in service for 10 years and then be sold for $25,000. Happy Feet uses the straight-line depreciation method. For each transaction, show what Happy Feet would report for investing activities on its statement of cash flows. Show negative amounts in parentheses.

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