ACCT Final

Corporate Stock Holders

pay higher taxesno personal liability

Accounting

communicates financial information about a busines to internal and external users

Accounting Equation

can be expressed as: Assets - Stockholders' Equity = Liabilities.

A business organized as a corporation

is owned by its stockholers

Internal users of data

Sales person of companyPresident of companyController of company

Principal type of business activities

OperatingFinancingInvesting

Financing

activities involves collecting the necessary funds to support the business

Expense

The cost of assets consumed or services used

Ending retained earnings

Beginning retained earnings + Net income � Dividends

When does net income result?

when revenues exceed expenses

Balance Sheet

is concerned with the company at a point in time

What can stockholder's equity be desribed as?

as claims of owners on total assets

Revenues

have the effect of increasing retained earnings

Intangible asset

derives its value from the rights and privileges it provides the owner

Operating cycle of a company

is the average time that is required to go from cash to cash in producing revenues

What is a measure of profitabilit?

earnings per share

Where do dividends appear?

On the retained earnings statement ONLY

Characteristics of Accounting information

ComparabilityReliabilityRelevance

Accounting information should be verifiablein order to enhance what?

reliability

Going Concern assumption

assumes that an enterprise will continue in operation long enough to carry out its existing objectives and commitments

Does a debit to an account always indicate an increase in that account?

NO

What happens if expenses are paid in cash?

assets decrease

Which items have an effect on retained earnings?

RevenueExpenseDividends

Are advanced receipts from customers treated as revenue at the time of the receipt?

No, revenue cannot be recognized until the work is performed

What does an account consist of?

titledebit sidecredit side

What is the normal balance of any account?

the side which increases that account

Double-entry system

requires that each transaction must be recorded in at least two different accounts

Which accounts normally have credit balances?

revenuesliabilitiesretained earnings

Sequence of steps in the recording process?

analyze each transactionenter transaction in journaltransfer info to ledger accounts

Accrued Revenues

revenues that have been earned but not yet received

Over what period should a building be written off?

over its useful life

accrual basis of accounting

events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received

Difference between prepaid and accrued expenses

prepaid expenses have been recorded and accrued expenses have not

Why are adjusting entries made?

to ensure that: expense are recognized in the period in which they are incurred revenues are recorded in the period in which they are earned balance sheet and income statement accounts have correct balances at the end of an accounting period

prepaid expenses

Goods purchased for future use in the business, such as supplies or insurance

what is unearned revenue classified as?

a liability

Depreciation

is the process of allocating the cost of an asset to expense over its useful life in a rational and systematic manner

what causes and understatement of assets and an understatement of revenues?

Failure to prepare an adjusting entry at the end of a period to record an accrued revenue

Perpetual inventory system

the cost of goods sold is determined each time a sale occurs

net sales minus cost of goods sold is equal to what?

Gross profit

periodic system

determines the inventory on hand only at the end of the accounting period

Goods in transit shipped FOB shipping point

should be included in the buyer's ending inventory

an inventory ratio that is too high indicates what?

that the company is losing sales opportunities because of inventory shortages

Advantage of LIFO inventory costing method

Cost of goods sold will include most recent costs and thus will be more realistic

when is the specific identification method of costing inventories used?

when the company sells a limited quantity of high-unit cost items

Objectives of a system of internal controls

Safe-guard company assetsReduce risk of errorsEnhance reliability and accuracy of accounting records

Internal control procedures

Using prenumbered documentsReconciling the bank statementInsistance that employees take vacationsare meant to safeguard assets

which asset is most susceptable to improper use and diversion?

Cash

separation of duties

control principle related to not having the same person authorize and pay for goods

What does it mean if an employee has been bonded?

they have been insured against misappropriation of assets

A NSF check should appear in which section of the bank reconciliation?

Deduction from the balance per books

Accounts receivable are the result of?

cash and credit sales

salvage value

an estimate of a plant asset's value at the end of its useful life