The nature of an asset is best described as:
an economic resource that's expected to benefit future operations
Which financial statement covers a period of time?
statement of cash flows and the income statement
Identify the two basic categories of items on an income statement
revenues and expenses
What do we call the bottom of the income statement
net income/net loss
The valuation of assets on a balance sheet are based on
the historical cost principal
Which of the following is a true statement about International Financial Reporting systems
They are converging gradually with US standards
How can a business earn large profits but have a small balance of retained earnings?
Paying large dividends
Give two reasons why a business can have a steady stream of net income over a 6 year period and still experience a cash shortage
Heavy investing, paying off debts
The best source of cash for a business is from
collections from customers
How can a business be unprofitable several years in a row and still have plenty of cash
borrowing money, issuing stock to stockholders, and selling capital assets
The primary objective of financial reporting is to provide information
useful for making investment and credit decisions
Which type of business provides the least amount of protection for bankers and creditors of the company
corporation
assets are usually reported at their
historical cost
Owners equity =
Retained Earnings and Paid in Capital
What is the single most important item in the financial statements?
Net Income
board of directors
group elected by the stockholders to set policy for a corporation and to appoint its officers
capital
another name for the owners' equity of a business
common stock
most basic form of capital stock
current asset
an asset that is expected to be converted to cash, sold, or consumed during the next 12 months, or within the business's normal operating cycle if longer than a year
any event that has a financial impact on the business and can be measured reliably
transaction
a liability for an expense you have not yet paid
accrued liability
name two things that increase a company's stockholders' equity
sale of stock and net income (revenue greater than expenses
name two things that decrease a company's stockholders' equity
divdends and net loss (expenses greater than revenue)
shows the cumulative net income earned over a company's lifetime, minus its cumulative net losses and dividends
retained earnings
optional; they are decided by the board of directors of a business.
divdends
increase in stockholders' equity from delivering goods or services to customers
revenue
cost of operating a business
expense
The three items that belong on the income statment
expenses revenues net income
items that belong on the statement of retained earnings
beg. retained earnings net income cash dividends end retained earnings
items belonging to the balance sheet
assets, liabilities, stockholders equity
what items fall under the stockholders' equity of a balance sheet
common stock, retained earnings, other equity, total stockholders equity, total liabilities & stockholders equity
all business transactions include two parts: you give and you receive. therefore accounting is based on a
double entry system
Assets: increases and decreases
left increase, right decrease
liabilities: increases and decreases
right decrease, left increase
stockholders' equity: increases and decreases
right decrease, left increase
Lists all accounts with their balances - assets first, then liabilities and stockholders' equity. Summarizes all the account balances for the financial statments
trial balance
revenues: increases and decreases
right decrease left increase
expenses: increases and decreases
right increase left decrease
the basic summary device for accounting is the
account
which types of accounts normally have a credit balance?
revenues and liabilities
oe as well
correct sequence for recording transactions
journal, ledger, trial balance, financial statements
an investment of cash into a business will ___________ OE's
increase
Balance sheet defect
ignoring to record a sale on account the balance sheet reports no account receivable
income-statement defect
ignoring the sale understates revenue and net income on the income statement
when should you record revenue?
after it has been earned
an adjustment for payment of an item or receipt of cash in advance
deferral
an expense or a revenue that occurs before the business pays or receives cash.
accrual
a revenue that has been earned but not yet collected is called
an accrued revenue
prepaid rent expired
rent expense - prepaid rent
supplies used
supplies expense - supplies
depreciation on equipment
depreciation - accumulated depreciation
accrued salary expense
salary expense - salary payable
accrued service revenue
accounts receivable - service revenue
amount of unearned service revenue that has been earned
unearned service revenue - service revenue
accrued income tax expense
income tax expense - income tax payable
current ratio
total current assets/total current liabilities
debt ratio
total liabilities/total assets
closing the books
zeroing out the revenue expense and dividend accounts
The nature of an asset is best described as:
an economic resource that's expected to benefit future operations
Which financial statement covers a period of time?
statement of cash flows and the income statement
Identify the two basic categories of items on an income statement
revenues and expenses
What do we call the bottom of the income statement
net income/net loss
The valuation of assets on a balance sheet are based on
the historical cost principal
Which of the following is a true statement about International Financial Reporting systems
They are converging gradually with US standards
How can a business earn large profits but have a small balance of retained earnings?
Paying large dividends
Give two reasons why a business can have a steady stream of net income over a 6 year period and still experience a cash shortage
Heavy investing, paying off debts
The best source of cash for a business is from
collections from customers
How can a business be unprofitable several years in a row and still have plenty of cash
borrowing money, issuing stock to stockholders, and selling capital assets
The primary objective of financial reporting is to provide information
useful for making investment and credit decisions
Which type of business provides the least amount of protection for bankers and creditors of the company
corporation
assets are usually reported at their
historical cost
Owners equity =
Retained Earnings and Paid in Capital
What is the single most important item in the financial statements?
Net Income
board of directors
group elected by the stockholders to set policy for a corporation and to appoint its officers
capital
another name for the owners' equity of a business
common stock
most basic form of capital stock
current asset
an asset that is expected to be converted to cash, sold, or consumed during the next 12 months, or within the business's normal operating cycle if longer than a year
any event that has a financial impact on the business and can be measured reliably
transaction
a liability for an expense you have not yet paid
accrued liability
name two things that increase a company's stockholders' equity
sale of stock and net income (revenue greater than expenses
name two things that decrease a company's stockholders' equity
divdends and net loss (expenses greater than revenue)
shows the cumulative net income earned over a company's lifetime, minus its cumulative net losses and dividends
retained earnings
optional; they are decided by the board of directors of a business.
divdends
increase in stockholders' equity from delivering goods or services to customers
revenue
cost of operating a business
expense
The three items that belong on the income statment
expenses revenues net income
items that belong on the statement of retained earnings
beg. retained earnings net income cash dividends end retained earnings
items belonging to the balance sheet
assets, liabilities, stockholders equity
what items fall under the stockholders' equity of a balance sheet
common stock, retained earnings, other equity, total stockholders equity, total liabilities & stockholders equity
all business transactions include two parts: you give and you receive. therefore accounting is based on a
double entry system
Assets: increases and decreases
left increase, right decrease
liabilities: increases and decreases
right decrease, left increase
stockholders' equity: increases and decreases
right decrease, left increase
Lists all accounts with their balances - assets first, then liabilities and stockholders' equity. Summarizes all the account balances for the financial statments
trial balance
revenues: increases and decreases
right decrease left increase
expenses: increases and decreases
right increase left decrease
the basic summary device for accounting is the
account
which types of accounts normally have a credit balance?
revenues and liabilities
oe as well
correct sequence for recording transactions
journal, ledger, trial balance, financial statements
an investment of cash into a business will ___________ OE's
increase
Balance sheet defect
ignoring to record a sale on account the balance sheet reports no account receivable
income-statement defect
ignoring the sale understates revenue and net income on the income statement
when should you record revenue?
after it has been earned
an adjustment for payment of an item or receipt of cash in advance
deferral
an expense or a revenue that occurs before the business pays or receives cash.
accrual
a revenue that has been earned but not yet collected is called
an accrued revenue
prepaid rent expired
rent expense - prepaid rent
supplies used
supplies expense - supplies
depreciation on equipment
depreciation - accumulated depreciation
accrued salary expense
salary expense - salary payable
accrued service revenue
accounts receivable - service revenue
amount of unearned service revenue that has been earned
unearned service revenue - service revenue
accrued income tax expense
income tax expense - income tax payable
current ratio
total current assets/total current liabilities
debt ratio
total liabilities/total assets
closing the books
zeroing out the revenue expense and dividend accounts