ACCT Final

  1. Corporate Stock Holders
    • pay higher taxes
    • no personal liability
  2. Accounting
    communicates financial information about a busines to internal and external users
  3. Accounting Equation
    • can be expressed as:
    • Assets - Stockholders' Equity = Liabilities.
  4. A business organized as a corporation
    is owned by its stockholers
  5. Internal users of data
    • Sales person of company
    • President of company
    • Controller of company
  6. Principal type of business activities
    • Operating
    • Financing
    • Investing
  7. Financing
    • activities involves collecting the necessary funds to support the
    • business
  8. Expense
    The cost of assets consumed or services used
  9. Ending retained earnings
    Beginning retained earnings + Net income – Dividends
  10. When does net income result?
    when revenues exceed expenses
  11. Balance Sheet
    is concerned with the company at a point in time
  12. What can stockholder's equity be desribed as?
    as claims of owners on total assets
  13. Revenues
    have the effect of increasing retained earnings
  14. Intangible asset
    derives its value from the rights and privileges it provides the owner
  15. Operating cycle of a company
    is the average time that is required to go from cash to cash in producing revenues
  16. What is a measure of profitabilit?
    earnings per share
  17. Where do dividends appear?
    On the retained earnings statement ONLY
  18. Characteristics of Accounting information
    • Comparability
    • Reliability
    • Relevance
  19. Accounting information should be verifiablein order to enhance what?
  20. Going Concern assumption
    • assumes that an enterprise will continue in operation long enough to
    • carry out its existing objectives and commitments
  21. Does a debit to an account always indicate an increase in that account?
  22. What happens if expenses are paid in cash?
    assets decrease
  23. Which items have an effect on retained earnings?
    • Revenue
    • Expense
    • Dividends
  24. Are advanced receipts from customers treated as revenue at the time of the receipt?
    No, revenue cannot be recognized until the work is performed
  25. What does an account consist of?
    • title
    • debit side
    • credit side
  26. What is the normal balance of any account?
    the side which increases that account
  27. Double-entry system
    requires that each transaction must be recorded in at least two different accounts
  28. Which accounts normally have credit balances?
    • revenues
    • liabilities
    • retained earnings
  29. Sequence of steps in the recording process?
    • analyze each transaction
    • enter transaction in journal
    • transfer info to ledger accounts
  30. Accrued Revenues
    revenues that have been earned but not yet received
  31. Over what period should a building be written off?
    over its useful life
  32. 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
  33. Difference between prepaid and accrued expenses
    prepaid expenses have been recorded and accrued expenses have not
  34. 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
  35. prepaid expenses
    Goods purchased for future use in the business, such as supplies or insurance
  36. what is unearned revenue classified as?
    a liability
  37. Depreciation
    • is the process of allocating the cost of an asset to expense over its useful life in a
    • rational and systematic manner
  38. 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
  39. Perpetual inventory system
    the cost of goods sold is determined each time a sale occurs
  40. net sales minus cost of goods sold is equal to what?
    Gross profit
  41. periodic system
    determines the inventory on hand only at the end of the accounting period
  42. Goods in transit shipped FOB shipping point
    should be included in the buyer's ending inventory
  43. an inventory ratio that is too high indicates what?
    • that the company is losing sales opportunities because of inventory
    • shortages
  44. Advantage of LIFO inventory costing method
    Cost of goods sold will include most recent costs and thus will be more realistic
  45. when is the specific identification method of costing inventories used?
    when the company sells a limited quantity of high-unit cost items
  46. Objectives of a system of internal controls
    • Safe-guard company assets
    • Reduce risk of errors
    • Enhance reliability and accuracy of accounting records
  47. Internal control procedures
    • Using prenumbered documents
    • Reconciling the bank statement
    • Insistance that employees take vacations

    are meant to safeguard assets
  48. which asset is most susceptable to improper use and diversion?
  49. separation of duties
    control principle related to not having the same person authorize and pay for goods
  50. What does it mean if an employee has been bonded?
    they have been insured against misappropriation of assets
  51. A NSF check should appear in which section of the bank reconciliation?
    Deduction from the balance per books
  52. Accounts receivable are the result of?
    cash and credit sales
  53. salvage value
    an estimate of a plant asset's value at the end of its useful life
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ACCT Final
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