Financial Accounting CHP 4 and 5

  1. Is a worksheet a financial statement?
    No, it is not a permanent accounting record, only a working tool.  It is a multi-column form used in the adjustment process and in preparing the financial statements
  2. What are the steps in Preparing a Worksheet?
    • 1. Prepare a trial balace
    • 2. Enter the Adjustments in the Adjustment Columns
    • 3. Enter adjusted balances in the adjusted trial balance columns
    • 4.  Extend adjusted trial balance amount to appropriate financial statement columns
    • 5. Total the Statement Columns, compute the net income or net loss, and complete the worksheet
  3. What is a working tool for the accountant?
    Financial statements from a worksheet
  4. Temporary accounts include...
    Revenue Accounts, Expense Accounts, and any other temporary accounts, dividends
  5. What accounts are permanent?
    Asset and Liability accounts, if an account relates to one or more future accounting periods
  6. What is a Classified Balance Sheet?
    Groups together similar assets and similar liabilities, make the financial statement easier to read
  7. What are current assets?
    Assets that a company expects to convert to cash or use up within one year
  8. What are the current assets that can be used up?
    Accounts receivable, Supplies, Cash, short term investments, receivables, prepaid expenses
  9. What is the operating cycle?
    the average time that it takes to purchase inventory, sell it on account, and then collect cash from customers
  10. Name the intangible assets.
    • goodwill
    • patents
    • copyrights
    • trademarks
    • trade names
  11. What is a current liability?
    Obligations that the company is to pay within the coming year or its operating cycle
  12. List what current liabilities can be
    • Accounts Payable
    • Wages payable
    • bank loans payable
    • interest payable
    • taxes payable
  13. How are current liabilities listed on the Classified balance sheet
    • Present notes payable
    • accounts payable
    • other liabilities in order of magnitude
  14. Define a long term liability.
    Obligations that a company expects to pay after one year
  15. What are examples of long term liabilities?
    • Bonds payable
    • Mortgages payable
    • Long term notes payable
    • Lease liabilities
    • Pension Liabilities
  16. Define Closing entries
    Entries made at the end of an accounting period to transfer the balances of temporary accounts to a permanent stockholders' equity account, Retained earnings
  17. What is a reversing entry?
    An entry made at the beginning of the accounting period, that is the exact opposite of the adjusting entry made in the previous period
  18. What is sales revenue?
    The primary source of revenues for merchandising companies is the sale of merchandise
  19. What is the Cost of goods sold account?
    An expense account, the total cost of merchandise sold during the period, it is directly related to revenue recognized from the sale of goods
  20. What is a perpetual inventory system?
    keeps track of what is constantly on hand.
  21. What kind of account is Purchases?
    an inventory account that is a temporary holding account
  22. How do you close out a purchases and inventory account?
    Beginning inventory + Purchases = total goods available - ending inventory = cost of goods sold... the ending inventory and costs of goods sold, left... Purchases and inventory beginning, right
  23. Define FOB shipping point
    the buyer pays the freight costs, the title transfer is at dock
  24. Define, FOB Destination
    the seller pays for freight costs
  25. What is the Net purchase method?
    Always assuming that the discount for paying on time is taken
  26. What to do if discount period is not taken?
    The information is tracked in a Purchase discounts lost EXPENSE account
  27. What kind of account i s a Sales Returns and Allowances?
    Contra Revenue Account
  28. What is a contra revenue account?
    Normal balance in debit side, keeps track of returns, off sets sales accounts
  29. What kind of account is a Sales Discounts Account?
    Also a contra revenue account
  30. How is Gross profit calculated?
    sales revenue - cost of goods sold
  31. how is net income calculated?
    gross profit - operating expenses = net income
  32. how is gross profit rate calculated?
    gross profit / net sales... as a %
  33. How is net sales calculated?
    Sales less sales returns and allowances and less sales discounts
  34. What is the closing procedure
    • 1. Debit each revenue account for its balance, and creadit the account Income Summary
    • 2.  Debit income summary for total expenses, and credit each expense for its balance
    • 3.  Close the income summary account by transferring its balance to the retained earnings account
    • 4.  Debit Retained earning for the balance in the Dividends account
  35. When a sale is made, what are the four accounts that are effected?
    • Accounts Receivable
    • Sales Revenue
    • Cost of goods sold
    • Inventory
  36. What are non-operating activities?
    they consist of various revenues and expenses and gains and losses that are unrelated to the company's main line of operations.
  37. How are non-operating activities shown on the income statement?
    • Other Revenue and Gains
    • Other Expenses and losses
Card Set
Financial Accounting CHP 4 and 5
Financial accounting YCP Leinheiser