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48 Cards in this Set

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What is the objective for financial accounting?

Provide information about the reporting entity that is useful to present and potential investors, lenders, and other creditors

Which financial statement is for a single date in time?

Balance Sheet

Which government agency is required to oversee company's financial statements on the stock exchange?

The SEC. Securities and Exchanges Commission

GAAP

Standards of accounting that are generally practiced and accepted for financial statements

AICPA's

American institute of CPAs, national professional organization establishing the accounting principles

FASB

Financial Accounting Standards Board; the wheat committee's creation to establish and improve standards of accounting

FASB Codification

Goal is to provide all the authoritative literature related to a particular topic; one level of GAAP, considerably authoritative

International Financial Reporting Standards

Adopted to make it easier to compare Us and foreign companies, as US companies can raise capital in foreign markets

Fundamental Qualities

Relevance and Faithful representation

Relevance

Accounting info must be capable of making a difference in a decision

Predictive Value

Input to predict processes used by investors to form their own expectations about the future

Confirmatory Value

Relevant info confirms or corrects prior expectations

Materiality

Info is material if omitting it or misstating it could influence decisions

Faithful Represntation

Numbers and descriptions match what really existed

Completeness

All info that is necessary for faithful rep is provided

Neutrality

Company didn't select info to favor one set of interested parties over another

Free from Error

No errors, faithful rep

Comparability

Measured and reported in the same manner

Verifiability

Independent measures, using same methods, obtain similar results

Timeliness

Info available to decision-makers before it loses capacity to influence decisions

Understandability

Quality of info that lets reasonably informed users see its significance

Economic Entity

Company keeps its activity separate from its owners and other businesses

Going Concern

Company to last long enough to fulfill objectives and commitments

Monetary unit

Money is the common demominator

Periodicity

Company can divide economic activities into time periods

Measurement Principle

Historical Cost and Fair Value principles


Historical provides relative benchmark for measuring trends, fair value may be more useful

Revenue Recognition

Companies recognize revenue in the accounting period that the obligation is satisifed

Expense Recognition

following revenue recognition

Full Disclosure

Providing info that is sufficient importance to influence the judgement and decisions on an informed user

Cost Constraint

Cost of providing info must be weighed against benefits derived from using it

What accounts are closed at the end of an accounting period?

Dividends, Revenues and expenses

What is true about accrual based accounting?

Revenues are recognized in the period the performance obligation is satisfied, regardless of the time period the cash is received.

If unearned revenue is an adjusting entry, how is it written?

Debit unearned revenue, and credit service revenue.

What is the accounting cycle in order?

Journal entries, posting, trial balance, income statement, retained earnings, balance sheet

Permanent accounts

Real accounts, such as assets and liabilites

Temporary accounts

nominal accounts, closed at the end of accounting periods

Depreciation

the calculated value of building, machinery that is used over time

What Contra Accounts?

Accounts that decreased assets, such as accumulated depreciation, allowance for doubtful accounts, sales returns, sales discounts

Prepaid expenses

Expenses paid in cash before they are used or consumed


Ex: insurance

Unearned Revenues

Cash received before services are performed


Ex: Cover pay for lawyer

Accrued Revenues

Revenues for services performed but not yet received in cash or recorded

Accrued Expenses

Expenses incurred but not yet paid in cash or recorded

Accrued interest formula

Face value of note x interest rate x time in terms of one year (1/12) = interest

Gains

Increases in equity from peripheral or incidental transactions


Sale of investment

Loss

Decreases in equity from peripheral or incidental transactions

Intermediate Components

Operation section, Nonoperating section, income tax, Discontinued operations, noncontrolling interest, Earnings Per share

Comprehensive Income

All changes in equity during a period except those resulting from investments by owners and distributions to owners.

Earnings Per Share formula

Net income - preferred stock dividends divided by weighted average # of shares