Accounting Flashcards

Questions and Answers

What is managerial accounting?

The area of accounting aimed at serving the decision making needs of internal users.

What is a corporation?

A business legally separate from its owners.

What is the going-concern assumption?

The rule that requires financial statements to reflect the assumption that the business will continue operating unless evidence shows otherwise.

What is the business entity assumption?

The principle that personal assets and transactions of a business's owner should not be included in the records of the business. Signup and view all the answers

Which accounting principle requires that all goods and services purchased be recorded at actual cost?

Measurement/Cost Principle Signup and view all the answers

What are assets?

Resources a company owns or controls that are expected to yield future benefits. Signup and view all the answers

What are revenues?

Increases in equity from a company's sales of products or services. Signup and view all the answers

What is equity?

The difference between a company's assets and its liabilities. Signup and view all the answers

What are liabilities?

Creditors' claims on the assets of a company. Signup and view all the answers

What is the accounting equation?

Assets = Liabilities + Equity. Signup and view all the answers

What are withdrawals?

Distributions of cash or other resources by a business to its owners. Signup and view all the answers

What are accounts receivable?

Assets created by selling goods and services on credit. Signup and view all the answers

If assets are $365,000 and equity is $120,000, what are liabilities?

$245,000. Signup and view all the answers

Which of the following are classified as financial statements?

Income Statement Signup and view all the answers

What does the statement of owner's equity report?

How equity changes over a period of time. Signup and view all the answers

What is an income statement?

The financial statement that reports whether the business earned a profit and lists revenues and expenses. Signup and view all the answers

What does a balance sheet list?

The types and amounts of assets, liabilities, and equity of a business as of a specific date. Signup and view all the answers

Which of the following are classified as assets?

Cash Signup and view all the answers

What is the full disclosure principle?

Prescribes that a company report the details behind financial statements that would impact users' decisions. Signup and view all the answers

Which of the following accounts is not included in the calculation of net income?

Investments Signup and view all the answers

What is an account?

A record of the increases and decreases in a specific asset, liability, equity, revenue, or expense. Signup and view all the answers

What are unearned revenues?

Liabilities created when a customer pays in advance for products or services before the revenue is earned. Signup and view all the answers

What is a ledger?

The record of all accounts and their balances used by a business. Signup and view all the answers

What is a debit?

The left-hand side of a T-account. Signup and view all the answers

What is a credit?

The right-hand side of a T-account. Signup and view all the answers

Which account normally has a credit balance?

Wages Payable Signup and view all the answers

What is the general journal entry for purchasing $7,000 of supplies and paying cash?

Debit $7,000 to Supplies, Credit $7,000 to Cash. Signup and view all the answers

What is the general journal entry when receiving a $400 utility bill?

Debit $400 to Utilities Expense, Credit $400 to Accounts Payable. Signup and view all the answers

What is the revenue recognition principle?

The accounting principle that requires revenue to be recorded when earned. Signup and view all the answers

What is the expense recognition (matching) principle?

The principle that requires expenses to be reported in the same period as the revenues they helped to generate. Signup and view all the answers

What are items that require adjusting entries?

Prepaid expenses, depreciation expense, accrued expenses, unearned revenues, and accrued revenues. Signup and view all the answers

What is meant by owner investments?

Contributions made by owners into the business. Signup and view all the answers

What is a contra account?

An account linked with another account that has an opposite normal balance and is subtracted from the balance of the related account. Signup and view all the answers

What is accumulated depreciation?

The total amount of depreciation recorded for an asset for all periods it has been used. Signup and view all the answers

Which of the following assets is not depreciated?

Land Signup and view all the answers

What is book value?

The difference between the cost of an asset and the accumulated depreciation for that asset. Signup and view all the answers

What is an adjusted trial balance?

A trial balance prepared after adjustments have been recorded. Signup and view all the answers

In what order are financial statements typically prepared?

Income statement, statement of owner's equity, balance sheet. Signup and view all the answers

Which of the following accounts is a temporary account?

Salaries Expense Signup and view all the answers

All temporary accounts are closed but permanent accounts are not closed.

True Signup and view all the answers

What is the accounting cycle?

The steps performed each reporting period in preparing financial statements. Signup and view all the answers

What is the usual final step in the accounting cycle?

Preparing a post-closing trial balance Signup and view all the answers

Which of the following is classified as a current asset?

Cash Signup and view all the answers

Which of the following is classified as a plant asset?

Equipment Signup and view all the answers

What is the income summary account?

The special account used only in the closing process to hold amounts of revenues and expenses temporarily. Signup and view all the answers

What does a merchandiser do?

Earns net income by buying and selling merchandise. Signup and view all the answers

What is the cost of goods sold?

The expense of buying and preparing merchandise for sale. Signup and view all the answers

If a company has sales of $695,000 and cost of goods sold of $278,000, what is its gross profit?

$417,000. Signup and view all the answers

What do the credit terms 2/10, n/30 mean?

2% cash discount if paid within 10 days, or the balance due in 30 days. Signup and view all the answers

What are sales returns?

Merchandise that customers return to the seller after the sale. Signup and view all the answers

What is the weighted average method?

The inventory valuation method that tends to smooth out erratic changes in costs. Signup and view all the answers

What does the lower of cost or market principle require?

Inventory of a company to be reported at the lower of its cost or its market value. Signup and view all the answers

What are credit sales?

Sales recorded when a company sells goods or services to customers on credit. Signup and view all the answers

What are credit purchases?

Purchases made by a company on credit. Signup and view all the answers

What is a subsidiary ledger?

A record that contains detailed information on specific accounts with a common characteristic. Signup and view all the answers

What is the general journal?

The main record for all types of transactions. Signup and view all the answers

What journal records cash payments?

Cash payments journal. Signup and view all the answers

Which journal records cash collections from customers?

Cash receipts journal. Signup and view all the answers

What is the entry to establish a petty cash fund?

A debit to Petty Cash and a credit to Cash. Signup and view all the answers

What is bank reconciliation?

An analysis that explains differences between the checking account balance. Signup and view all the answers

What is the maturity date of a note receivable?

The day the note is due to be repaid. Signup and view all the answers

What is the interest accrued on $7,500 at 6% for 90 days?

$112.50. Signup and view all the answers

What is dishonoring a note?

Failure by a promissory note's maker to pay the amount due at maturity. Signup and view all the answers

What are plant assets?

Tangible assets that have a useful life of more than one accounting period. Signup and view all the answers

What is not a relevant factor in computing depreciation?

Market value Signup and view all the answers

What is salvage value?

An estimate of the asset's value at the end of its benefit period. Signup and view all the answers

What do the straight-line and double-declining-balance depreciation methods produce?

The same total depreciation over an asset's useful life. Signup and view all the answers

What is the formula to compute annual straight-line depreciation?

(Cost minus salvage value) divided by the useful life in years. Signup and view all the answers

What is straight-line depreciation?

The method that charges the same amount of expense to each period of the asset's useful life. Signup and view all the answers

What is units-of-production depreciation?

The method that allocates an equal portion of the total depreciable cost for a plant asset to each unit produced. Signup and view all the answers

What is depletion?

The process of allocating the cost of natural resources to the period when it is consumed. Signup and view all the answers

What is common stock?

When a corporation has only one class of stock. Signup and view all the answers

What is paid-in capital?

The total amount of cash and other assets received by a corporation from its stockholders in exchange for its stock. Signup and view all the answers

What does stockholders' equity consist of?

A and B only Signup and view all the answers

What is a stock dividend?

A corporation's distribution of additional shares of its own stock to its stockholders without any payment. Signup and view all the answers

What is treasury stock?

Stock that was reacquired and is still held by the issuing corporation. Signup and view all the answers

What is the date of declaration?

The date the directors vote to declare and pay a dividend. Signup and view all the answers

Study Notes

Managerial Accounting

Focuses on providing information for internal decision making.

Corporation

A corporation is a legal entity distinct from its owners, offering limited liability.

Going-Concern Assumption

Financial statements are prepared under the assumption that a business will remain in operation indefinitely.

Business Entity Assumption

Personal transactions of owners should not be included in the business's financial records.

Measurement/Cost Principle

Requires recording all goods and services at their actual cost upon purchase.

Assets

Resources owned or controlled by a business that are expected to provide future economic benefits.

Revenues

Result from the sale of products or services, contributing to increases in equity.

Equity

Represents the net assets of a company, calculated as assets minus liabilities.

Liabilities

Obligations or debts owed by a company to creditors, representing their claims on assets.

Accounting Equation

The fundamental equation of accounting expressed as Assets = Liabilities + Equity.

Withdrawals

Cash or resources distributed from a business to its owners.

Accounts Receivable

Represents assets from sales made on credit, awaiting payment.

Liabilities Calculation

If assets are $365,000 and equity is $120,000, liabilities amount to $245,000.

Financial Statements

The primary components include income statement, statement of owner's equity, and balance sheet, excluding changes in assets.

Owner's Equity Statement

Demonstrates how equity fluctuates over a specified period.

Income Statement

Summarizes a company's revenues and expenses to determine profitability over a specific period.

Balance Sheet

Lists a company's assets, liabilities, and equity as of a particular date.

Accounts Payable

Represents obligations to pay suppliers, classified as a liability.

Full Disclosure Principle

Mandates that all relevant information impacting financial decisions must be disclosed in financial statements.

Non-Net Income Accounts

Accounts like cash do not factor into net income calculations.

Account Definition

A record detailing the increases and decreases in specific assets, liabilities, equity, revenues, or expenses.

Unearned Revenues

Liabilities created when customers prepay for products or services before they are delivered.

Ledger

The comprehensive record of all accounts and their respective balances within a business.

T-Account Basics

Debits are recorded on the left side, while credits are recorded on the right side of a T-account.

Wage Payable Account

Typically has a credit balance, representing a liability account.

Journal Entries for Transactions

Purchase of supplies for cash requires a debit to Supplies and a credit to Cash.

Utility Bill Entry

Recording a utility bill involves debiting Utilities Expense and crediting Accounts Payable.

Revenue Recognition Principle

Revenue is recorded when it is earned, regardless of cash collection.

Expense Recognition (Matching) Principle

Requires expenses to be recognized in the same period as related revenues.

Adjusting Entries

Examples include prepaid expenses, depreciation, accrued expenses, unearned revenues, and accrued revenues.

Owner Investments Adjustment

Typically does not require an adjusting entry for regular owner contributions.

Contra Account

An account that offsets another account with an opposite normal balance.

Accumulated Depreciation

Total depreciation recorded for an asset over its useful life.

Non-Depreciable Assets

Land is considered a non-depreciable asset as it does not lose value over time.

Book Value

Calculated as the asset's cost minus accumulated depreciation.

Adjusted Trial Balance

Prepared after making necessary adjustments to ensure accuracy of accounts.

Financial Statement Preparation Order

Income statement, statement of owner's equity, and balance sheet are typically prepared in this sequence.

Temporary Accounts

Accounts such as Salaries Expense are closed at the end of the accounting period.

Accounting Cycle

Encompasses steps taken to prepare financial statements, beginning with transaction analysis and ending with the post-closing trial balance.

Current Asset Examples

Accounts receivable is categorized as a current asset.

Plant Asset Examples

Equipment is classified as a plant asset used in business operations.

Income Summary Account

A temporary account used during the closing process to hold revenues and expenses before transferring to owner's equity.

Merchandiser

A business entity that earns income through buying and selling inventory.

Cost of Goods Sold

The expense incurred in acquiring and preparing merchandise for sale.

Gross Profit Calculation

Gross profit equals sales minus cost of goods sold.

Credit Terms

Terms like 2/10, n/30 mean a 2% discount if paid within 10 days, otherwise the full amount is due in 30 days.

Sales Returns

Merchandise returned by customers after the sale.

Inventory Valuation Method

The weighted average method smooths out fluctuations in inventory costs over time.

Lower of Cost or Market Principle

Requires that a company's inventory is reported at the lower of its historical cost or market value.

Credit Sales and Purchases Journals

Used respectively for recording sales and purchases made on credit.

Subsidiary Ledger

Contains detailed information on specific accounts that support a controlling account.

General Journal Use

A sales return would typically be recorded in the general journal if special journals are used for specific transactions.

Cash Receipts Journal

Used for recording cash collections received from customers, net of discounts.

Petty Cash Fund Entry

Establishing a petty cash fund involves debiting Petty Cash and crediting Cash.

Bank Reconciliation

Analyzes discrepancies between a company's and bank's records regarding the checking account balance.

Maturity Date of Note Receivable

Refers to the specific date when the note must be repaid.

Interest Calculation

The accrued interest on a $7,500 note at 6% for 90 days amounts to $112.50.

Dishonoring a Note

Occurs when the maker of a promissory note fails to repay at maturity.

Plant Assets Definition

Tangible assets utilized in business operations with a useful life extending beyond one accounting period.

Salvage Value

An estimate of an asset’s value at the end of its useful life.

Depreciation Methods

Straight-line and double-declining-balance both yield the same total depreciation over an asset’s life.

Annual Straight-Line Depreciation Formula

Computed as (Cost minus Salvage Value) divided by the asset's useful life in years.

Straight-Line Depreciation Method

Allocates the same amount of depreciation expense each period over the asset's useful life.

Units-of-Production Depreciation

Method allocates depreciation based on the number of units produced by the asset.

Depletion

The process of allocating the cost associated with the use of natural resources.

Common Stock

Represents a single class of stock held by a corporation when only one type exists.

Paid-In Capital

The total amount received from shareholders in exchange for stock.

Stockholders' Equity Components

Comprised of paid-in capital and retained earnings.

Stock Dividend

Distribution of additional shares to stockholders without any payment required in return.

Treasury Stock

Shares reacquired by the issuing corporation that are still held.

Date of Declaration

The specific day when a company declares a dividend, making it an obligation to pay.

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Description

Test your knowledge of key concepts in managerial accounting with these flashcards. This quiz covers essential definitions and principles that are crucial for internal decision-making in businesses, including terms related to corporations and the going-concern assumption.