Accounting Flashcards
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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?

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

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

<p>Measurement/Cost Principle</p> Signup and view all the answers

What are assets?

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

What are revenues?

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

What is equity?

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

What are liabilities?

<p>Creditors' claims on the assets of a company.</p> Signup and view all the answers

What is the accounting equation?

<p>Assets = Liabilities + Equity.</p> Signup and view all the answers

What are withdrawals?

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

What are accounts receivable?

<p>Assets created by selling goods and services on credit.</p> Signup and view all the answers

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

<p>$245,000.</p> Signup and view all the answers

Which of the following are classified as financial statements?

<p>Income Statement</p> Signup and view all the answers

What does the statement of owner's equity report?

<p>How equity changes over a period of time.</p> Signup and view all the answers

What is an income statement?

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

What does a balance sheet list?

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

Which of the following are classified as assets?

<p>Cash</p> Signup and view all the answers

What is the full disclosure principle?

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

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

<p>Investments</p> Signup and view all the answers

What is an account?

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

What are unearned revenues?

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

What is a ledger?

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

What is a debit?

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

What is a credit?

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

Which account normally has a credit balance?

<p>Wages Payable</p> Signup and view all the answers

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

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

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

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

What is the revenue recognition principle?

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

What is the expense recognition (matching) principle?

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

What are items that require adjusting entries?

<p>Prepaid expenses, depreciation expense, accrued expenses, unearned revenues, and accrued revenues.</p> Signup and view all the answers

What is meant by owner investments?

<p>Contributions made by owners into the business.</p> Signup and view all the answers

What is a contra account?

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

What is accumulated depreciation?

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

Which of the following assets is not depreciated?

<p>Land</p> Signup and view all the answers

What is book value?

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

What is an adjusted trial balance?

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

In what order are financial statements typically prepared?

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

Which of the following accounts is a temporary account?

<p>Salaries Expense</p> Signup and view all the answers

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

<p>True</p> Signup and view all the answers

What is the accounting cycle?

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

What is the usual final step in the accounting cycle?

<p>Preparing a post-closing trial balance</p> Signup and view all the answers

Which of the following is classified as a current asset?

<p>Cash</p> Signup and view all the answers

Which of the following is classified as a plant asset?

<p>Equipment</p> Signup and view all the answers

What is the income summary account?

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

What does a merchandiser do?

<p>Earns net income by buying and selling merchandise.</p> Signup and view all the answers

What is the cost of goods sold?

<p>The expense of buying and preparing merchandise for sale.</p> 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?

<p>$417,000.</p> Signup and view all the answers

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

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

What are sales returns?

<p>Merchandise that customers return to the seller after the sale.</p> Signup and view all the answers

What is the weighted average method?

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

What does the lower of cost or market principle require?

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

What are credit sales?

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

What are credit purchases?

<p>Purchases made by a company on credit.</p> Signup and view all the answers

What is a subsidiary ledger?

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

What is the general journal?

<p>The main record for all types of transactions.</p> Signup and view all the answers

What journal records cash payments?

<p>Cash payments journal.</p> Signup and view all the answers

Which journal records cash collections from customers?

<p>Cash receipts journal.</p> Signup and view all the answers

What is the entry to establish a petty cash fund?

<p>A debit to Petty Cash and a credit to Cash.</p> Signup and view all the answers

What is bank reconciliation?

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

What is the maturity date of a note receivable?

<p>The day the note is due to be repaid.</p> Signup and view all the answers

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

<p>$112.50.</p> Signup and view all the answers

What is dishonoring a note?

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

What are plant assets?

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

What is not a relevant factor in computing depreciation?

<p>Market value</p> Signup and view all the answers

What is salvage value?

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

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

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

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

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

What is straight-line depreciation?

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

What is units-of-production depreciation?

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

What is depletion?

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

What is common stock?

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

What is paid-in capital?

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

What does stockholders' equity consist of?

<p>A and B only</p> Signup and view all the answers

What is a stock dividend?

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

What is treasury stock?

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

What is the date of declaration?

<p>The date the directors vote to declare and pay a dividend.</p> 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.
  • 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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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.

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