NAFTrack Test Accounting Flashcards
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Questions and Answers

What does IRS stand for?

  • International Revenue Service
  • Investment Revenue Service
  • Inland Revenue Service
  • Internal Revenue Service (correct)
  • What is FASB?

    Financial Accounting Standards Board

    What does GAAP stand for?

    Generally Accepted Accounting Principles

    What is the purpose of the SEC?

    <p>Protects investors and helps markets run smoothly</p> Signup and view all the answers

    What is the AICPA?

    <p>American Institute of Certified Public Accountants</p> Signup and view all the answers

    What is PCAOB?

    <p>Public Company Accounting Oversight Board</p> Signup and view all the answers

    What do IFRS stand for?

    <p>International Financial Reporting Standards</p> Signup and view all the answers

    Define the Principle of Regularity.

    <p>Ensures consistency</p> Signup and view all the answers

    What does the Principle of Sincerity imply?

    <p>Statements are honest and accurate</p> Signup and view all the answers

    Explain the Principle of Permanence of Methods.

    <p>Analysis of composition</p> Signup and view all the answers

    What does Principles of Noncompensation mean?

    <p>Complete disclosure of truth, no fake items</p> Signup and view all the answers

    What is the Principle of Prudence?

    <p>Use caution with transactions</p> Signup and view all the answers

    What does the Principle of Continuity entail?

    <p>Record transactions as if the company will continue indefinitely</p> Signup and view all the answers

    Define the Principle of Periodicity.

    <p>Accounting is broken into periods of time</p> Signup and view all the answers

    What does the Principle of Method state?

    <p>The same accounting method must be used consistently</p> Signup and view all the answers

    What is the accounting cycle?

    <p>Collect and analyze source documents, journalize transactions, post to general ledger, prepare a trial balance, prepare financial statements, close temporary accounts, prepare post-closing trial balance</p> Signup and view all the answers

    What are liabilities?

    <p>Accounts payable, notes payable, mortgage</p> Signup and view all the answers

    What is a trial balance?

    <p>Proves debits equal credits</p> Signup and view all the answers

    What is a post reference?

    <p>Account number in the general journal and page number in the general ledger</p> Signup and view all the answers

    What should you do if trial balances do not balance?

    <p>Re-add totals bottom up, subtract one from the other, and look for discrepancies</p> Signup and view all the answers

    What is the importance of documentation in accounting?

    <p>Creates a paper trail</p> Signup and view all the answers

    What is the purpose of income statements?

    <p>Determine if a business has a net income or net loss</p> Signup and view all the answers

    Describe cash accounting.

    <p>Records transactions when cash is received</p> Signup and view all the answers

    Define accrual accounting.

    <p>Records transactions when they occur, regardless of cash flow</p> Signup and view all the answers

    What is SCOE?

    <p>Statement of Changes in Owners Equity</p> Signup and view all the answers

    What does ISA stand for?

    <p>International Standards on Auditing</p> Signup and view all the answers

    What is the return on sales ratio?

    <p>Net Income/Revenue</p> Signup and view all the answers

    What is horizontal analysis?

    <p>Comparing financial statements across different years</p> Signup and view all the answers

    Define vertical analysis.

    <p>Compares each line of an income statement with total revenue</p> Signup and view all the answers

    What is the current ratio?

    <p>Current Assets/Current Liabilities</p> Signup and view all the answers

    What is working capital?

    <p>Current Assets - Current Liabilities</p> Signup and view all the answers

    What are internal controls?

    <p>Policies that establish standards for employee honesty and ethical leadership</p> Signup and view all the answers

    What do cash controls involve?

    <p>Recording every transaction with cash register tape and writing checks</p> Signup and view all the answers

    What is segregation in accounting?

    <p>Only authorized transactions handled by one person, while recording done by another</p> Signup and view all the answers

    What is independent verification?

    <p>Conducting audits and rotating duties</p> Signup and view all the answers

    Define personnel policies in accounting.

    <p>Implementing background checks and security measures for employees</p> Signup and view all the answers

    What are external controls in accounting?

    <p>GAAP, SEC, audits, laws</p> Signup and view all the answers

    What is forensic accounting?

    <p>Used when there are allegations of financial misconduct</p> Signup and view all the answers

    Study Notes

    Key Accounting Terms and Definitions

    • IRS (Internal Revenue Service): Agency responsible for tax collection and enforcement in the U.S.
    • FASB (Financial Accounting Standards Board): Nonprofit organization that establishes accounting standards for GAAP.
    • GAAP (Generally Accepted Accounting Principles): Framework of accounting guidelines protecting individuals and standardizing financial reporting.
    • SEC (Securities Exchange Commission): Federal agency that regulates securities markets and protects investors.
    • AICPA (American Institute of CPAs): Organization that governs CPA examinations and audit standards, promotes ethical conduct.
    • PCAOB (Public Company Accounting Oversight Board): Oversees audits of public companies, ensuring investor protection.
    • IFRS (International Financial Reporting Standards): Set of accounting standards for financial reporting, facilitating cross-border commerce, particularly in the EU.

    Fundamental Accounting Principles

    • Principle of Regularity: Ensures consistent application of accounting principles.
    • Principle of Sincerity: Emphasizes the need for honesty and accuracy in financial statements.
    • Principle of Permanence of Methods: Advocates for consistent methods in financial analysis.
    • Principles of Noncompensation: Requires complete disclosure, ensuring no concealment of information.
    • Principle of Prudence: Cautions against overstating financial statements; emphasizes caution in transactions.
    • Principle of Continuity: Assumes a company will continue to operate indefinitely when recording transactions.
    • Principle of Periodicity: Divides financial activities into time periods for reporting purposes.
    • Principle of Method: Requires the use of the same accounting methods over time to ensure comparability.

    The Accounting Cycle

    • Steps include collecting documents, journalizing transactions, posting to ledgers, preparing trial balances and financial statements, and closing temporary accounts.

    Financial Concepts and Ratios

    • Liabilities: Obligations such as accounts payable and mortgages.
    • Trial Balance: Tool to verify that total debits equal total credits.
    • Errors in Trial Balance: Procedures to identify discrepancies include re-adding and examining potential transposition or sliding errors.
    • Journal: Initial record for all transactions, maintaining chronological order.

    Financial Statements and Accounting Methods

    • Income Statement: Evaluates business performance over a defined period, revealing net income or loss.
    • Cash Accounting: Records transactions upon cash receipt.
    • Accrual Accounting: Recognizes income and expenses when transactions occur, regardless of cash flow.
    • Statement of Changes in Owner's Equity (SCOE): Shows changes in equity during a specific period.

    Analytical Techniques

    • Return on Sales Ratio (ROS): Assesses efficiency by comparing net income to revenue.
    • Horizontal Analysis: Examines trends over time by comparing financial statements across years.
    • Vertical Analysis: Analyzes each line item in relation to total revenue or expenses, evaluating how resources are allocated.

    Liquidity and Capital Management

    • Current Ratio: Evaluates liquidity by dividing current assets by current liabilities; a ratio of 2 is considered healthy.
    • Working Capital: Calculated by subtracting current liabilities from current assets, providing insight into operational liquidity.

    Internal Controls and Security

    • Internal Controls: Encompass policies promoting ethical behavior, financial integrity, and asset security.
    • Cash Controls: Methods such as transaction documentation and secure cash handling.
    • Segregation of Duties: Ensures transaction authorization and recording are performed by separate individuals to prevent fraud.
    • Independent Verification: Involves audits and rotation of responsibilities to enhance accountability.

    External Accounting Standards and Practices

    • External Controls: Influence of legal standards like GAAP, SEC regulations, audits, and laws on accounting practices.
    • Forensic Accounting: Investigative accounting used in cases of suspected fraud or financial misconduct, often utilized as court evidence.

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    Test your knowledge of essential accounting terms with these flashcards designed for the NAFTrack curriculum. Each card provides a key term and its definition to help you grasp important concepts in accounting and finance.

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