NAFTrack Test Accounting Flashcards

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?

Protects investors and helps markets run smoothly Signup and view all the answers

What is the AICPA?

American Institute of Certified Public Accountants Signup and view all the answers

What is PCAOB?

Public Company Accounting Oversight Board Signup and view all the answers

What do IFRS stand for?

International Financial Reporting Standards Signup and view all the answers

Define the Principle of Regularity.

Ensures consistency Signup and view all the answers

What does the Principle of Sincerity imply?

Statements are honest and accurate Signup and view all the answers

Explain the Principle of Permanence of Methods.

Analysis of composition Signup and view all the answers

What does Principles of Noncompensation mean?

Complete disclosure of truth, no fake items Signup and view all the answers

What is the Principle of Prudence?

Use caution with transactions Signup and view all the answers

What does the Principle of Continuity entail?

Record transactions as if the company will continue indefinitely Signup and view all the answers

Define the Principle of Periodicity.

Accounting is broken into periods of time Signup and view all the answers

What does the Principle of Method state?

The same accounting method must be used consistently Signup and view all the answers

What is the accounting cycle?

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 Signup and view all the answers

What are liabilities?

Accounts payable, notes payable, mortgage Signup and view all the answers

What is a trial balance?

Proves debits equal credits Signup and view all the answers

What is a post reference?

Account number in the general journal and page number in the general ledger Signup and view all the answers

What should you do if trial balances do not balance?

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

What is the importance of documentation in accounting?

Creates a paper trail Signup and view all the answers

What is the purpose of income statements?

Determine if a business has a net income or net loss Signup and view all the answers

Describe cash accounting.

Records transactions when cash is received Signup and view all the answers

Define accrual accounting.

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

What is SCOE?

Statement of Changes in Owners Equity Signup and view all the answers

What does ISA stand for?

International Standards on Auditing Signup and view all the answers

What is the return on sales ratio?

Net Income/Revenue Signup and view all the answers

What is horizontal analysis?

Comparing financial statements across different years Signup and view all the answers

Define vertical analysis.

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

What is the current ratio?

Current Assets/Current Liabilities Signup and view all the answers

What is working capital?

Current Assets - Current Liabilities Signup and view all the answers

What are internal controls?

Policies that establish standards for employee honesty and ethical leadership Signup and view all the answers

What do cash controls involve?

Recording every transaction with cash register tape and writing checks Signup and view all the answers

What is segregation in accounting?

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

What is independent verification?

Conducting audits and rotating duties Signup and view all the answers

Define personnel policies in accounting.

Implementing background checks and security measures for employees Signup and view all the answers

What are external controls in accounting?

GAAP, SEC, audits, laws Signup and view all the answers

What is forensic accounting?

Used when there are allegations of financial misconduct 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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Description

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.