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Chapter 1-5 SG TEST

Study Guide for Chapter 1-5 for Test 1

Accounting information system that measures, processes, and communicates financial information about an economic entity
Accounting Equation Assets = Liabilities + Stockholder's Equity
Assets economic resources of a company that are expected to benefit future operations
Balance Sheet financial statement that shows a business's assets, liablities, and stockholders' equity as a specific date
Cash Flows the inflows and outflows into and out of a business
Common Stock the most common form of stock
Dividends distributions of assets (usually cash) generated by past earnings
Ethics a code of conduct that addresses whether actions are right or wrong
Expenses decreases in stockholders' equity that result from operating business
Liabilities a business's present oblicagations to pay cash, transfer assets, or provide services to other entities in the future
Liquidity having enough cash available to pay debts when they are due
Retained Earnings stockholders' equity that has been generated by business operations and kept for use in the business
Revenues increases in stockholders' equities that result from operating a business
Recognition the determination of when a business transaction should be recorded
When shoud a transaction be recorded?? _____
Cost Principle the practice of recording transactions at cost
What cost should be used for valuation?? _____
Valuation the process of assigning a monetary value to a business transaction
Classification the process of assigning transactions to the appropriate account
Expanded Acounting Formula _____
Identify + and - _______
Debits the left side of an account
Credits the right side of an account
Normal Balances the usual balance of an account; the side (debit or credit) that increases the account
Identify entry for various transactions ______ pg 116-121
Compound Entry an entry that has more than one debit or credit entry
What is the limitation of the trial balance? ______
Trial Balance a comparision of the total debit and credit balances in the accounts to check that they are equal
Income Summary Account temporary account used during the closing process that holds a summary of all revenues and expenses before the net income or less is transferred to the retained earnings account
Continuity the difficulty associated with not knowing how long a business will survive
Periodicity the assumption that alough the lifetime of a business is uncertain it is still useful to estimate its net income in terms of accounting periods
Matching Rule the principle that revenues must be assigned to the accounting period in which hte goods are sold or the services permored, and expenses must be assigned to the accounting period in which they are used to produce revenue
Net Income the net increase in stockholders' equity that results from business operations and is accumulated in the retained earnings account, revenues less expenses when revenues exceed expenses
Earnings Management the manipulation of revenues and expenses to achieve a specific outcome
Four conditions for recognizing revenues _______
Deferral (Depreciation Expense) the postponement of the recognition of an expense alraedy paid or of a revenue period
Accrual the recognition of an expense or revenue that has arisen but has not yet been recorded
Make an adjustment entry for Prepaid Expense Type 1 _________
Make an adjusting entry for Depreciation Expense Type 1 _________
Make an ajdjusting entry for Accrued Expense Type 2 _________
Make an adjusting entry for Unearned Revenue Type 3 _________
Make an adjustment entry for Accrued Revenue Type 4 _________
Permanent (real) Accounts balance sheet accounts whose balances extend into the next accounting period
Temporary (nominal) Accounts accounts that show the accumulation of revenues and expenses over an accounting period and that at the end of th eperiod are transferred to stockholders' equity
Closing Process Fig 8 Pg 179 __________
Closing Entries journal entries made at the end of a period that set the state for the next period by clearing the temporary accounts of their balances and transferring them to retained earnings; they summarize a period's revenues and expenses
Calculate Cash Receipts _________
Calculate Cash Expenditures _________
Calculate Four Types of Accounts _________ (pg 182)
Prepaid Expense ending balance + expense for the period - beginning balance = cash payments for expenses
Unearned Revenue ending balance + revenues for the period - beginning balance = cash receipts from revenues
Accrued Payable beginning balance + expense for the period - ending balance = cash payments for expenses
Accrued Receivable beginning balance + revenue for the period - ending balance = cash receipts ffrom revenues
Comparability the convention of presenting information in a way that enables decision making to recognize similarites, differences, and trends over different periods in the same company and among different companies
Consistency the convention requiring that once a company has adopted an accounting procedure, it must use it form one period to the next unless a note to the financial statements informs users of a change in procedure
Conservatism the convention that when faced with two equally acceptable alternatives, the accountant chooses the one lease likely to overstate assets and income
Cost-Benefit the convention that the benefits gained from providing accounting information should be greater than the costs of providing that information
Materialtiy the convention that refers to the relative important of an item or event in a financial satement and its influence on the decisions of the users of financial statements
Full Discolure the convention requiring that a company's financial statements and their notes present all information relevant to the users' understanding of the statements
Classified Balance Sheet Assets (current, investments, property, plant, and equipment, intangible assets) = Liabilities (current and long-term) + Stockholder's Equity (contributed capital and retained earnings)
Classified Financial Statements general-purpose external financial statemetns taht are divided into subcategories
Normal Operating Cycle the average time a company needs to go from spending cash to receiving cash
Multi-Step Income Statement an income statement that goes through a series of steps to arrive at net income
Single-Step Income Statement an income statement that arrives at income before income taxes in a single step
Multi & Single Income Statement Components _________ pg 244
Working Capital (define) a measure of liquidity that shows the net current assets on hand to continue business operations
Working Capital (calculate) total current assets - total current liabilities
Current Ratio (define) the ratio of current assets to current liablities
Current Ratio (calculate) current assets / current liabilities
Profit Margin (define) a measure of profitability that shows the percentage of each sales dollar that results in net income
Profit Margin (calculate) net icnome / net sales
Asset Turnover (define) a measure of profitability that shows how efficiently assets are used to produce sales
Asset Turnover (calculate) net sales / average total assets
Return on Assets (define) a measure of profitability that shows how efficiently a company uses its assets to produce income
Return on Assets (calculate) net income / average total assets
Debt to Equity (define) a measure of profitability that shows the proportion of a compnay's assets that is financed by creditors and the proportion financed by stockholders
Debt to Equity (calculate) total liabilites / stockholdes' equity
Return on Equity (define) a measure of profitability that relates the amount earned by a business to the stockholders' investment in the business
Return on Equity (calculate) net income / average stockholders' equity
Periodic Inventory Systems a system for determining inventory on hand by periodically taking a physical count
Perpetual inventory Systems a system for determining inventory on hand by keeping continuous records of the quantity and, usually, the cost of individual items as thay are bought and sold
Internal Control the sytems and procedures that management uses to protect a company's assets
Trade Discount a deduction (usually 30%, or more) off a list or catalogue price, which is not recorded in the accounting records
Sales Discount a discount given to a buyer for early payment of sale made on credit; it is a contra-revenue account
Purchases Discount discounts that buyers take for early payment of merchandise, it is an account that is a contra-purchases account used under the periodic inventory system
FOB Shipping Point a term indicating that the buyer assumes title to the merchandise at the shipping point and bears the shipping costs
FOB Destination a term indicating that the seller retains title to the merchandise until it reaches its destination and that the seller bears the shipping costs
Prepare entries for Perpetual inventory systems Purchase vs Sale of Material _________
Prepare entries for Periodic inventory systems Purchase vs Sale of Material _________
Created by: IowaTheta32



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