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Chapter 1-5 SG TEST
Study Guide for Chapter 1-5 for Test 1
| Question | Answer |
|---|---|
| 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 _________ |
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