ACCT 2331: FINAL EXAM
102 Cards in this Set
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accounts receivable turnover
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net sales/average net accounts receivable
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Realized Gain
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Sale price is greater than the investment carrying amount
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Acid-Test Ratio
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Cash + Short Term Investments + Net Current Receivables /
Current Liabilities
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Realized Loss
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Sale price is less than the investment carrying amount
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amount of interest
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principal*interest rate*time
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assets
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LIABILITIES+OWNERS EQUITY
also,
LIABILITIES+PAID-IN CAPITAL+RETAINED EARNINGS
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current ratio
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total current/total current liabilities
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debt ratio
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total liabilities/total assets
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net income
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total revenues & Gains-total expenses&losses
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net income(or net loss)
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REVENUES minus EXPENSES
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conservatism
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accounting concept by which the least favorable figures are presented in the financial statements.
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average inventory cost flow method
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the method of inventory costing that is based on the assumption that costs should be charged against revenue by using the weighted average unit cost of the items sold.
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Uncollectible-account expense
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Cost to the seller of extending credit. Arises from the failure to collect from credit customers. Also called doubtful-account expense or bad-debt expense.
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debtor
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A person who owes money
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principal
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the amount borrowed by a debtor and lent by a creditor
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Receivables
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Claims held against customers and others for money, goods, or services
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maturity date
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the date on which the debtor must pay the note.
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Creditor
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The party to whom money is owed.
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interest
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the borrower's cost of renting money from a lender. interest is revenue for the lender and expense for the borrower.
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accounts receivable turnover
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net sales divided by average net accounts receivable.
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Acid-test ratio
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Ratio of the sum of cash plus short-term investments plus net current receivables to total current liabilities. Tells whether the entity can pay all its current liabilities if they come due immediately. Also called the quick ratio.
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trojan horse
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malicious program that hides within legitimate programs and acts like a computer virus
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Outstanding Checks
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checks that have not been deducted from a bank statement
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petty cash
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fund containing a small amount of cash that is used to pay minor amounts
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Nonsufficient funds (NSF) check
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A "hot" check one for which the payer's bank account has insufficient money to pay the check. NSF checks are cash receipts that turn out to be worthless.
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internal control
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organizational plan and related measures adopted by an entity to safeguard assets, encourage adherence to company policies, and ensure accurate and reliable accounting records.
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fidelity bond
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an insurance policy taken out on employees who handle cash
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Electronic fund transfer (EFT)
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The transfer of funds by an electronic terminal, telephone, or computer
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bank reconciliation
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document explaining reasons of difference between a depositor's records and the bank's records about the depositor's cash.
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audit
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periodic examination of a company's financial statements and the accounting systems, control, and records that produce them.
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Unearned Revenue
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A liability account use to record cash received in advance of the sale or service.
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Net Income
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Revenues exceed expenses
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Accrued liability
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A liability for which the business knows that amount owed but the bill has not been paid
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net loss
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when expenses exceed revenues
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Partnership
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An association of two or more persons who co-own a business for profit
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Proprietorship
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Owned by one individual
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accumulated depreciation
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cumulative sum of all depreciation expense from the date of acquiring a plant asset.
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Depreciation
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the process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use
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liquidity
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measure of how quickly an item can be converted to cash
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accrual
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an expense or revenue that occurs before the business pays or receives cash. opposite of a deferral
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management accounting
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the area of accounting concerned with providing internal financial reports to assist management in making decisions.
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accounting
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the info system that measures business activities, processes info into reports and financial statements.
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Balance Sheet
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Financial Statement that reports a firm's financial condition at a specific time and is composed of three major accounts:
1. Assets
2. Liabilities
3. Owners' Equity
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Board of Directors
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A group of persons elected by the stockholders to manage a corporation
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corporation
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a business owned by stockholders. a corporation is a legal entity [an "artificial person" in the eyes of the law]
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Business Entity Assumption
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A business is accounted for separately from other business entities, including its owner.
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Financial Accounting
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Area of accounting mainly aimed at serving external users.
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GAAP
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GENERALLY ACCEPTED ACCOUNTING PRINCIPLES- acct. guidelines, formulated by the financial accounting standards board
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transaction
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any event that has a financial impact on the business and can be measured reliably
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Journal
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A chronological record of transactions
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cost of goods sold
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cost of the inventory the business has sold to customers
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FIFO (first in, first out method)
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inventory costing method the first costs into inventory are the first costs out to cost of goods sold. ending invdentory is based on the costs of the most recent purchases
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gross profit
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sales revenue minus cost of goods sold
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Gross Profit Percentage
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Gross Profit / Sales Revenue
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LIFO ( last-in, first out)
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last in, first out
assumes that the costs of the last goods purchased are the costs of the first goods sold.
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purchase allowance
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decrease in the cost of purchases because the seller has granted the buyer a subtraction from the amount owned.
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purchase discount
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decrease in the cost of purchases earned by making an early payment to the vendor.
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purchase return
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decrease in the cost of purchases because the buyer returned the goods to the seller
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amori
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...
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Amortization
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The systematic reduction of a lump-sum amount. Expense that applies to intangible assets in the same way depreciation applies to plant assets and depletion applies to natural resources.
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capital expenditure
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expenditure that increases an asset's capacity or efficiency or extends its useful life
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intangible assets
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an asset with no physical form, a special right to current and expected future benefits.
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Fixed assets or plant assets
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Long term of permanent tangible assets such as equipment, machinery and buildings that are used in the normal business operations and that depreciate over time.
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Accrued expense
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An expense that the business has incurred but not yet paid
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Convertible Bonds (or Notes)
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Bonds or notes that may be converted into the issuing company's common stock at the investor's option
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pension
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a cash payment to retired employees
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term bonds
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bonds that all mature at the same time for a particular issue
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authorized stock
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maximum number of shares a corporation can issue under its charter.
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chairperson
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elected by a corporation's board of directors, usually the most powerful person in the corporation
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cumulative preferred stock
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preferred stock whose owners must receive all dividends in arrears before the corporation can pay dividends to the common stockholders
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Issued stock
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# of shares that have been sold to investors
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limited liability
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no personal obligation of a stockholder for corporation debts.
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liquidation value
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amount a corporation must pay a preferred stockholder in the event the company liquidates and goes out of business
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shareholders
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Individuals or companies that own stocks in a business.
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stock spilt
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increase in the number of authorized, issued, and outstanding shares of stock coupled with a proportionate reduction in the stock's par value
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channel stuffing
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a type of financial statement fraud that is accomplished by shipping more to customers than they ordered with the expectation that they may return some or all of it
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investment capitalization rate
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used to estimate the value of an investment
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pretax accounting income
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income before tax on the income statement
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taxable income
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basis for computing the amount of tax to pay the government
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FORMULAS
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listed below
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inventory
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# of units on hand*cost per unit of inventory
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cost of goods sold
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# of units of invent. sold*cost per unit of invent.
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average cost per unit
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cost of goods available/#of units available
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ending invent.
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# of units on hand*average cost per unit
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gross profit %
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gross profit/net sales revenue
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inventory turnover
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cost of goods sold/average inventory(Begin & End/2)
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book value of a plant asset
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cost-accumulated depreciation
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depreciable cost
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asset's cost - estimated residual value
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book value per share of common stock
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total stockholders'equity-preferred equity/# of shares of common stock outstanding
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rate of return on total assets
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net income + interest expense/ average total assets
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rate of return on common stockholder's equity
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net income(loss) - preferred dividends/average total assets
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common stock
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# of shares issued*par value per share
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current market value of company
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# of shares of common stock outstanding*current market price per share
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earnings per share
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net income - preferred dividends/average # of shares of common stock outstanding
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income tax(expense)
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income before income tax*income tax rate
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income tax (payable)
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taxable income*income tax rate
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assets
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cash, acct.receivable, note receiv., inventory, prepaid expenses, land, building, equip.
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liabilities
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acct pay., notes pay., accrued liabilities
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stockholder's equity
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common stock, dividends, revenues, expenses
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relevance
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qualitative conceptual characteristic concerned with providing investors with information that is useful in their decisions to buy, sell or hold
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statement of cash flows
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provides information on the sources and uses of cash
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"going concern" concept
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valuation of assets at liquidation values rather than at cost is basically inconsistent
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Acct. 2331: Final