89 Cards in this Set
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Identifying, recording, & communicating
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What are the 3 basic accounting accounting activities?
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The economic events relevant to its business
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What do companies identify? (basic accounting activity)
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To provide a history of its financial activities
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Why do companies record events? (basic accounting activity)
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Keeping a systematic, chronological diary of events, measured in dollars and cents
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What does recording consist of? (basic accounting activity)
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The collected information to interest users by means of accounting reports (most commonly: financial reports)
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What do companies communicate? (basic accounting activity)
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Analyze & interpret
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A vital element in communicating economic events is the accountant's ability to ______ and ______ the reported information.
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Bookkeeping
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______ is included in the accounting process, but it only involves the recording of economic events.
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Internal users and external users
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Who uses accounting data?
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Managers who plan, organize, and run the business
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Who are internal users of accounting data?
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Managerial accounting
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______ provides internal reports to help users make decisions about their companies. (type of accounting)
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Individuals and organizations outside a company who want financial information about the company
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Who are external users of accounting data?
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Investors & creditors
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What are the two most common types of external users?
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Financial accounting
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______ provides economic and financial information for investors, creditors, and other external users. (type of accounting)
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Sarbanes-Oxley Act (SOX)
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______ was passed to reduce unethical corporate behavior and decrease the likelihood of future corporate scandals
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Ethics
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The standards of conduct by which actions are judged as right or wrong, honest or dishonest, fair or not fair
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Generally accepted accounting principles (GAAP)
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What are the accounting standards that are generally accepted and universally practices called?
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Financial Accounting Standards Board (FASB)
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What is the primary accounting standard-setting body in the United States?
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Securities and Exchange Commission (SEC)
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What is the agency of the U.S. government that oversees U.S. financial markets and accounting standard-setting bodies?
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Relevance
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______ means that financial information is capable of making a difference in a decision.
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Faithful representation
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______ means that the numbers and descriptions match what really existed of happened -- they are factual.
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Historical cost principle (cost principle)
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What principle dictates that companies record assets at their cost?
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Fair value principle
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What principle states that assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liability)
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Assumptions
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______ provide a foundation for the accounting process.
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Monetary unit assumption & economic entity assumption
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What are the 2 main assumptions?
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Monetary unit assumption
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What assumption requires that companies include in the accounting records only transaction data that can be expressed in money terms?
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Economic entity
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A(n) ______ can be any organization or unit in society.
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Economic entity assumption
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What assumption requires that the activities of the entity be kept separate from the activities of its owner and all other economic entities?
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Proprietorship
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A business owned by one person
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Partnership
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A business owned by two or more persons associated as partners
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Corporation
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A business organized as a separate legal entity under the state corporation law and having ownership divided into transferable shares of stock
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Unlimited life
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A corporation has a(n) ______
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Assets = Liabilities + Stockholders' Equity
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What is the basic accounting equation?
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The basic accounting equation
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What provides the underlying framework for recording and summarizing economic events
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Assets
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Resources a business owns
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Liabilities
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Claims against assets
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Stockholders' equity
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The ownership claim on a corporation's total assets
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Common stock
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The total amount paid in by stockholders for the shares they purchase
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Revenues
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The gross increases in stockholders' equity resulting from business activities entered into for the purpose of earning income
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Expenses
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The decreases in stockholders' equity that result from operating the business
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Dividend
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The distribution of cash or other assets to stockholders
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Transactions
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______ are a business's economic events recorded by accountants.
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External transactions
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What type of transactions involve economic events between the company and some outside enterprise?
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Internal transactions
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What type of transactions are economic events that occur entirely within one company?
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Income statement
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______ presents the revenues and expenses and resulting net income or net loss for a specific period of time
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Retained earnings statement
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______ summarizes the changes in retained earnings for a specific period of time
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Balance sheet
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______ reports the assets, liabilities, and stockholders' equity of a company at a specific date
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Debits increase...
Expenses
Assets
Dividends
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What accounts increase with a debit?
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Posting
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Transferring journal entries to the ledger accounts is called ______
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Time period assumption
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Accountants divide the economic life of a business into artificial time periods
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Interim periods
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Monthly or quarterly time periods are called ______
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Fiscal year
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An accounting time period that is one year in length is a(n) ______
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Accrual-basis
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Under the ______, companies record transactions that change a company's financial statements in the periods in which the events occur
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Performance obligation
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When a company agrees to perform a service or sell a product to a customer, it has a ______
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Revenue recognition principle
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What principle requires that companies recognize revenue in the accounting period in which the performance obligation is satisfied?
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Expense recognition principle
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What principle dictates that expenses be matched with revenues in the period when the company makes efforts to generate those revenues?
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Matching principle
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What is another name for expense recognition principle?
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Adjusting entries
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______ ensure that the revenue recognition and expense recognition principles are followed
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Income statement & balance sheet
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Every adjusting entry will include one ______ account and one ______ account
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Deferrals or accruals
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Adjusting entries are classified as either ______ or ______
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Prepaid expenses & unearned revenues
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What are the two types of deferral adjusting entries?
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Accrued revenues & accrued expenses
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What are the two types of accrual adjusting entries?
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Prepaid expenses
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Expenses paid in cash before they are used or consumed
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Unearned revenues
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Cash received before services are preformed
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Liability account
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What type of account is Unearned Revenues?
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Accrued revenues
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Revenues for services performed but not yet received in cash or recorded
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Accrued expenses
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Expenses incurred but not yet paid in cash or recorded
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Useful life
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The period of service of an asset is referred to as the ______
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Depreciation
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The process of allocating the cost of an asset to expense over its useful life
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Contra asset account
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What type of account is Accumulated Depreciation?
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Book value
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The difference between the cost of any depreciable asset and its related accumulated depreciation
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Temporary accounts
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A company closes all ______ at the end of the period
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Permanent accounts
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______ are not closed from period to period
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All revenue accounts, all expense accounts, and dividends
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What are the temporary accounts?
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All asset accounts, all liability accounts, and stockholders' equity
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What are the permanent accounts?
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1. Close out all revenue accounts (DR.) into Income Summary (CR.)
2. Close out all expense accounts (CR.) into Income Summary (DR.)
3. Close out Income Summary (DR.) into Retained Earnings (CR.)
4. Close out Dividends (CR.) into Retained Earnings (DR.)
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What are the steps in closing the books?
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1. Assets
a. Current Assets
b. Long-term Investments
c. PPE
d. Intangible Assets
2. Liabilities
a. Current Liabilities
b. Long-term Liabilities
3. S/E
a. C/S
b. R/E
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Presentation of the classified balance sheet
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Establishment of Responsibility
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What principle of internal control assigns responsibility to specific employees?
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Segregation of Duties
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What principle of internal control states that different individuals should be responsible for related activities?
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Segregation of Duties
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What principle of internal control states that the responsibility for recordkeeping for an asset should be separate from the physical custody of that asset?
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Documentation Procedures
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What principle of internal control suggests having prenumbered documents
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Physical Controls
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What principle of internal control involves the use of safeguarding assets and enhancing the accuracy and reliability of the accounting records?
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Independent Internal Verification
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What principle of internal control involves:
1. Verifying records periodically on a surprise basis
2. An employee who is independent of the personnel responsible for the information should make the verification
3. Discrepancies and exceptions should be reported to a management level t…
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Human Resource Controls
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What principle of internal control includes:
1. Bonding employees who handle cash
2. Rotate employees' duties and require employees to take vacations
3. Conduct thorough background checks
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Bank reconciliation
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A(n) ______ compares the bank's balance with the company's balance and explains any differences to make them agree
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Deposits in transit
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Deposits recorded by the depositor that have not been recorded by the bank
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Outstanding checks
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Issued checks recorded by the company bu that have not yet been paid by the bank
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Bank memoranda
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The debit and credit memos from the bank statement that the bank knew about and we did not
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Registers bonds
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Investors who receive checks in their names from interest earned on bonds must hold ______
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The value assigned per share in the corporate charter as legal capital
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What is par value?
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ACCT 201: Exam 1