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Accounting final
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122
Accounting
Undergraduate 2
12/10/2013

Additional Accounting Flashcards

 


 

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Term
Fraud Triangle
Definition
Opportunity, Pressure, Rationalization
Term
Not an objective of internal control system
Definition
maximizing profits
Term
Control Environment
Definition
managers setting proper "tone at the top" is which component of internal control
Term
Separation of Duties
Definition
Ensuring that different employees have responsibilities for handling cash, record-keeping of cash, and approval of cash transactions is part of which internal control procedure.
Term
Collusion
Definition
Two or more ppl working together to overcome internal control
Term
Fraudulent financial reporting
Definition
Wrong doing is committed when chief financial officer (CFO) of a corporation records sales revenue that has not actually been earned
Term
Adequate documents and records
Definition
control activity that is illustrated by requiring the use of pre-numbered checks and sales invoices.
Term
Unqualified audit report
Definition
Considered to be the best as it states that the financial statements are in conformity with US generally accepted accounting principles
Term
sole proprietorship
Definition
a business entity that has one owner
Term
partnership
Definition
two or more owners
Term
corporation
Definition
a separate legal entity; double taxation
Term
Generally Accepted Accounting Principles (GAAP)
Definition
rules, principles and concepts established by the accounting profession that govern financial accounting
Term
Financial Accounting Standards Board (FASB)
Definition
a seven person group primarily responsible for the establishment of standards of financial accounting and reporting
Term
assets
Definition
things of value
Term
liabilities
Definition
the amount a business owes to third parties
Term
International Financial Reporting Standards (IFRS)
Definition
accounting standards that are developed by the international accounting standards board.
Term
Business Entity Concept
Definition
The business entity concept dictates that the financial affairs of a business organization must be kept separate from the personal financial affairs of the business owner.
Term
Reliability or Objectivity Principle
Definition
requires that the accounting information for a business be arrived at objectively so that it may be relied upon by outside users.
Term
The Cost Principle
Definition
States that when a business acquires assets or services, they should be recorded at their actual cost/historical cost.
Term
stockholders equity
Definition
the amount of assets owned by the stockholders of the company; In stocks its the paid in capital plus retained earnings
Term
accrual basis accounting
Definition
records the impact of a business event as it occurs regardless of whether the transaction affected cash or not
Term
Matching principle
Definition
records expenses when incurred to sell goods or provide services
Term
revenue recognition principle
Definition
records revenue when it is earned
Term
fiscal period
Definition
any consecutive 12 month period
Term
deferred revenue
Definition
receiving cash from a customer before earning it
Term
deferred expenses
Definition
prepaid expenses
Term
accrued expense
Definition
expense incurred but not paid
Term
term bond
Definition
bonds that all mature at the same time
Term
market interest rate
Definition
interest rate investors are willing to pay for similar bonds of equal risk
Term
debentures
Definition
unsecured bonds backed only by the good faith of the borrower
Term
premium on bond
Definition
amount of a bonds issue price over its maturity value
Term
convertible bonds
Definition
bonds that may be converted into the common stock of the issuing company at the option of the investor
Term
discount on bond
Definition
amount of a bonds maturity value over its issue price
Term
stated interest rate
Definition
interest rate that determines the amount of cash interest the borrower pays and the investor recieves
Term
serial bonds
Definition
bonds in the same bond issuance that mature at different tims
Term
callable bonds
Definition
bonds that the issuer may call of pay off at a specified price whenever the issuer wants
Term
bond at par
Definition
face value
Term
accounts receivable turnover
Definition
net credit sales/average net accounts receivable
Term
quick ratio
Definition
(cash+net current receivables+short term investments)/total current liabilities
Term
debt ratio
Definition
total liabilities/total assets
Term
Classified Balance sheet
Definition
Balance sheet that separates assets and liabilities into current and long term classes
Term
Compound journal entry
Definition
entry affecting more than 2 accounts; has one or more debit or credit
Term
Cost of goods sold
Definition
cost of inventory that business has sold to customers
Term
Credit memorandum
Definition
document that supports return of goods from customer and the adjustment to customers account balance
Term
Current assets
Definition
Assets expected to be converted to cash, sold, or consumed within one yr of business operating cycle if cycle is longer than yr
Term
Current liabilities
Definition
debts due to be paid with cash or fulfilled with goods and services within one year or the entity's operating cycle if cycle lasts more than 1 yr
Term
Current ratio
Definition
current assets to current liabilities; measure of liquidity
Term
Debit Memorandum
Definition
document that supports return of goods to supplier and adjustment to balance owed to supplier
Term
Fixed Assets
Definition
Long term assets of company such as land, building, equipment etc...
Term
Free on board (FOB) destination
Definition
shipping term specifying title to goods passes buyer when goods are recieved at buyers destination; seller pays cost of shipping goods to destination.
Term
Free on board (FOB) shipping point
Definition
title of goods passes to buyer when goods are shipped at sellers place of business; buyer pays cost shipping goods to its location.
Term
Gross Margin
Definition
Net sales revenue minus cost of goods sold; gross profit
Term
Gross margin percentage
Definition
measure of profitability equal to gross margin divided by net sales revenue; gross profit percentage
Term
gross profit
Definition
net sales revenue minus cost of goods sold
Term
Income from operations
Definition
gross profit minus operating expense; operating income
Term
Inventory
Definition
goods purchased for resale to customers in the normal course of merchandising operations; merchandise inventory
Term
Liquidity
Definition
ability to convert an asset to cash quickly
Term
Multi-step income statement
Definition
calculates net income or net loss by listing important subtotals such as gross profit and operating income.
Term
net sales revenue
Definition
sales revenue less sales discounts and sales returns and allowances.
Term
Operating cycle
Definition
time span during which business obtains resources, uses them to sell goods and services to customers and collects cash from these customers.
Term
Operating expenses
Definition
expenses of operating business other than cost of goods sold; depreciation, rent, salaries, utilities etc...
Term
Periodic Inventory system
Definition
business does not keep continuous record of inventory on hand. At end of period , physical count of inventory is taken and determines inventory owned as well as cost of goods sold.
Term
Perpetual inventory system
Definition
continuous record of inventory on hand and cost of goods sold.
Term
Plant assets
Definition
Long lived assets of business; land, buildings, furniture etc..
Term
Purchase Discount
Definition
discount received on purchases by paying early with discount period
Term
Purchase returns and allowances
Definition
reduction in amount owed for purchase due to returning merchandise or accepting damaged goods.
Term
Report Form
Definition
balance sheet format that reports assets at the top of the report, followed by liabilities, and ending with stockholders equity at the end of the report.
Term
Retailers
Definition
buy goods from manufacturer/wholesaler and resell them to general public
Term
Sales discount
Definition
discount on sales for customers early payment within a discount period; a contra account to sales revenue
Term
Sales invoice
Definition
bill that documents sale of goods to business customer.
Term
Sales returns and allowances
Definition
reduction in amount of sales due to customers returning merchandise or accepting damaged goods; contra account to sales revenue
Term
Selling expenses
Definition
expenses related to advertising and selling products including sales salaries, sales commission, advertising etc...
Term
Single Step income statement
Definition
groups all revenues together and lists all expenses together, subtracting total expenses from total revenues and calculating net income or net loss without computing any subtotals
Term
Subsidiary Ledger
Definition
accounting record that contains details such as list of customers and the accounts receivable due from each, or a list of suppliers and the accounts payable due to each.
Term
Wholesaler
Definition
buy goods from manufacturer and resell to retailers.
Term
Average cost
Definition
inventory costing method where after each purchase of inventory, a new weighted average cost per unit is computed and used to values ending inventory and cost of goods sold
Term
Conservatism
Definition
business must report all items in financial statements at amounts that lead to the most cautious immediate results.
Term
Consistency
Definition
business should use same accounting methods and procedures from period to period.
Term
Cost of goods available for sale
Definition
cost of inventory on hand at the beginning of the period plus the net cost of inventory purchased during the period.
Term
First-in, First-out (FIFO)
Definition
first inventory costs incurred are the first costs to be assigned to cost of goods sold; FIFO leaves in ending inventory the last, the most recent, costs incurred.
Term
Footnotes
Definition
disclosures that accompany the financial statements
Term
Full Disclosure
Definition
Company's financial statements should report enough info for users to make knowledgable decisions about the company
Term
Gross Profit Method
Definition
estimating inventory by estimating gross profit, using estimated gross profit to estimate cost of goods sold, and using estimated cost of goods sold to estimate ending inventory
Term
Inventory Layer
Definition
record of the quantity of and the cost of inventory items made in a single purchase.
Term
Inventory Turnover
Definition
ratio of cost of goods sold to average inventory
Term
Last-in, First-out (LIFO)
Definition
last inventory costs incurred are the first costs to be assigned to cost of goods sold; Leaves in ending inventory the first, the oldest, costs incurred.
Term
Lower of cost or market (LCM) rule
Definition
rule that business must report inventory in the financial statements at whichever is lower, the historical cost or market value of each inventory item.
Term
materiality
Definition
Company must perform strict proper accounting only for items that are significant for the business's financial statements. Info is significant, or material, when its presentation in the financial statements would cause someone to change a decision
Term
Perpetual inventory record
Definition
tracks quantity of, and cost assigned to, inventory items as they are purchased and sold.
Term
Raw materials
Definition
Inventory items used in the production of goods
Term
Specific unit cost
Definition
business uses specific cost of each unit of inventory; also called Specific Identification
Term
Work in progress
Definition
inventory of partially completed good,
Term
Gross Profit Percentage (equation)
Definition
(Gross Profit)/(Net Sales Revenue)
Term
Current Ratio (equation)
Definition
(Current Assets)/(Current Liabilities)
Term
Inventory Turnover (equation)
Definition
(Cost of goods sold)/((Beginning Inventory+Ending Inventory)/2)
Term
Depreciation
Definition
Allocating a plant assets cost to expense over its useful life;
Factors:cost, estimated useful and residual life.
Term
Depreciation Methods
Definition
Straight-line-for assets generating rev. evenly over time. units-of-production-for assets that depreciate due to wear and tear
declining-balance-for assets that produce more rev. in their early yrs
Term
Capital Expenditures
Definition
Recorded as debit to assets
Two types:Extraordinary repairs- extends useful life of asset; Betterments-increase capacity or productivity
Term
Intangible Assets
Definition
Convey special rights to owners (no physical form) and cost amortized to expense over useful life
Specific intangibles:Patent, copyright, trademarks and brand names
Term
Liability categories
Definition
Known, estimated, contingent liabilities.
Term
Bond principal
Definition
amount that must be paid back at maturity date
Term
Contingent Liability
Definition
Arise from past events and dependent on outcome of future event; example:pending litigation, potential fines etc..
Term
Bond maturity
Definition
date when principal must be repaid to bondholders
Term
Stated interest rate
Definition
determines cash interest payment; printed on bond; remains constant
Term
Market interest rate
Definition
investors willing to pay for similar bonds of equal risk; often differs from stated rate when issued
Term
Par
Definition
Stated rate=market rate
Term
Discount (bonds)
Definition
Stated rate less than market rate
Term
Premium (bonds)
Definition
Market rate less than stated rate
Term
Paid-in capital
Definition
Amounts received from stockholders; common stock is main source; externally generated resulting from transactions w/ outsiders.
Term
Preferred stock
Definition
owners have certain advantages over common stock; receive dividends earlier and receive assets before common.
Term
Legal Capital
Definition
Stockholders Equity that cannot be used for dividends; maintained for protection of creditors
Term
Treasury stock
Definition
company buys back its own stock; buy when price is low and sell when high, support stock price, avoid takeover, reward employees with stock.
Term
Financial statement preparation order
Definition
Income statement, Statement of retained earnings, balance sheet, statement of cash flows.
Term
Research and development costs
Definition
generally expensed and become part of income statement
Term
Goodwill
Definition
Excess of cost of the purchase of a business over the market value of its net assets.
Term
Contingent liability
Definition
obligation resulting from an event that has not yet occurred
Term
Lease
Definition
agreement in which one party (lessee) agrees to pay another (lessor) for the use of an asset
Term
Operating lease
Definition
treated as rental agreement with the lessee recognizing rent expense
Term
Capital lease
Definition
financial arrangement w/ lessee capitalizing the asset and recognizing depreciation expense
Criteria-transfer title at end of lease, bargain purchase option, lease term>75% of useful life.
Term
Estimated warranty liability
Definition
expense recorded same period the revenue related to warranty is recorded (expense incurred when sale is made); amount of warranty claims filed for a period is unknown so it must be estimated.
Term
Outstanding Stock
Definition
Stock in the hands of stockholders
Term
Retained Earnings
Definition
capital earned through operation of business
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