Term
| Separate-entity assumption requires... |
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Definition
| that business transactions are separate from the transactions of the owners. For example, the purchase of a truck by the owner for personal use is not recorded as an asset of the business. |
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Term
| Stable monetary unit assumption requires... |
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Definition
| information to be reported in the national monetary unit without any adjustment for changes in purchasing power. That means that each business will account for and report its financial results primarily in terms of the national monetary unit, such as Yen in Japan and Australian dollars in Australia. |
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Term
| Continuity or going-concern assumption means... |
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Definition
| businesses are assumed to operate into the foreseeable future. That is, they are not expected to liquidate. |
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Term
| Historical cost principle requires... |
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Definition
| assets to be recorded at the cash-equivalent cost on the date of the transaction. Cash-equivalent cost is the cash paid plus the dollar value of all noncash considerations. |
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Term
| Why are accounting assumptions necessary? |
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Definition
| because they reflect the scope of accounting and the expectations that set certain limits on the way accounting information is reported. |
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Term
| For accounting purposes, what is an account? Explain why accounts are used in an accounting system. |
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Definition
| An account is a standardized format used by organizations to accumulate the dollar effects of transactions on each financial statement item. Accounts are necessary to keep track of all increases and decreases in the fundamental accounting model. |
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Term
| What is the fundamental accounting model? |
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Definition
| Assets = Liabilities + Stockholders' Equity |
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Term
| Define a business transaction in the broad sense |
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Definition
| A business transaction is (a) an exchange of resources (assets) and obligations (debts) between a business and one or more outside parties, and (b) certain events that directly affect the entity such as the use over time of rent that was paid prior to occupying space and the wearing out of equipment used to operate the business. |
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Term
| Explain what debit and credit mean |
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Definition
| Debit is the left side of a T-account and credit is the right side of a T-account. A debit is an increase in assets and a decrease in liabilities and stockholders' equity. A credit is the opposite -- a decrease in assets and an increase in liabilities and stockholders' equity. |
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Term
| What is a transaction analysis. |
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Definition
| is the process of studying a transaction to determine its economic effect on the entity in terms of the accounting equation |
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Term
| What two accounting equalities must be maintained in transaction analysis? |
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Definition
(a) Assets = Liabilities + Stockholders' Equity
(b) Debits = Credits |
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Term
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Definition
The result of transaction analysis in accounting format..
The journal entry is a method for expressing the effects of a transaction on accounts in a debits-equal-credits format. The title of the account(s) to be debited is (are) listed first and the title of the account(s) to be credited is (are) listed underneath the debited accounts. The debited amounts are placed in a left-hand column and the credited amounts are placed in a right-hand column. |
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Term
| What is a T-account? What is its purpose? |
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Definition
| The T-account is a tool for summarizing transaction effects for each account, determining balances, and drawing inferences about a company's activities. It is a simplified representation of a ledger account with a debit column on the left and a credit column on the right. |
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Term
| How is the current ratio computed and interpreted? |
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Definition
| 13. The current ratio is computed as current assets divided by current liabilities. It measures the ability of the company to pay its short-term obligations with current assets. A ratio above 1.0 normally suggests good liquidity (that is, the company has sufficient current assets to settle short-term obligations). Sophisticated cash management systems allow many companies to minimize funds invested in current assets and have a current ratio below 1.0. However, a ratio that is too high in relation to other competitors in the industry may indicate inefficient use of resources |
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Term
| What transactions are classified as investing activities in a statement of cash flows? What transactions are classified as financing activities? |
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Definition
| Investing activities on the statement of cash flows include the buying and selling of productive assets and investments. Financing activities include borrowing and repaying debt, issuing and repurchasing stock, and paying dividends. |
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Term
| What are the two steps in transaction analysis? |
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Definition
(1) identify & classify accounts & the direction and amount of the effects.
(2)determine that the accounting equation (A = L + SE) remains in balance. |
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Term
| If a publicly traded company is trying to maximize its perceived value to decision makers external to the corporation, the company is most likely to understate which of the following on its balance sheet? |
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Definition
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Term
Which of the following is not an asset?
a.Investments
b.Land
c.Prepaid Expense
d.Additional Paid-in Capital |
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Definition
| d.Additional Paid-in Capital |
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Term
| The dual effects concept can best be described as follows: |
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Definition
| When one records a transaction in the accounting system, at least two effects on the basic accounting equation will result. |
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Term
| what 3 things is the T-account used for analyzing? |
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Definition
1. Increases and decreases to a single account in the accounting system
2. Debits and credits to a single account in the accounting system
3. Changes in specific account balances over a time period |
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Term
| How are assets listed on the balance sheet? |
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Definition
| From most liquid to least liquid |
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Term
| The Cash T-account has a beginning balance of $21,000. During the year, $100,000 was debited and $110,000 was credited to the account. What is the ending balance of Cash? |
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Definition
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Term
T or F?
One cannot determine the true fair market value of a company by reviewing its balance sheet. |
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Definition
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Term
T or F?
Certain internally generated assets, such as a trademark, are not reported on a company's balance sheet. |
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Definition
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Term
T or F?
A balance sheet shows only the ending balances, in a summarized format, of all balance sheet accounts in the accounting system as of a particular date. |
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Definition
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Term
| What activity is not a financing activity on the statement of cash flows? |
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Definition
| When the company lends money. |
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Term
| Classify account on balance sheet: Merchandise Inventory |
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Definition
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Term
| Classify account on balance sheet: Prepaid Rent |
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Definition
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Term
| Classify account on balance sheet: Supplies |
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Definition
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Term
When determining financial statement effects of transactions, below would be:
Declared and paid $2,000 in dividends to stockholders |
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Definition
-$2000 in cash (under assets) AND
-$2000 in retained earnings (under SE) |
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Term
| Assets and Debits/Credits... |
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Definition
| Increases + / Decreases - |
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Term
| Liabilities and Debits/Credits... |
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Definition
| Decreases - / Increases + |
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Term
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Definition
| Decreases - / Increases + |
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Term
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Definition
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Term
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Definition
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