question

Creditor

answer

lender, money supplier

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Debitor

answer

person or organization who is in debt or under financial obligation to another

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Accounting

answer

a system that collects and processes financial information about an organization and reports that information to decision makers

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financial activities

answer

borrowing/paying back money to lenders and receiving additional funds from stockholders or paying them dividends

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investing activities

answer

buying/selling items (such as plant and equipment used in the product production process means)

question

operating activities

answer

the day-to-day process of purchasing supplies, manufacturing products, delivering them to customers, collecting cash from customers, and paying suppliers

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Financial Accounting

answer

for external decision makers; common standardized language

question

Managerial Accounting

answer

for internal decision makers

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Balance Sheet

answer

report financial position (assets, liabilities, and stockholder's equity)

question

Accounting Entity

answer

the organization for which financial data are to be collected

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Basic Accounting Equation

answer

Assets = Liabilities + Stockholder's Equity

question

Assets

answer

economic resources owned by the entity

question

Liabilities

answer

amount of financing provided by creditors

question

Stockholder's Equity

answer

amount of financing provided by owners of the business and reinvested earnings

question

common stock

answer

investment of cash and other assets in the business of stockholders (# of shares * PAR value per share)

question

retained earnings

answer

amount of profits reinvested in the business

question

Income Statement

answer

reports accountant's primary measure of performance of a business (Revenues - Expenses)

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Revenue

answer

cash/promise amounts expected to be received for goods/services that have been delivered to a customer

question

Expense

answer

cash/promise amount of resources the entity used to earn revenues

question

Net Income

answer

revenues earned - expenses incurred

question

accounting period

answer

time period covered by the financial statements (usually 1 year)

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Statement of Stockholder's Entity

answer

reports changes in business' stockholders equity accounts via net income & dividends during the accounting period (beginning retained earnings + Net Income - Dividends = ending retained earnings)

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Statement of Cash Flow

answer

reports cash inflows and outflows via cash flows from operating, investing, financing

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Notes (footnotes)

answer

provides supplemental information about the financial condition of a company

question

Generally Accepted Accounting Principle (GAAP)

answer

measurements and disclosure rules used to develop the information in financial statements

question

audit

answer

an examination of the financial reports to ensure honesty and GAAP confirmation

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relevant information

answer

can influence a decision

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faithful representation

answer

requires that the information be complete, neutral and free from error

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separate-entity assumption

answer

states that a business' activities are accounted for separately from those of its owner

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continuity assumption

answer

states that business are assumed to continue into the foreseeable future

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stable monetary unit assumption

answer

states that accounting information should be measured and reported in the national monetary unit without any adjustment for changes in purchasing power

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mixed-attribute measurement model

answer

is applied to measuring different assets & liabilities

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current assets

answer

assets that will be used or turned into cash within 1-year

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non-current assets

answer

property and equipment, long-term investments

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current liabilities

answer

liabilities that a business will need to pay or settle within the coming year

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non-current liabilities

answer

notes payable

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transaction

answer

internal (exchange) and external events (adjustment)

question

dual effect

answer

every transaction has at least 2 effects on the fundamental accounting model

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PAR value

answer

minimum amount a stockholder must contribute

question

Additional paid-in capital

answer

amount of capital contributed by the stockholders less the PAR value of the stock

question

General Journal (journal entries)

answer

a listing in chronological order of each transaction's effect

question

General Ledger (T-accounts)

answer

a record of effects to and balances of each account

question

Debit

answer

left side of the T account

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Credit

answer

right side of the T account

question

trial balance

answer

a list of all accounts with their balances to provide a check (debits=credits)

question

The operating cycle

answer

time is takes for a company to pay cash to suppliers, sell goods/services to customers, and collect cash from customers

question

time period assumption

answer

indicates that the long life of a company can be reported in shorter time periods

question

operating revenues

answer

increases in assets or settlement of liabilities from ongoing operations

question

unearned revenue

answer

when a customer pays in advance

question

general & administration expense

answer

expenses not directly related to operating stores

question

depreciation expense

answer

wear and tear on buildings and equipment

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operating income

answer

a measure of the profit from central ongoing operations

question

gains

answer

increase in assets or decrease in liabilities from peripheral transactions

question

losses

answer

decrease in assets or increase in liabilities from peripheral transactions

question

income tax expense

answer

last expense listed on the income statement before determining net income

question

earning per share

answer

ratio used in evaluating the operating performance or profitability of a company (Net Income / Weighted average # of shares of stock outstanding)

question

Cash Basis Accounting

answer

records revenues when cash is received and expenses when cash is paid

question

Accrual Basis Accounting

answer

records revenues when earned and expenses when incurred, regardless of when cash receipts or payments

question

Revenue Realization Principle (4)

answer

revenue is recognized when: goods/services are delivered, persuasive evidence of arranged customer payment, price is fixed, and collection is reasonably assured

question

Expense matching principle

answer

requires that expenses be recorded when incurred in earning revenue (same period)

question

unadjusted

answer

no end-of-period adjustments have been made yet to reflect all revenues earned and expenses incurred during the quarter

question

Net Profit Margin

answer

"how much of every sales dollar generated during the period is profit?" (Net Income / Net Sales)

question

Deferred Revenues

answer

previously recorded liabilities (unearned revenue)

question

Accrued Revenues

answer

revenues that have been earned but not yet recorded (investment income)

question

Deferred Expenses

answer

previously recorded assets (Supplies, Prepaid expenses)

question

Accrued Expenses

answer

expenses that have been incurred, but not yet recorded (Wages, Interest Payable)

question

Depreciation

answer

allocation of an assets cost over its estimated useful life to the organization

question

Contra-Account

answer

an account that is an offset to/reduction of the primary account (accumulated depreciation)

question

Net Book Value

answer

(Cost - used cost)

question

Earnings per Share

answer

(Net Income / Average # of shares of common stock outstanding)

question

Total Asset Turnover Ratio

answer

sales generated per $ of assets (Net Sales / Average Total Assets*) *(beginning + ending /2)

question

permanent accounts

answer

balance sheets accounts that carry their ending balances over

question

temporary accounts

answer

income statement accounts that are closed to retained earnings at the end of the accounting period

question

closing entry

answer

transfer balances in temporary accounts to retained earnings and establishes zero balances

question

post-closing trial balance

answer

additional step in accounting cycle that checks (credits=debits), and temporary accounts closed

Financial Accounting (Ch 1-4) – Flashcards

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