Financial ; Managerial Accounting 5th Ed. Chapter 3 Self-Assesment – Flashcards

Presumes that an organization's activities can be divided into specific periods of time such as month, three-month quarter, six-month interval, or a year.

one, three, or six months of activity.

A Calendar fiscal year is used when there is little seasonal variation and runs from the start of January to the end of December. A Natural Business Fiscal Year ends at the point when sales activities are at their lowest level for the year.

recognizes revenue when cash is received and records expenses when cash is paid. In short, cash is paid or received up front and all at once. Net income for period is difference between cash receipts and cash payments. Not consistent with G.A.A.P. or IFRS

recognizes revenue when earned and expenses when incurred (matched with revenue). In short, revenue is recorded over time as services are rendered, and expenses are recorded over time as it is used up. Think monthly uses and payments.

-->Increases comparability of financial statements from one period to another. -->Better reflects business performance

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When cash is accepted, an obligation to provide products or services is accepted. Note: As products or services are provided, unearned (deferred) revenue becomes earned revenue.

(Accrued Expenses) --> (Debit Increase Expense and Credit Increase Liability) -->salaries, interest, rent, and taxes.

(Accrued Revenues) --> (Debit Increase to Asset and Credit Increase to Revenue) --> service fees, products, interest, and rent.

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An unadjusted trial balance is a list of accounts and balances prepared BEFORE adjustments are recorded. An adjusted trial balance is a list of accounts and balances AFTER adjusting entries have been recorded and posted to ledger.

-> Step 1: Income Statement --->List all revenues and expenses from adjusted trial bal. --->Total revenues - Total expenses = Net Income -> Step 2: Statement of Retained Earnings --->(Starting retained earnings from start of period) + (net income from income statement) - (cash dividends from adjusted t.b.) = (retained earnings from end of period). -> Step 3: Balance Sheet ---> List all assets, liabilities, and equity from adjusted T.B. ---> Total Assets -Total Liabilities = Total Equity

It prepares accounts for recording the next period's transactions and events.

all income statement accounts, dividends account, and income summary account.

asset, liability, and equity accounts

Debit all revenue balances in revenue account and credit revenue balance to income summary to close. Credit all expense balances in expense account and debit expense balance to income summary to close.

-->To verify that total debits equal total credits. --> To verify that all temporary accounts have zero balances.

Analyze Transactions --> Journalize --> Post --> Prepare unadjusted trial balance --> Adjust --> Prepare adjusted trial balance --> Prepare statements --> Close --> Prepare post-closing trial balance --> Reverse (optional)

-> Assets --->Current Assets ------>Ex: cash, short-term investments, acc. receivables, short-term notes receivable, merchandise inventory, and prepaid expenses. ---> Non-current Assets ------> Long-term investments ---------> Ex: land held for future expansion. ------> Plant Assets --------->Ex: equipment, machinery, buildings, and land used to produce or sell products or services. ------> Intangible Assets ---------> Ex: patents, trademarks, copyrights, franchises, and goodwills. -> Liabilities ---> Current Liabilities ------> Ex: acc. payable, notes payable, wages payable, taxes payable, interest payable, and unearned revenues. ---> Non-current Liabilities ------> Ex: notes payable, mortgages payable, bonds payable, and lease obligation. -> Equity ---> Ex: common stock and retained earnings.

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Profit Margin = (Net Income)/(Net Sales) useful measure of a company's operating results that reflects the percent of profits in each dollar of sales.

Current Ratio = (Current Assets)/(Current Liabilities) measure of a company's ability to pay its short-term obligations. If less than 1.0, current liabilities exceed current assets, and company's ability to pay back short-term obligations becomes doubtful.