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106 Cards in this Set
- Front
- Back
What is accounting?
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identification measurement and communication of economic entities to interested users
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According to GAAP standards whar is an economic entity?
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a for profit company
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what 5 financial statements are GAAP?
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balance sheet, income statement, statement of cash flows, statement of owner's equiy and notes disclosures
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What 6 financial statements are not GAAP?
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presidents letter, prospectuses, SEC repoting, news releases, forecasts, enviromental report
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What is a disclosure of information?
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notes in the financial statements
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What are the 4 challenges that are facing financial accounting?
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non-financial measurements (people) forward looking information, soft assets, and timeliness (all steps take time)
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What is the importance of financial accounting? (3)
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1.) useful to present and potential investors, creditors and other users making investment credit, and simlar decisions
2.) helps present and potential investors, creditors, and users in assesing the amounts, timing and uncertainty of prosepective cash receipts 3.) clearly portrays the economic resources of an enterprise, the claims to those resources and the effects of transcation events and circumstances that change its resources and claims to those resources |
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what does SEC stand for?
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securities and exchange commision
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What does AICPA stand for?
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American Institue of certified public accountants
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What does FASB stand for?
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financial accounting standards board
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In what year was the Sarbanes Oxley Act enacted?
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2002
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What is the mission of FASB?
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to establish and improve standards of financial accounting and reporting
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what year was FASB created?
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1973
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What are the 2 premises of FASB?
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they are responsive to the entire economic community and they work in full view of the public
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What are the 5 steps of the due process that FASB relies on?
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step 1 - topic placed on agenda
step 2 - rsearch conducted and discussion memorandum issued Step 3 - public hearing Step 4 - board evaluates research, public response and issues exposure draft Step 5 - board evaluates responses and issues final statement of financial accounting standard (GAAP) |
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What is issued by the FASB? (3)
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standards, interpretations and staff postions
financial accounting standards emerging issues task force statements |
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What is decision uselfulness?
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how info is used by the people who need it
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what is qualitative chracteristics?
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distinguish better information from nferior information for better decision making purposes
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Who identifies qualitative chracterisitics?
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FASB
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What are the 2 primary qualities of the 2nd level?
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relevance and reliability
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What are the 2 secondary qualities of the 2nd level?
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comparability and consistency
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What is relevance?
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making a diffrence in a decision
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What are the 3 measurements whithin relevance?
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predictive value, feedback value and timeliness
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What are the 3 measurements whithin reliability?
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verifiable, representational faithfulness, and neutral
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What is "verfiable"?
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objectively determined
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What is "representational faithfulness"?
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the picture is fair
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what is "neutral"?
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free of error or bias
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what is comparability?
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infor that is reported and measured in a simlar manner of different companies
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what is consistency?
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when a company applies the same accounting treatment to similar events from period to period
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What is IFRS?
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international financial reporting standards
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Who is hoping to madate IFRS?
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SEC
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who is required to use IFRS in the future?
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public companies
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What are the 4 global criticisms?
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cost, lack of consistency, specific industry issues, and comparability issues
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what are the 4 advantages of IFRS?
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uniformity, more reliable, saves time and money in the long run
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What is one diffrence that IFRS introduces?
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the balance sheet is set up more like a statement of cash flows
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How many countries adopted IFRS (U.S. standards) in 2007?
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29
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How many countries adopted IFRS (U.S standards) in 2008?
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159
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What are the 4 assumpitions?
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economic entity, going concern, monetary unit, and periodicity
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what is economic entity?
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company keeps its activity seperate from its owners and other businesses
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what is going concern?
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assumpition that a company will last long enough to fulfilll its objectives and commitments;
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What is the monetary unit assumption?
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money is the common demnominator and the montary unit is stable with no regard to inflation
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what is the periodicity assumpition?
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that a company can divide its economic activity into time periods
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what is the historical cost?
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the price established by the exchange transaction "the cost"
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What are the 4 issues with historical cost?
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provides an historical benchmark for measuring historical trends
fair value information may be more useful FASB issued SFAS 15X "Fair Value Measurements" reporiting of fair value info is increasing |
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what is the revenue recognition principle?
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generally occurs when revenue is reliazed and when revenue is earned
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what are the 3 exceptions to the revenue recognition principle?
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if you receive revenue during production, at the end of production, or upon the recepit of cash.
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What is the matching principle?
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efforts should be matched with accomplishments whenever it is reasonable and practicle to do so
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What are the 2 examples of product costs?
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material and labor
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What are two exapmples of period costs?
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salaries and administrative costs
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what is the full disclosure principle?
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providing info that is of suffiecient importance to influence the judgement and decisions of an informal user
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what is financial disclosure provided through? (3)
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financial statements
notes to the financial statements supplementary info |
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what are the 4 principles?
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historical cost, revenue recognition, matching, and full disclosure
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what are the 4 constraints?
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cost benefit, materiality, industry practice, and conservatism
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what is the cost benefit constraint?
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the cost of providing the info must be weighted against the benefits that can be derived from using it
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what is the materiality constraint?
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an item is material if its inclusion or omission would influence or change the judgement of a reasonable person
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what is the industry practice constraint?
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the peculiar nature of some industries and businesses concerns sometimes requires departure from basic accoutning theory
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what is the conservatism constraint?
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when in doubt choose the solution that will be least likely to overstate asstes and income.
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What are the three main objectives of financial accounting?
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to provide information
useful in investment and credit decisions useful in acessing future cash flows and to provide information about enterprise resources, claims to resources and changes in them |
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What are the 10 elements of financial accounting?
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assets, liabilities, equity, investment by owners, distribution by owners, comprehensive income, revenues, expenses, gains, losses
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List the 4 things the conceptual Framework of Financial Accounting consists of?
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Objectives, Qualitative chracteristics, elements, and recognition and measurement concepts
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What are the 4 accounting assumptions?
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economic entity, going concern, monetary unit, and periodicity
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What are the 4 Accounting principles?
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measurement, revenue recognition, expense recognition, full disclosure
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What are the 4 accounting constraints?
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cost benefit, materiality, industry practice, conservatism
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What 3 elements make up "Moment in TIme"
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assets liabilities and equity
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What 7 elements make up "period of time"
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Investment by owners, distribution by owners, comprehensive income, revenues, expenses, gains and losses
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What are the 5 steps of the accounting cycle?
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journalization, posting, adjustments, statment preperation and closing
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What is a list of each account and its balance; used to prove equality of debit and credit balances?
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trail balance
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What are the 4 trial balances? (in order)
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Unadjusted trial balance, trial balance, adjusted trial balance and post-closing trial blance
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What are the order of elements in the ledger? (5)
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assets liabilities equity revenues and expenses
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When are revenues recorded?
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in the period in which they are earned
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When are expenses recorded?
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recognized in the period in which they are incurred
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What are needed to ensure that the revenue recognition and matching principles are followed?
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adjusting entries
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What are the 2 types of deferrals/prepayments?
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prepaid expense or unearned revenue
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What are the 2 types of accruals?
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accrued assets/ revenue and accrued liabilities/expenses
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What are the 5 types of adjusting entries?
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1.) prepaid expense
2.) unearned revenue 3.) accrued assets/revenues 4.) accrued liabilities/expenses 5.) accounting estimates |
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What is a prepaid expense and what accounts are affected?
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company incurs a cost and debits an asset acvcount to show service or benefit and they expire through time with use or consumption;
asset decreasing and expense account increases |
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What will be overstated/understated if an adjusting entry for a prepaid expense is not made?
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assets wil be overstated and expenses will be understated
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What is unearned revenues?
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receipt of cahsh that is recorded as a liability because the revenue has not been earned
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What does an adjusting entry in unearned revenues result in?
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decrease in liabilities and an increase in the revenue account
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What will be understated/overstated if an adjusting entry for unearned revenues is not made?
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revenue would be understated and liabilities would be overstated
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what is the diffrence between accruals and prepayments?
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accruals have no original entry
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what is accrued revenue?
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revenue recrded before cash recepit
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If accrued revenue is not recorded will acconts be overstated or understated?
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all accounts affected will be understated
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what is an accrued expense?
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expense recorded before cash payment
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what is the formula to calculate interest?
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Principal X time X interest
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if an adjusting entry for accrued expenses will the entrys be overstated or understated?
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all accounts affected will be understated
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What is the journal entry dealing with depreciaition?
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depreciation exp (debit)
Accumulated depreciation (credit) |
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what is the journal entry dealing with doubtful accounts?
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bad debt expense (debit)
allowance for doubtful accounts (credit) |
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What 3 financial statements are prepared directly from the adjusted trial balance?
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1.) income statement
2.) statement of retained earnings 3.) balance sheet |
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what shows the balance of all accounts, after adjusting entries, at the end of the accounting period?
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adjusted trial balnce
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why are closing entries done?
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to get the ledger ready for the next accounting period
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what does the closing process close out?
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revenues expenses and divideneds
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what are the 4 steos to the closing process?
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1.) close out revenues to income summary
2.) close out expenses to income summary 3.) close out income summary to retained earnings 4.) close out divideneds to retained earnings |
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what is income summary?
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a closing account used in closing process (temporary account)
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what is the list of accounts and their balances after the closing process?
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post-closing trial balance
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what are the three accounts in the post closing trial balance?
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assets liabilities and equity
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What is an asset?
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business owns it
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What is a liability?
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obligation to an outsider
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What is equity?
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owner claims and residual interest
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What is investments by owners?
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issuing stock (increase equity)
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What is distribution to owners?
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diviended (decrease equity)
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what is comprehensive income?
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a non traditional change in equity (foreign currency exchange)
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What is revenue?
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main source of earnings
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what are expenses?
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immediate cost of gathering revenue
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What are gains?
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incidental transactions that increase equity
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What are losses?
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incidental transactions that decrease equity
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