Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
39 Cards in this Set
- Front
- Back
Financing Activities |
how we get money. Borrowing or selling ownership interest |
|
Investing Activities |
Acquire resources to be used in day-to-day operations. Assets |
|
Operating Activities |
what our company does every day. Revenue and expenses |
|
Financial statement order |
Income Statement, Statement of Retained Earnings, Balance Sheet, Statement of Cash Flow |
|
Monetary Unit Assumption |
Only transactions that can be expressed in terms of money can be included in the accounting records. Record in USD since we are a company operating in US. Assume monetary unit is stable (ignore inflation and deflation) |
|
Economic Entity Assumption |
Activities of the business are separate from activities of the owners |
|
Time Period Assumption |
The long life of a company can be reported over a series of shorter time periods. Makes it possible to prepare the Income Statement for a specific time period |
|
Going Concern Assumption |
The company will not go out of business in the near future. Not liquidating |
|
Historical Cost Principle |
Record assets at the cost paid to acquire them. Leave them on your records at that amount |
|
Full Disclosure Principle |
Provide all information sufficiently important to influence a decision of buying stock in the company, investing, etc. Include footnotes in financial statements |
|
GAAP |
Generally Accepted Accounting Principles. Rules and assumptions under which financial statements must be prepared. Used in the US. Very rule-based |
|
Single-Step Income Statement |
Rev +Interest Rev + Gains from Sale of Assets = Total Lev and Gains - (Operating Exp + Loss on Sale of Assets + Interest Expense) = Net Income |
|
Statement of Retained Earnings |
Beg RE + Net Income - Dividends = End RE Use when there are no changes in stock |
|
Balance Sheet |
Assets = Liab + Eq |
|
Statement of Cash Flow |
Shows the sources and uses of cash. (Operating, Investing, Financing) |
|
Sarbanes-Oxley (SOX) Act |
1. Penalties exist for management if financial statements are inaccurate, CEO & CFO must certify annual financial statements 2. Requires some directors to be independent of management 3. Requires audit committee members be independent of management |
|
Materiality |
the dollar magnitude of the transaction makes a difference in how it is recorded |
|
Multi-Step Income Statement |
Rev - COGS = Gross Profit - Operating Expenses = Income from Operations + Gains + Interest Rev - Losses - Interest Exp = Net Income before tax - Tax Expense = Net Income |
|
Gross Profit Ratio |
Gross Profit / Sales Rev |
|
Profit Margin |
Net Income / Sales Rev |
|
Statement of Stockholder's Equity |
Use if there are changes in stock. Beg Eq (Beg CS and Beg RE) + New Stock + Net Income - Dividends = Eng Eq (End CS and End RE) |
|
Classified Balance Sheet |
separates assets and liabilities into current and noncurrent |
|
Current Asset |
1. Cash 2. MES - Marketable Equity Securities 3. AR 4. Inventory 5. Supplies 6. Prepaid Expenses |
|
Non-Current Assets |
1. Long-term Investments (over 1 yr) 2. Plant, Property, and Equipment 3. Intangible Assets |
|
Current Liabilities |
1. AP 2. Wage/Salary Pay 3. Unearned Rev 4. Notes Pay (short-term) |
|
Long-term Liabilities |
1. Notes Pay (long-term) 2. Mortgage Pay 3. Bonds Pay |
|
Shareholder's Equity parts |
Common Stock and Retained Earnings |
|
Recognition |
formally recording a transaction into the financial statements |
|
Measurement |
Quantify the transaction in terms of dollars at historical cost |
|
Cash Basis of Accounting |
Record revenue when cash is received, record expenses when cash is paid |
|
Accrual Basis of Accounting |
Record revenue when earned, record expense when incurred |
|
Deferred Revenue |
Company receives cash but revenue is earned later. (Unearned Rev) |
|
Deferred Expenses |
Company paid cash but the expense is used up later. (Prepaid Expense) |
|
Accrued Asset |
Company records rev when earned and receives cash later (AR) |
|
Accrued Liability |
Company records expense when used up and pays cash later. (AP) |
|
Closing Accounts process |
1. Close Rev to Income Summary 2. Close Exp to Income Summary 3. Close Income Summary to RE 4. Close Dividends to RE |
|
2 Accounting principles that form the basis of Accrual Accounting |
1. Revenue Recognition Principle 2. Matching Concept |
|
Revenue Recognition Principle |
tells us when to record revenues |
|
Matching Concept |
tells us when to record expenses |