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40 Cards in this Set
- Front
- Back
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What is accounting?
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"The language of business", why we started written communication
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What is the difference between financial and cost accounting?
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-Financial=people outside business, ethics play a role
-Cost=ppl within a business |
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What is an income statement?
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-Results of operations over a certain period
-Revenues and expense=net income |
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What is a balance sheet?
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-Snapshot of a day
-Assets and claims to assets, liabilities and owners' equity -"ALOE" |
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What is the statement of retained earnings?
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-What income was distributed and what earnings were kept
-Uses net income -History of earnings of companies (w/o dividends) -RE+net income-dividends= ending RE |
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What is a statement of cash flows?
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-Sources and uses of cash over a time period
-Amount must agree with cash on balance sheet |
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How is the title of the income statement dated?
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"For the month ended (October 31, 2012)"
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What accounts appear on the income statement?
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-Revenues (first)=money made
-Expenses=supplies expense (office), salaries expense, interest expense (expense charged in addition to loan), depreciation expense (large purchase spaced out over time) |
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What calculation is used on the income statement?
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Revenues-expenses=net income or net loss
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How does the retained earnings statement work?
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-Retained earning from a start date
-Add/subtract net income/loss -Subtract dividends |
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What are assets?
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Things company has that are expected to bring future benefits
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What are accounts that are assets?
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-Cash (1st)
-Accounts receivable=receive cash from customers in future -Supplies -Prepaid insurance -Equipment, net=equipment being used (net something has been subtracted) |
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What are liabilities?
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Future sacrifice of an asset b/c of past obligations
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What are accounts that are liabilities?
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-Accounts payable=owe vendors cash
-Notes payable=legal contract you owe $ to someone -Salaries payable -Unearned service revenue -Interest payable=interest you owe but due date hasn't arrived |
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What appears under stockholders' equity?
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-Common stock= investment owners put in company
-Retained earnings |
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On the statement of cash flows, what are operating activities?
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Buying/selling, ordinary activities
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On the statement of cash flows, what are investing activities?
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Buying equipment, longer term, invest in a different company
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On the statement of cash flows, what are financing activities?
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Loans (bank), stock (issued)
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What are the 3 types of business entities?
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1.Corporation=stock, lots of ppl, easy to change ownership, limited liability
2.Sole proprietorship=single owner, easy to start, control 3.Partnership=2 or more ppl, more skills/experience, spread out benefits |
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What is a classified balance sheet?
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Classifies assets and liabilities due to how current
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How are assets arranged on the classified balance sheet?
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(In order of liquidity)
-Cash first then accounts receivable, equipment near bottom -Current assets=turn into cash this year -Long-term assets= not cash in this year -Property, plant, equipment= totaled separately -Intangible assets= patents |
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Who is a creditor?
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Someone who is lending cash to a company
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What is a liability?
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An obligation you owe to someone else from past
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What is a current liability and what are examples?
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-Have to pay off w/in year
-Accounts payable= owe companies vendors money -Notes payable (current or long-term)=written contract -Salaries and wages payable= already done work but not yet paid -Unearned service revenue= prepaid for a service not yet received -Interest payable=interest you owe but due date hasn't arrived |
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What is a longterm liability and what are examples?
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-Have to pay off not w/in the year
-Notes payable -Mortgage payable= property |
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What is earnings per share?
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Money generated per share of stock, higher amount is better
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How is EPS calculated?
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Net income-preferred dividends/# of shares of common stock outstanding
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What do we want our working capital to look like and how is it calculated?
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-Want a higher number
-WC=current assets-current liabilities |
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What do we want our current ratio to look like and how is it calculated?
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-CR=Current assets/current liabilities
-Want number greater than 1 |
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What is an equation that shows solvency?
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Debt ratio=total liabilities/total assets (want # less than 1)
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What are the fundamental qualities of useful financial information?
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1.Relevant= predictive, confirmatory, material
2.Faithful representation of reality=complete, neutral, free of error |
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What is the monetary unit assumption?
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Expressed in terms of cash (currency)
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What is the economic entity assumption?
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Different from other entities, not personal finances
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What is the periodicity assumption?
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Apply artificial calendar to business
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What is the going concern assumption?
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Business will keep going for at least 1 year
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What is the measurement principle?
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Amount of money you write down, land doesn't change, historical value rather than fair value used
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What is full disclosure principle?
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Not hiding things
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What is the constraint principle?
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"Cost constraint", cost of getting financial info can't be more than the benefits
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What is the accounting equation?
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Assets=liabilites + stockholders' equity (ALOE)
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What side do assets, liabilities, common stock, revenues, expenses, and retained earnings have a normal balance?
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-Assets=debit
-Liabilities=credit -Common stock=credit -Revenues=credit -Expenses=debit -Retained earnings=credit |
