Financial Accounting and Reporting

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1. 1. To provide external users

Two broad functions of 14. Bookkeeping the process of recording the accounts or
with information that is
Accounting transactions of an entity
useful in making, among
others, investment and credit 15. Business Is an activity where goods or services
decisions; and are exchanged for money.
2. To provide internal users
16. Businessman or A person who is engaged in
with information that is
business entrepreneur
useful in managing the 17. Communicating the accountant summarizes the information
business processed in the accounting system
2. Accontable events Are recorded in the books of 18. Cooperative Registered with the Cooperative
accounts Development Authority (CDA)
3. Account The basic storage of 19. Cooperative Owned by more than one individual.
information in Formed in accordance with the provisions
accounting
4. Accountable events of The Philippine Cooperative Code of
Affects the assets, liabilities,
(Economic events) 2008.
equity, income or expenses of
a business 20. Cooperative An association of individuals who joined
5. Accounting A process of identifying, together to contribute capital and
recording and communicating cooperate in order to achieve certain
economic information that goals.
is useful in making
21. Corporation Owned by more the one individual.
economic decisions
Created by Operation of Law rather than
6. Accounting Is a process with the basic a contract
purpose of providing
22. Corporation Is an artificial being or juridical person
information about economic
activities that is intended to 23. Cost Systematic recording and analysis of the
be useful in making
Accounting costs of materials, labor, and
economic decisions overhead incident too the production
of goods or rendering of services
7. Accounting referred as the "language of
24. External Users 1. Existing and potential investors
business"
2. Lenders and Creditors
8. Accounting as an A system that consists of an 3. Government Agencies
Information system input, a process and an 4. Non-managerial employees
output
9. Accounting Education teaching accounting and 5. Customers
accounting-related subjects in 6. public
an organize learning
25. External Users Who are not directly involves in managing
environment
the business.
10. Accounting Education Becoming a certified public
26. Financial Impact of fair value measurement on
accountant
Accounting the financial statements
11. Accounting Research Careful analysis if economic
27. Financial Focuses on the information needs
events and other variables Accounting of external users
to understand their impact
28. Financial the branch of accounting that focuses
and other variables to
Accounting
understand their impact on on general purpose financial
decisions. 29. Financial statements
Information
12. Auditing Inspection of an entity's Information expressed in money.
financial statements or business
process to ascertain their 30. Financial Includes the financial statements plus
correspondence with an Report other information provided outside the
establish criteria financial statements
13. Auditing Internal controls and 31. Financial the provision of financial information
modern technology Reporting about and entity that is useful to
external users.
32. Financial
The structured representation of an 51. Partners Business owner of Partnership are called
Statements
entity's financial position and results of _________.
its operations.
52. Partnership Owned by two or more individuals who
33. Fra Luca
Pacioli Father of modern accounting entered into a contract.

34. General 53. Partnership Registered with the Securities and Exchange
Purpose information designed to meet the Commission (SEC)
accounting common needs of most statement users.
54. Posting The accountant classifies the effects of
information It is provided by financial accounting
the event on the accounts
and is prepared primarily for external
35. Government
users. 55. Practical Art Accounting requires the use of creative skills
Accounting
and judgement
Accounting for the government and
its instrumentalities, focusing
attention on
custody of public funds. 56. Primary To provide information about an entity's
objective of economic resources (Assets), claims to
36. Hybrid Engage in more than one type of Financial those resources (liabilities and equity), and
Business activity.
Reporting changes in those resources (income,
expense
37. Identifying The accountant analyzes each business and other changes)
transaction and identifies whether the
57. Process the recording, classifying and summarizing
transaction is "accountable event" or
"non-
accountable evet". 58. Qualitative Information expressed in words or
Information descriptive form.
38. Inputs Identified accountable events
59. Quantitative Information expressed in numbers,
39. Internal Users 1. Business owners who are directly Information quantities, or units
involved in managing the business
2. Board of directors 60. Reporting Is required, or chooses, to prepare
entity financial statements
3. Managerial Personnel
61. Secondary To provide useful in assessing the
40. Internal Users Who are directly involved in managing the
Objective of entity's management stewardship.
business.
financial
41. Journalizing The accountant recognizes (records) the reporting
or Recording identified "Accountable events".
62. Service Offers services as its main product
42. Management Inventory management and its effect Business rather than physical goods.
Accounting on earnings
63. Service business Offer professional skills, expertise,
43. Management Involves the accumulation and
64. Shares of advice, lending service, and similar
Accounting communication of information for use
Stocks services
by internal users.
44. Management 65. Social Ownership in a corporation is represented as
Focuses on the information needs of Science ______
Accounting
internal users
45. Management Accounting is a "body of knowledge"
Offshoot of management Accounting 66. Sole or Single which has been systematically gathered,
Advisory
Services Proprietorship classified and organized
46. Manufacturing 67. Sole or the most common and simplest form
Business Buys raw materials and processes them Single of business organization
into final products. Changes the physical
form of the goods.
Owned by one individual.
47.Members Owners of cooperative are called Proprietorship
__________
48. Merchandising Is one that buys and sells goods
Business
68. Sole Business owner of Sole Proprietorship
without changing their physical form. Proprietor
49. Non- Not recorded in the books of accounts 69. Sole Registered with the Department of Trade
Accountable
events Proprietorship and Industry (DTI)

50. output accounting report that is communicated to

the users
70. Special Purpose accounting information
71. Stockholders or
Information designed to meet the specific needs of particular statement users. It is provided by
Shareholders
management accounting or other branches of accounting and is prepared primarily for internal users.

Owners of Corporation
72. Tax accounting Preparation of tax returns and rendering of tax advice, such as the determination of tax
consequences of certain proposed business endeavors
73. Types of business
1. Service Business
according to activities
2. Merchandising
3. Manufacturing
 Financial Accounting Flashcards
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1. Accelerated
a depreciation method that writes off a 17. Acid-Test Ratio of the sum of cash plus short-
depreciation
relatively larger amount of the assets ratio term investment plus net current
method
costs nearer the start of its use full life receivable divided by total current
than the straight line method does liabilities, tell whether the entity can
pay all its current
liabilities if they come due immediately.
2. Account the record of the changes that have
Also called the quick ratio
occurred in a particular asset, liability or
stockholders equity during a period 18. acid test ratio of the sum of cash plus short term
3. Account ratio investment plus net current
A balance-sheet format that lists assets on
format receivables divided by total current
the left and liabilities and stockholders
liabilities. Tell whether the entity can
equity on the right
pay all its current
liabilities if they come due immediately. Also
4. Accounting the information system that measures called the quick ratio
business activities, processes that
information into reports and financial
19. Adjusted A list of all the ledger accounts with
Trial Balance their adjusted balances
statements and comminicates the results to
decisions makers
5. Accounting 20. aging-of- A way to estimate bad debts by analyzing
Assets = Liabilities + Owner's Equity
Equation receivables individual accounts receivable according to
6. accounts the length of time they have been
payable the number of times per year a company receivable from the customer
turnover pays off its accounts payable 21. Allowance for The estimated amount of collection
Uncollectible
7. Accounts losses.Another name is Allowance
Net sales divided by average net Accounts
receivable for Doubtful Accounts.
turnover accounts receivable 22. Allowance
method
8. accounts A method of recording collection losses
receivable measures a company's ability to collect based on estimates of how much money
turnover cash from credit customers. To compute the business will not collect from its
accounts receivable turnover divide net customers
credit sales by
average net accounts receivable 23. amortization the systematic reduction of a lump sum
amount. expense that applies to
9. Accrual An expense or a revenue that occurs
intangible assets in the same way
before the business pays or receives
depreciation applies to plant assets and
cash. An accrual is the opposite of a
depletion applies to natural resources
deferral
10. Accrual Accounting that records the impact of a cash
accounting business event as it occurs, regardless 24. Asset an economic resource that is expected to be
of whether the transaction affected the of benefit in the future

11. Accrued 25. asset The dollars of sales generated per dollar of
Expense An expense incurred but not yet paid in turnover assets invested formula is net sales
cash
divided by average total asset
12. accrued an expense incurred but not yet paid in 26. Audit A periodic examination of a company's
expense cash. also called accrued liability financial statements and the accounting
13. accrued systems, control and records that produce
a liability for an expense that has not yet
liability them. Audits may be either external or
been paid also called accrued expense
14. Accrued internal. External audits are usually
A revenue that has been earned but not
Revenue performed by Certified Public accountants
yet received cash
15. Accumulated yet been paid 27. authorized
The cumulative sum of all depreciation
Depreciation by the stock
expense from the date of acquiring a
company 28. Available for sale securites
plant asset
16. Accured
Liability A liability for an expense that has not
Maximum shares a corporation all tments not classified as held to
number of can issue under its charter inves maturity or trading securities
29. average cost
Inventory costing method based on the 46. capital The amount that stockholders and lenders
method
average cost of inventory during the charge charge a company for the use of their
period. Average cost is determined by money. Calculated as notes payable +
dividing the cost of goods available by current maturities on longterm
the number of units available. Also called debt+longterm debt+stockholders equity x
the weighted- average method 47. capital cost of capital
30. Bad-debt expenditure
expense Another name for uncollectible account Expenditure that increases an assets
expense capacity or efficiency or extends its use full
31. Balance capital lease
48. life. capital expenditures are debited to an
Sheet List of an entity's assets liabilities and
asset account
owners equity as of a specific date.
32. Bank also called the statement of financial lease is assumed to be a capital lease if it
collections position meets any one of four criteria. 1 the lease
transfers title of the leaded asset to the
33. Bank Collection of money by the bank on
lesse. 2 the lease contains a bargain
Reconciliation behalf of a depositor
purchase option.3 the lease term is 75% or
A document explaining the reasons for the more of the estimated useful life of the
difference between a depositors records leased asset. 4 the present value of the
and the banks records about the lease payments is 90% or more of the
depositor's cash market value of the leased asset

34. Bank 49. Cash Money and any medium of exchange that a
Statement Document showing the beginning bank accepts at face value
and ending balances of a particular
bank
account listing the months transactions that 50. Cash-basis Accounting that records only transactions in
affected the account accounting which cash is received or paid

35.benchmarking the comparison of a company to a 51. Cash A budget that projects the entity's future
standard Budget cash receipts and cash disbursements
set by other companies with a view cash
52. the number of days it takes to convert cash
toward improvement
36. Board of conversion inventory, inventory to receivable, and
Group selected by the stockholders to
directors cycle receivable back into cash after paying off
set policy for a corporation and to
payables. The formula is days inventory
appoint its officers
37. board of outstanding + days sales outstanding -
directors Group elected by the stockholders to set days payables outstanding
policy for a corporation and to appoint 53. Cash
Investments such as a time deposits,
its officers Equivalent
38. bonds certificated of deposit, or high-grade
payable groups of notes payable issued to government securities that are considered
multiple lenders called bondholders so similar to cash that they are combined
with
39. Book value The asset's cost minus accumulated cash for financial disclosure purposes in
depreciation the balance sheet

book value
40. Amount of owners equity on the 54. cash highly liquid short term investments that can
company's equivalents be converted into cash immediately
books for each share of its stock

41. book value

common stockholders equity divided by 55. cash flows cash receipts and cash payments
per share of
common stock the number of shares of common stock 56. chairperson Elected by a corporations board of
outstanding. The record amount for each directors usually the most powerful person
share of common stock outstanding in the corporation
42. Budget A quantitative expression of a plan that price at
name for the owners equity of a
the business
helps managers coordinate the
entity's activities option
of the
43. bylaws Constitution for governing a corporation issuer

callable bond
44. bonds that are paid off early at a 45. capital
specified
57. channel stuffing t fraud that is accomplished by shipping
a
more to customers (usually around the end
type
of the year) than they ordered, with the
of
expectation that they may return some or
finan
all of it. the objective is to record more
cial
revenue than the company has actually
state
earned with legitimate sale and shipments
men
58. Chapter 2 Transaction Analysis
59. Chapter 3 Accrual Accounting & income

60. Chapter 4 Internal Control & Cash

80. consignment An inventory arrangement where the seller
61. Chapter 6 Inventory and cost of goods sold sells inventory that belongs to another
party. The seller does not include
62. Chapter 7 Plant Assets, Natural Resources,
consigned merchandise on hand in its
& intangibles
balance sheet because the seller does not
63. Chapter 8 Long-term investment & the time value own this inventory
of
Money 81. consolidated financial statements of the parent
64. Chapter 10 Liabilities financial company plus those of majority owned
statement subsidiaries as if the combination were a
65. Chapter 10 Stockholders Equity
82. Continuity single legal entity
66. Chapter 11 The income statement,the statement of assumption the entity will continue to operate long
comprehensive income,and the statement
enough to use existing assets (land
of stockholders equity
83. Contra buildings equipment and supplies)
67. Chapter 12 Statement of cash flow Account
An account that always has a
68. Chapter 13 Financial statement Analysis companion account and whose normal
balance is opposite that of the
companion account
69. Chart of
List of a company accounts and 84. contributed the amount of stockholders equity
accounts
their account numbers capital that stockholders have contributed
to the
70.Check Document instructing a bank to pay corporation. Also called paid in capital
the
85. Controller The chief accounting officer of a business
designated person or business
the specified amount of money
86. controlling ownership of more than 50% of an investee
71. Classified A balance sheet that shows current majority company's voting stock
balance sheet assets separate from long-term assets interest
and current liabilities separate from long- convertible
87. bonds or notes that may be converted into
term liabilities
72. clean opinion an unqualified option bonds or the issuing company's common stock at
notes the investors option
73.Closing entries Entries that transfer the revenue,
expense
and dividends balances from 88. copyright exclusive right to reproduce and sell a
these respective accounts to the book, musical composition, film, other
retained earnings account work of art, or computer program. Issued
74. Closing the The process of preparing the accounts to by the federal government, copyrights
Books begin recording the next period's extend 70 years beyond the authors life.
transactions. Closing the accounts 89. Corporation a business owned by stockholders. A
consists of journalizing and posting the corporation is a legal entity, an
closing entries to set the balances of the artificial person in the eyes of the law
revenue, expense, and dividends
accounts to zero.
90. cost of cost of the inventory the business has sold to
Also called closing the accounts
goods sold customers
75. common size a financial statement that reports cost of goods
91. formula that brings together all the
statement only percentage ( no dollar sold inventory data for the entire accounting
amounts)
period:
76. Common Stock The most basic form of capital stock 77. common stock the most basic form of
 capital stock. the model Beginning inventory+purchases=goods
common stockholders own corporation available. Then, goods available
minus ending inventory=cost of
goods sold

78. comprehensive 92. Credit The right side of an account

income a company's change in total
stockholders equity from all sources 93. Creditor The party to whom money is owed
other than from the owners of the
business
94. cumulative preferred stock whose owners must receive
79. Computer A malicious program that enters a preferred all dividends in arrears before the corporation
Virus company's computer system by email stock can pay dividends to the common
or other means and destroys program stockholder
and data files
95. Current
An Asset that is expected to be converted 109. Debt ratio Ratio of total liabilities to total assets. States
Asset
to cash, sold, or consumed during the the proportion of a company's assets that
next 12 months or within the business's is financed with debt
normal operating cycle if longer than a
96. Current 110. debt ratio ratio of total liabilites divided by total assets.
year
Assets states the proportion of a companys
An asset that is expected to be converted assets that is financed with debt.
to cash, sold, or consumed during the
111. Deferral An adjustment for which the business paid or
next 12 months, or within the business's
97. Current received cash in advance. Examples include
normal operating cycle if longer than a
Liabilities prepaid rent, prepaid insurance, and supplies
year
112. Deficit Negative balance in retained earnings
Current A debt due to be paid within one year or
98. caused by a net loss over a period of years
Liability within the entity's operating cycle if the
cycle is longer than a year 113. deficit Debit balance in the retained earnings
account
99. current A debt due to be paid within one year or
portion of within the entity's operating cycle if the 114. depletion that portion of a natural resource's cost
long term cycle is longer than a year that is used up in a particular period.
debt Depletion expense is computed in the
the amount of the principal that is
same way as units of production
payable within one year
depreciation. A depleted asset usually flows
into inventory and
100.Current Ratio Current assets divided by current eventually to cost of goods sold as the
liabilities. resource is sold
measure a company's ability to pay
115. Deposits in A deposit recorded by the company but not
current liabilities with current assets
transit yet by its bank
101. current ratio current assets divided by current
116. depreciable the cost of a plant asset minus its
liabilites.
sold estimated residual value
measures a companys ability to pay
current liabilities with current assets
102. days in sale ratio of average net accounts receivables sales remain in accounts receivables
receivables to one days sales. indicates how many 117. Depreciation Allocation of the cost of a plant asset to
days expense over its useful life

awaiting collection. Also called the 118. direct format of the operating activities of section
collection period and days sales method of the statement of cash flows lists the
outstanding major categories of operation cash receipts
(collections from customers and receipts of
103. days payable accounts payable turnover expressed
interest and dividends) and cash
outstanding in days 365 divided by turnover
disbursements (payments to suppliers to
104. Days' sales in Ratio of average net accounts receivable employees for interest and income taxes)
receivables to one days sales. Indicated how many 119. Direct write
A method of accounting for bad debts in
days sales remain in Accounts receivables off method
which the company waits until a customers
awaiting the collection. Also called the
account receivables proves uncollectible and
collection period
then debits. Uncollectible accounts expense
105. debentures Unsecured bonds-bonds backed only by and credits the customers
the good faith of the burrower account receivables.
106. Debit The left side of an account 120. disclosure A business's financial statements must report
107. debit principle enough information for outsiders to make
A document issued to the seller (vendor)
memorandum knowledge decisions about the business.
when an item of inventory that is
the company should report relevant,
unwanted or damaged is returned. This
reliable, and comparable information about
document authorizes a reduction (debit)
its economic affairs
to accounts payable for the amount of
the goods returned. 121. discount ( on Excess of a bonds face par value over its
debtor
108. the party who owes a bond) issue price
money
122. dividend Distribution (usually cash) by a corporation
to its stockholders
123. Dividends Distributions (usually cash) by a corporation 134. economic Used to evaluate a companys operating
to its stockholders value performance. EVA combines the concepts of
124. dividend added accounting income and corporate finance to
ratio of dividends per share of stock to the
yield measure whether the companys operatins
stocks market price per share. tells the
have increased stockholders wealth. EVA= net
percentage of a stocks market value that
income + interest expense - capital charge
the company returns to stockholders as
125. double dividends 135. efficent a capital market in which market prices
declining capital
fully reflect all information available to the
balance an accelerated depreciation method that market
public
method computes annual depreciation by multiplying
136. Electronic
the assets decreasing book value by a
fund
constant percentage which is two times the System that transfers cash by
126. double transfer
straight line rate electronic communication rather than
by paper documents
Corporations pay income tax on corporate
taxation income. then, the stockholders pay 137. Encryption Mathematical rearranging of data within an
personal income tax on the cash electronic file to prevent unauthorized
dividends that they receive from access to information
127. doubtful- corporations
138. Entity An organization or a section of an
account
Another name for uncollectible account organization that, for accounting
expense
expense purposes, stand apart from other
128. DuPont organizations and individual as a
separate economic unit
a detailed approach to measuring rate of
return
Analysis on equity. in this chapter we confine our 139. equity the method used to account for
discussion to return on assets, compromising method investments in which the investor has 20-
the fist two components of return on equity, 50% of the investee's voting stock and can
calculated as follows: net profit margin(net significantly influence the decision of the
income before taxes/net sales) times total 140. equity investee
asset turnover(net sales/average total assets) multiplier another name for leverage ratio
129. DuPont
a detailed approach to measuring rate of 141. estimated
analysis
return on equity: Net profit margin (net residual
expected cash value of an asset at the end
income before taxes /net sales)x total asset value
of its useful life. Also called residual value,
turnover (net sales/average total assets)x estimated
142. scrap value or salvage value
leverage ratio (average total asset/average useful life
stockholders equity) length of service that a business expects to
130. Dupont
get from an asset. May be expressed in
detailed method analzing rate of return on
years, units of output, miles, or other
measures
Analysis common stockholders equity. Rate of return 143. Ethics Standards of right and wrong that
on sales x asset turnover x leverage = return transcend economic and legal
on average common stockholders equity boundaries. Ethical standards deal with
131. earnings the way we treat others and restrain our
Amount of a company's net income earned
per share own action because of the desires,
for each share of its outstanding common
expectations, or rights of others or
stock
because of our obligations to them
132. earnings 133. earnings quality amount of a net income per share of its outstanding
per share company's common stock
the are an accurate reflection of underlying
144. Exception Identifying data that is not within
characteristi economic events for both revenues and Reporting "normal limits" so that managers can
cs of an expenses, and the extent to which earnings
follow up and take corrective
earnings from a company's core operations are
action.Exception reporting is used in
number that improving over time. Assuming that revenues
operating and cash budgets to keep
make it and expenses are measured accurately, high
company profits and cash flow in line
most useful quality earnings are reflected in steadily
145. Expense with management's plans
for decision improving sales and steadily declining costs Recognition
making. the over time so that income from continuing The basis for recording expenses. Directs
Principle
degree to operations follows a high and improving accountants to identify all expenses incurred
which pattern over time during the period, to measure the expenses,
earnings and to match them against the revenue
earned during that same period

146. Expenses Decrease in retained earnings that results 160. foreign the measure of one country's currency
from operations; the cost of doing currency against another country's currency
business; opposite of revenuse exchange
147. extraordinary rate
Also called extraordinary gain or
gains and
loss 161. foreign the balancing figure that brings the dollar
losses
currency amount of the total liabilities and
stockholders
translation equity of the foreign subsidiary into
148. Fair value the amount that a business could sell an
adjustment agreement with the dollar amount of its
asset for, or the amount that a
franchise total assets
business could pay to settle liability 162.
and privileges granted by a private business
149. fair value the amount that a seller would receive in licenses
the or a government to sell a product or
sale of an investment to a willing service in accordance with specified
purchaser conditions
on a given date. Securities and available 163. Fraud An intentional misrepresentation of facts
for sale securities are valued at fair made for the purpose of persuading another
market values on the balance sheet date. party to act in a way that causes injury or
other assets may be recorded at fair damage to that party
market value
on occasion 164. Fraud The three elements that are present in
150. fair value the asset's estimated market value at a Triangle almost all cases of fraud. These elements
particular date are motive, opportunity and rationalization
on the part of the perpetrator
Fidelity bond
151. An insurance policy taken out on
employees 165. Fraudulent Fraud perpetrated by management by
who handle cash
152. Financial Financial preparing misleading financial statements
accounting The branch of accounting that
reporting
provides information to people
153. Financial outside the firm free cash
166. the amount of cash available from
statements flows operation after paying for planned
Business documents that report financial
investments in plant assets
information about a business entity to
154. Financing 167. future
decision makers measures the future sum of money that
activities value
given current investment is "worth" at a
Activities that obtain from investors
specified time in the future assuming a
and creditors that cash needed to
certain interest rate
155. financing launch and sustain the business a
168. Generally
activities section of the statements of cash flow Accepted Accounting guidelines formulated by
Accounting the financial accounting standards
activities that obtain from investors
Principles board that govern how accounting is
and creditors the cash needed to
practiced
launch and sustain the business a
section of the statement of cash flows
169. going holds that the entity will remain in
156. Firewall An electronic barrier usually provided by
concern operations for the foreseeable future
passwords, around computerized data
assumption
files to protect local area networks of
computers
 from unauthorized access 170. good will excess of the cost of an acquired company
over the sum of the market values of its
157. First-in, FIFO inventory costing method by which
first out cost net assets, assets minus liabilties
the first costs into inventory are the first
costs
method out to cost of goods sold. Ending 171. gross another name for gross profit
inventory is based on the costs of the margin
most recent purchases. gross
172. another name for the gross profit method
FOB
158. Acronym for "free on board";used in margin
quoting method
shipping terms
159. foreign-
the measure of one country's 173. gross another name for the gross profit percentage
currency
currency against another country's margin
exchange
currency percentage
rate 174. gross profit sales revenue minus cost of goods sold.
Also called gross margin
175. gross profit
a way to estimate inventory based on a 188. Internal Organizational plan and related measures
method
rearrangement of the cost of goods sold Control adopted by an entity to safeguard assets,
model: beginning inventory +net encourage adherence to company policies,
purchases=goods available minus cost of promote operational efficiency, and ensure
goods available sold=ending inventory. accurate and reliable accounting records
Also called the gross margin method 189. International
176. gross profit Accounting guidelines, formulated by the
Financial
percentage gross profit divided by net sales revenue. International Accounting Standards Board
Reporting
Also called the gross margin percentage (IASB).U.S companies are expected to
adopt
Standards these principles for their financial statements
177. hedging to protect oneself from losing money in
so that they can be compared with those of
one transaction by engaing in a
companies from other countries
counterbalance transaction
178. held to 190. inventory the merchandise that a company sells to
bonds and notes that an investor intends
maturity customers
to hold until maturity
investments 191. inventory ratio of costs of good sold to average
turnover inventory . indicates how rapidly inventory
179. Historical Principle that states that assets and
cost principle services should be recorded at their is sold.
actual cost 192. inventory ratio of cost of goods sold to average
180. horizontal
turnover inventory. Indicates how rapidly inventory
analysis
study of the percentage changes is sold
in comparitive financial
statments
193. investing activities that increase or decrease the
181. impairment the condition that exists when the carrying
activites long term assets available to the
amount of a long lived asset exceeds the
business; a section of the statement of
amount of the estimated cash flows from
194. Investing cash flows
the asset. Under GAAP once impaired the
carrying value of a long lived asset may Activities Activities that increase or decrease the
never be increased. Under IFRS if the fair long- term assets available to the
value is impaired it can be increased in the 195. investment business, a section of the statement of
future cash flow

An earning rate used to estimate the value of

182. Imprest A way to account for petty cash by capitalization an investment in stock
System maintaining a constant balance in the rate
petty
184. indirect method cash account, supported by the fund (Cash plus Payment
Tickets) totallung the same amount

A financial statement listing an entity's revenues, expenses, and

183. income net income or net loss for a specific period. Also the statement of
statement operations

format of the operating activities section of the statement of

cash flows; starts with net income and reconciles to cash flows
from has issued misappropriating certain customer
operating to its stockholders payments and posting payments from
activites other customers to the affected accounts
Journal
197. The chronological
196. Issued accounting record of an to cover it up.
stock Number entity's transactions Lapping is caused by weak internal
of shares a controls (improper access to cash and
corporation 198.lapping A fraudulent scheme to monitoring activities)
steal cash through
185. intangible An asset with no physical form, a special 199. last in first LIFO inventory costing method by which
assets right to current and expected future benefits out cost the last costs into inventory are the first
costs
186. interest the burrowers cost of renting money from method out to cost of goods sold. This method
a lender. Interest is revenue for the lender leaves the oldest costs, those of
and expense for the burrower beginning inventory and the earliest
purchases of the
187. interest period in ending inventory
another name for the times interest
coverage
earned ratio 200. lease rental aggrement in which the tennant (lesse)
ratio
agrees to make rent payments to the
property owner (lessor) in exchange for
the use of the asset

201. Ledger The book of accounts and their balances

202. legal
Minimum amount of stockholders equity 216. Long-term debt A liability that falls due beyond one year
capital
that a corporation must maintain for the from the date of the financial statements
protection of
creditors. For corporations with par-value
217. long term any investment that does not meet the
stock, legal capital is the par value for the investment criteria of a short term investment;any
stock issued
investment that the investor expects to
203. lessee tenant in a lease agreement hold longer than a year or that is not
readily marketable
204. lessor property owner in a lease agreement
218. Long-term
A liability that is not a current liability
205. leverage using burrowed funds to increase the return Liability
on equity. successful use of leverage means
219. lowest of cost
earning more income on burrowed money LCM requires that an asset be reported
or market rule
than the related interest expense, thereby in the financial statements at
increasing the earnings for the owners of the whichever is lower, its historical cost
business. Also called trading on the equity or its market value, current
replacement cost for inventory
206. leverage earnings more income on burrowed money 220. management
than the related interest expense, thereby accounting The branch of accounting that
increasing the earnings for the owners of the generates information for the internal
business. Also called trading on the equity decisions makers of a business such
as top
207. leverage executives
ratio of average total assets divided by
ratio
average common stockholders equity. 221. marketable Another name for short term investment
Measures the proportion of average total securities
assets actually owned by the stockholders market interest
208. leverage
222. interest rate that investors demand for
the ratio of total asset divided by total ratio loaning their money. Also called
ratio
stockholders equity, showing the proportion effective interest rate
of total stockholders equity to total assets. 223. market value (of a
Price for which a person could buy or
tells the mixture of a companys debt and stock)
sell a share of stock
equity financing and is useful in calculating
rate of
return on stockholders equity through 224. maturity the date on which a debt instrument must
the dupont model be paid
209. Liability An economic obligation (a debt) payable to 225. maturity date the date on which the debtor must pay
an individual or an organization outside the the note
liability liability company

210. limited 211. limited 212. liquidation value

business in a corporations stock than the cost of the 226. Misappropriation Fraud committed by employees
investment of assets by stealing assets from the
no personal
obligation A business organization in which the 227. Modified company
of a business (not the owner) is liable for the Accelerated cost a special depreciation method used
stockholder company's debts recovery system only for income tax purposes. Assets
for are grouped into classes and for a
The amount a corporation must pay a
corporation 228. multi-step given class depreciation is computed
preferred stockholder in the event the
debts. A income by the double declining balance
company liquidates and goes out of business
stockholder statement method
s can lose
An income statement that contains
no more on
subtotals to highlight important
an
relationships between revenues and
investment
expenses

213. Liquidity Measure of how quickly an item can 229. natural assets such as oil and gas reserves,
be resources coal mines, or stand of timber
converted to cash accounted for as long term assets
when purchased or
214. lock-box A system of handling cash receipts by mail
developed, their cost is transferred to
system whereby customers remit payment directly
expense through a process called
to the bank rather than through the entity's
depletion
mail system
230. net income, net Excess of total revenues over total
215. Long- An Asset that is not a current asset earnings,net expenses,Revenues minus Expenses=net
term
profit income
asset

231.net loss Excess of total expenses over 246. parent an investor company that owns more than 50%
total
company of the voting stock of a subsidiary company
revenue
232. net profit cash flow, it
computed by the formula net income
margin
divided by net sales. this ratio 247. partnership An association of two or more persons
measures the portion of each net who co-own a business for profit
sales dollar generated in net profit
233. net working 248. par value arbitrary amount assigned by a company
capital A measure of liquidity; Current to a share of its stock
assets minus current liabilities
234. noncontrolling 249. Password A special set of characters that must be
minority a subsidiary company's equity that is provided by the user of computerized
interest held by stockholders other than the program or data files to prevent
parent company unauthorized access to those files
235. Non sufficient
funds check A "hot" check one for which the payers 250. patent a federal government grant giving the holder
bank account has insufficent money to the exclusive right for 20 years to produce
pay the check. NSF checks are cash and sell an invention
236. operating receipts that turn out to be worthless
251. payroll Employee compensation a major expense
Activities of many businesses
Activities that create revenue or
expenses in the entity's major line of
252. pension Employee compensation that will be
business; a section of the statement of
received during the retirement
240. operating lease also affects activities affect the net income statement
the income A budget of future net income. The operating
237. operating
Outstanding statement
activities 241. budget projects a company's future revenue and
activities that expenses. It is usually prepared by line item of
create company's income statement.
revenue or
238. Operating Time span during which cash is paid for
budget expense in
goods and services that are sold to customers
the entity's
who pay the business in cash
major line of
business; a a lease in which the lessee does not
section of the assume the risks or rewards of asset
239. Operating
statement of ownership
cycle
cash flows . A check issued by the company and
operating
253. percent of computes uncollectible account equity record for each inventory item to show the
sales method expenses as a percentage of net accounts inventory on hand at all times
sales. Also called the income that are
statement approach because it not
254. periodic focuses on the amount of expense to closed
inventory be reported on the income statement at the
system end of
an inventory system in which the
the
business does not keep a continuous
period
record of the inventory on hand.
Instead, at the end of the period, an
the business makes a physical count inventory
255. Permanent of the inventory on hand and applies system in
accounts
the appropriate unit costs to which the
determine the cost of the ending business
256. perpetual inventory keeps a
inventory contiuous
system Asset, liability, and stockholders
checks recorded on its books but not yet paid a small amount of cash that is used to pay
by its bank minor amounts
242. outstanding stock in the hands of stockholders 258. Phishing Creating bogus websites for the purpose
stock of stealing unauthorized data, such as
257. Petty Cash Fund containing
names,
243. Owners equity the claim of the owners of a business to addresses, social security number, bank
the assets of the business. Also called accounts and credit card numbers
Capital, Stockholders Equity or net
259. Plant asset Long-lived assets, such as land, buildings,
assets
and equipment used in the operation of the
244. Paid-in Capital the amount of stockholders equity that business. Also called fixed assets
stockholders have contributed to the
corporation. Also called 260. plant long lived assets such as land, buildings
contributed capital assets and equipment, used in the operation of
245. paid in capital the amount of stockholders equity that the business. Also called fixed assets or
stockholders have contributed to property and equipment
the corporation. Also called
contributed capital

261. Posting Copying amounts from the journal to 277. rate of Net income divided by average total
the
return on assets. This ratio measures a companys
ledger
success in
262. preferred stock assets using its assets to earn income for
stock that gives its owners certain
the persons who fiance the
advantages, such as the priority to
rate of business
receive dividends before the common 278.

stockholders and the priority to receive return on Net income minus preferred dividends,
asset before the common stockholders if common divided by average common stockholders
263. premium on a stockholders
the corporation liquidates equity. A measure of profitability. Also
bond equity
called return on equity. Also can be
excess of a bonds issue price over its
264. Prepaid 279. rate of computed with Dupont analysis
face (par) value
expenses return on
net income minus preferred
A category of miscellaneous assets that common
dividends,divided by average common
typically expire or get used up in the stockholders
equity stockholders equity. a measure of
near future. Examples include prepaid
profitability. Also called return on equity
rent, prepaid insurance, and supplies

265. present value the value on a given date of a future 280. rate of ratio of net income to net sales. A measure
payment or series of future return on of profitability. Also called return on sales
payments, discounted to reflect the net sales
time value of money 281. rate of net income divided by average total
266. president chief operating officer in charge of return on assets. The ratio measures a company's
managing the day to day operations of total assets success in using its assets to earn
a corporation income for the persons who finance the
business. Also called return on assets
267. pretax income before tax on the income
accounting statement 282. receivables monetary claims against a business or an
income individual, acquired mainly by selling
268. price/earnings goods or services and by lending money
ratio of the market price of a share of
ratio 283. redeemable A corporation reserves the right to buy an
common stock to the companys earnings
preferred issue of stock back from its shareholders
per share. Measures the value that the
stock with the intent to retire the stock
stock market places on one dollar of a
companys earnings 284. redemption the price a corporation agrees to eventually
value pay for its redeemable preferred stock
269.principal the amount borrowed by a debtor and
lent set, when the stock is issued
by a creditor

270. prior period 285. Remittance An optional attachment to a check

adjustment a correction to beginning balance of
Advice (sometimes a perforated tear-off
retained earnings for an error of an
document and sometimes capable of
earlier period
being electronically scanned) that
indicated the
proprietorship
271. a business with a single payer date, and purpose of the cash
owner
272. purchase a decrease in the cost of purchases payment. The remittance advice is often
allowance because the seller has granted the used as the source documents for posting
buyer a subtraction, an allowance from cash receipts or payments
the amount owed 286. Report A balance-sheet format that lists assets at
273. purchase
a decrease in the cost of purchases Format the top, followed by liabilities and
discount
earned by making an early payment to stockholders equity below
274. purchase the vendor 287. retained the amount of stockholders equity that
return earning
a decrease in the cost of purchases the corporation has earned through
because the buyer returned the goods profitable operation of the business and
to the seller has not given back to stockholders
275. quick ratio Another name for acid-test ratio
288. retained the amount of stockholders equity that
276.quick ratio another name for the acid test earnings the corporation has earned through
ratio
profitable operation and has not given
back to stockholders

289. return on asset also known as rate of return an incentive for 300. Short-term investment
on asset. measures how early payment
profitably management has before the due
301. short-term investment
used the assets that date. A typical
stockholders and creditors
have provided the company 302. short term notes payable

290. return on assets Another name for rate of 303. Single-step income statement
return on total assets

291. return on equity Another name for rate of

304. specific unit cost method
of return on common
stockholders equity
305. Stable-
292. Revenue Principle The basis for recording
monetary unit assumptions
revenues; tells
accountants when to
306. stated interest rate
record revenue and the
amount of revenue to
record

293. revenues increase in retained earnings

from delivering good or
services to customers or
clients

294. sales discount percentage reduction of

sales price by the seller as
investments that a company plans to hold for one year invento inventory
or less. Also called marketable securities ry cost
the reason for ignoring the effect of
method
investment that a company plans to hold for 1 year or inflation in the accounting records
based
less. Also called marketable securities based on the assumption that the
on the
dollar's purchasing power is relatively
note payable that are due within one year specific
stable
cost of
particul interest rate that determines the
an income statement that lists all the revenue together
ar amount of cash interest the burrower
under a heading such as revenues or Revenues and
units pays and the investor receives each
gains. Expenses appear in a separate category called
of year
Expenses or perhaps Expenses and Losses
way to express sales 307. stated value An arbitrary amount assigned to no par
discount is "2/10,n/30". this stock; similar to par value
means the
seller will grant a 2% 308. Statement of Reports cash receipts and cash
discount if the invoice is cash flow payments classified according to the
paid within 10 days and the entity's major activities ; operating,
entire amount is due within investing and financing
30 days 309. Statement of
295. sales return and Reports cash receipts and cash
allowance Merchandise returned for cash flow
payments classified according to the
credit or refunds for services entity's major activities such as
provided operating, investing, and
296. serial bond bonds that mature in financing
installments over a period 310. statement of reports cash receipts and cash
of time cash flows payments classified according to the
297. shareholders persons or other entities entity's major activities; operating,
that own stock in a investing and financing
corporation. Also called 311. statement of a statement showing all of the changes
stockholders comprehensive
in stockholders equity during a period
income
298. shareholders/stockholders A person who owns stock in a other than transactions with owners. The
corporation statement of comprehensive income
includes net income as well as other
299. Shipping terms terms provided by the seller
comprehensive income such as
of merchandise that dictate
gain/losses on available for sale
the date on which title
securities and foreign currency
transfers to the buyer. A
translation adjustments
typical way to express 312. statement of
shipping terms is through retained Summary of the changes in retained
FOB terms. earnings earnings of a corporation during a
specific period
313. statement of
Reports the changes in all categories 331. total asset a measure of efficiency in usage of total
stockholders
of stockholders equity during the turnover assets. the ratio calculates how many
equity
period times per year total assets are covered
by net

314. stock shares into which the owners equity in sales. Formula: net sales divided by
a average total asset.
corporation
332. trading on another name for leverage
315. stock shares into which the owners equity equity
of a corporation is divided
316. stock 333. trading on earning more income on burrowed
a proportional distribution by a
dividend the equity money than the related interest expense
corporation of its own stock to its
thereby
stockholders
increasing the earnings for the owners of
317.stockholders a person who own stock in a the business.Also called leverage, the
corporation
318. Stockholders the stockholders ownership interest in the assets of
equity the assets of a corporation a
319. stockholders corporation
the stockholders ownership interest in 334. trading
equity
 securities power of which is illustrated stock that are to be sold in the near future
through the leverage ratio invest with the intent of generating profits on
ments the sale
320. stock split an increase in the number of authorized
issued and outstanding share of stock 335. Transaction Any event that has a financial impact on the
coupled with a proportionate reduction business and can be measured reliably
in the stocks par value 336. Treasurer the individual in charge of the department
321. straight line that has final responsibility for cash
depreciation method in which an equal
method handling and cash management.the
amount of depreciation expense is
assigned to each year of asset use treasurer's department include cash
322. strong budgeting, cash collections, writing checks,
a currency whose exchange rate is
currency investing excess funds and making
rising relative to other nations
proposals for raising additional cash
curriencies
323. subsidiary an investee company in which a parent needed
company owns more than 50% of the
337. treasury a corporations own stock that it has
voting stock stock issued and later reacquired
324. taxable the basis for computing the amount of tax
to 338. trend a form of horizontal analysis that
income
indicated percentage the direction a business is taking
pay the government
325. Temporary
339. Trial Balance A list of all the ledger accounts with their
Accounts The revenue and expense accounts that
balances
relate to a limited period and are closed
at the end of the period are temporary 340. Trojan Horse A malicious program that hides within
accounts. For a corporation, the legitimate programs and acts like
dividends account is also temporary a computer virus
term
326. the length of time for inception to
maturity 341. uncollectible- cost to the seller of extending credit.
327.term bonds bonds that all mature at the same time account expense Arises from the failure to collect from
for a credit customers. Also called doubtful-
particular issue account
328. Time-period Ensures that accounting information expense or bad debt expense
concept is
reported at regular intervals
342. underwriter organization that purchases the bonds from
329. times ratio of income from operations to interest an issuing company and resells them to
interest expense. Measures the number of times its clients or sells the bonds for a
earned ratio that operating income can cover interest commission, agreeing to buy all unsold
expense. bonds
Also called the interest coverage ratio
343. Unearned A liability created when a business collects
330. times ratio of income from operations to interest revenue cash from customers in advance of
interest expense. measures the number of times earning the revenue. The obligation is to
earned ratio that operating income can cover interest provide a product or a service in the
expense. future.
Also called the interest coverage ratio
344. unit depreciation method by which a fixed
production amount of depreciation is assigned to
method each unit of output produced by the
plant asset
345. unqualified
An audit opinion stating that the financial statement are reliable
(clean) opinion
346. vertical analysis analysis of a financial statement that reveals the relationship of each statement item to a specified base
which is 100% figure

347. weak currency a currency whose exchange rate is falling relative to that of other nations
348. weighted average
cost of capital The combined rate of return expected for a company by its creditors and investors. in general, the higher
the risk associated with the company the greater the expected returns by creditors and investors
349. weighted average
cost of capital a weighted average returns demanded by the company's stockholders and lenders. often referred to as the
weighted average cost of capital
350. weighted average
method another name for the average cost method
351. working capital current assets minus current liabilities measures a bussiness's ability to meet its short term obligations
with its current assets. Also called net working capital
 Finacc1 Learning Packet W1-W3
Study online at quizlet.com/_8ri4gx

1. Account An individual accounting record of

17. Accrued Revenues Revenues that have already
increases and decreases in a specific
been earned by passage of time
asset, liability, owner's equity, revenue or
but are not yet recorded nor
expense item
cash has been received for the
2. Account the most basic summary device in amount of the revenue earned.
accounting where increases, decreases and
18. Asset a resource controlled by the
balance of each element that appears in an
entity as a result of past
entity's financial statements are detailed.
events and from which future
3. Accounting Is a process of identifying, measuring and economic benefits are
communicating economic information expected to flow to the entity.
4. Accounting Is an art of recording, classifying and 19. Asset Cost The acquisition cost relating
summarizing in a significant manner to the long-lived asset item
5.Accounting Is a systematic process. "process" is a
series
of actions that produce something or 20. Asset DEBIT
that lead to a particular result Drawings
6.Accounting Is an art. The word "art" refers to the Expenses
design of
how something can be performed 21. ASSET METHOD Initial Recognition:
7. Accounting Is an information system. Prepayments are recorded
as ASSETS
8.Accounting is a service activity. It provides Adjustment Analysis:
quantitative
Calculate for the
information, primarily financial in nature
EXPIRED
portion of the prepayment
9. Accounts Amounts due to 3rd parties for purchase
Adjusting Journal Entry:
Payable on credit.
Record an EXPENSE
10. Accounts Amounts due from customers arising
Receivable 22. Assets = Liabilities + THE FUNDAMENTAL
from credit sales or credit services. Owner's Equity ACCOUNTING EQUATION
11. Account
a. Accounts affected in the transaction Assets = Liabilities +
Titles and 23. This equation may be
b. Brief narrative on the transaction Owner's Equity - Drawings
Explanations expanded to show the changes
(or Particulars) + Revenues - Expenses that may happen to the equity
portion of the equation:
24. Asset Salvage Value The estimated value of the long-
12. Accrual Basis - Recognizes revenue when earned
lived asset item at the end of
(revenue recognition principle)
its life determined by the
- Recognizes expense when incurred
(expense entity.
recognition principle) 25. Bad Debts/Doubtful Are losses (lost revenues) to
Accounts/ Uncollectible be incurred by the entity due
13. Accrual basis it requires that all business transactions and
Accounts to uncollectible accounts.
other events are recognized in the
accounting records when they occur, rather 26. BASIC ELEMENTS OF 1. Balance Sheet
than when the cash is received or paid. FINANCIAL and Real Accounts
REPORTS/INFORMATI
14. ACCRUALS Without an adjustment, the revenue account 2. Income
ON
(and the related asset account) or the Statement and Nominal
expense Accounts
account (and the related liability account) 27. Building Physical structure on land used
are understated.` in business.

15. Accruals - Accrued revenues 28. Calendar year meaning 12 months that starts
- Accrued expenses on January 1 and ends on
December 31
16. Accrued Payables for expenses already
incurred/used Cash Basis - Recognizes revenue when
Expenses 29.
but not yet paid for. cash is received from
(Expenses
Payable) customer.
- Recognizes expense when
 cash 30.
is paid
Cash in Bank Cash deposited in
biller. savings/checking
accounts.
31. Cash on
Cash that is intended to be deposited with 45. THE This a method of recording the business
Hand
the bank, DOUBLE transactions in terms of the "dual effect" on
32. Closing - ENTRY the accounting elements. Under this system, a
Formally recognize the transfer of net
Entries SYSTEM debit side entry must have a corresponding
income (or net loss) and owner's drawings
credit side entry.
to owner's capital. They also produce a zero
46. Entity
balance in each temporary account a concept which regards the business
33. Compound Concept
enterprise as separate and distinct from
Entry Entries involving more than two
its owners and from other business
accounts entered in the transaction.
enterprises.
34. Consistency 47. Equipment used in business operations
a principle which requires the entity to use
Principle
uniform accounting 48. Equity the residual interest in the assets of the entity
approaches/method/policies from period to after deducting all its liabilities.
period to allow comparability of 49. Estimated The expected term in which the long-
financial reports over time within a Useful Life lived asset item is expected to be of use
single entity.
35. Cost of to the company
The direct cost of the products sold or
the
Sales or services 50. Expense Adjustment Analysis
Services rendered. Calculate for the INCURRED portion of the
36. Credit Increases in Liabilities Increases in expense.
Equity Increases in Revenue Adjusting Journal Entry
Decreases in Assets Record a EXPENSE and matched against
Decreases in Drawings a PAYABLE.
Decreases in Expenses
51. Expense Initial Recognition:
37. Date the transaction has transpired or happened) Method Prepayments are recorded as EXPENSES
38. Debit Increases in Assets Adjustment Analysis:
Increases in Calculate for the UNEXPIRED portion of
Drawings Increases the prepayment
in Expenses Adjusting Journal Entry:
Decreases in Record an ASSET (Prepaid Account)
Liabilities Decreases 52. Expense
Expenses should also be recognized at the
in Equity Decreases Recognition
time they are incurred and not at the time
Principle
in Revenue when the entity paid.
39. DEFERRALS Are costs or revenues that are recognized at
a date later than the point when cash was
originally 53. Expenses decreases in economic benefits during the
exchanged. accounting period in the form of outflows
40. Deferrals - Prepaid expenses or depletions of assets or incurrences of
- Unearned revenues liabilities that result in decreases in equity,
41. Depreciable The value of the asset to be depreciated other than those relating to distributions
Amount calculated with the formula: Asset Cost to equity participants.
- Asset Salvage Value
54. THE The key product or the end product of the
42. Depreciation Depreciable Amount ÷ Estimated Useful FINANCIAL accounting process is a set of documents
Expense Life (in years or months) STATEMEN
TS
43. Depreciation The allocation of long-lived asset cost over 55. Fiscal Year meaning 12 months that starts on any month
Expense its estimated useful life. This is the of the year other than January and
expense allotted for the wear and tear of ends 12 months after the starting
property, plant, and equipment due to month.
passage of time.

44. Depreciation 56. Full Concepts

Expense That portion of the cost of buildings Disclosure
and equipment allocated to one Principle
accounting period
57. Fundamental
requires that circumstances and events that To tand the manner in which data are
companies
disclose all would make a difference to better presented
financial statement users unders
58. Fundamental
In the practice of accounting, principles 73. Land Real property owned and in use in
Principles
provide specific guidance on how the operation of business.
transactions are to be identified,
74. Ledger The entire group of accounts maintained by a
analyzed and recognized in carrying
company. This is also called the book of
out the accounting service.
final entry.
59. general journal The simplest journal
75. Left Side Debit Side
entry
60. General Contains all the major assets,
Ledger
76. Liabilities Credit
liabilities, owner's equity, revenue and Equity
expenses accounts. Revenue
Going Concern
61. a concept which assumes that the 77. Liability a present obligation of the entity arising from
business past events, the settlement of which is
enterprise will continue to operate for expected to result in an outflow from
an unforeseeable future. the
62. Identifying and 1st step in accounting cycle entity of resources embodying
analyzing the economic benefits.
events to be
recorded
78. Initial Recognition:
LIABILIT Deferred revenues are recorded as
63. Income Y
the income statement shows the result of LIABILITIES
Statement or METHOD
operations for a given period. It consists Adjustment Analysis:
Statements of
of the revenue, cost, and expenses. Calculate for the EARNED portion of the
Comprehensive
prepayment
Income
Adjusting Journal Entry:
64. Income Record a REVENUE
Summary Summary account used to close
the income and expense accounts All efforts (expenses) incurred by the
65. Information
79. Matching company are matched with the results
system A set of interrelated components that
Principle (revenues). Thus, expenses follow revenues.
work together to achieve common
purpose.
66. Insurance 80. Materiality a principle which recognizes that financial
Expired portion of the insurance
Expense reporting is only be concerned with
availed.
67. Interest
information that is significant enough
Expense for a particular user to affect its
Interest on debts or monetary
decision
obligations
81. Measurement the historical cost principle or the fair value
68. Journal The book of original entry where Principle principle. Selection of which principle
companies initially record transactions to follow generally relates to trade-offs
in chronological order. For each between relevance and faithful
transaction the journal shows the debit representation.
and credit effects on specific accounts
82. Mortgage Loans payable secured by the entity's
69. Journalizing Entering transaction data in the journal. Payable
real estate property,
In
83. Notes
journalizing transactions, the double-entry Amounts due to 3rd parties supported
Payable
system is used. by promissory note.
70. Journalizing 7th Step in accounting cycle
and posting of
84. Notes Amounts due from others supported
Receivable by promissory note.
adjusting
journal entries 85. Objectivity a principle which states that all business
Principle transactions that will be entered in the
71. Journalizing and 8th Step in accounting cycle
posting of closing accounting records must be duly
journal entries supported by verifiable evidence.
86. Owner's
72. Journalizing Value of cash and other assets contributed
Capital
and posting of to the business by the owner of the
10th Step in accounting
reversing business.
cycle
journal entries This account is increased by the profits
not taken of the business and decrea sed by the losses of the business.
87. Owner's
Value of assets withdrawn by the owner 100. Profit or ________ is obtained when the amounts
Drawing
from the business. income received from customers are higher than
88. Periodicity the cost of goods or services incurred
the concept behind providing financial
concept 101. THE
accounting information about the economic 1. Anal
activities of an enterprise for specified RECORDING yze
PROCESS
time periods. Transactions
89. Permanent
2. Enter Transaction in a
or Real Relate to one or more future accounting
Journal (Journalizing)
accounts periods. They include all financial
3. Transfer journal information to
position accounts and owner's capital
102. Recording ledger (Posting)
accounts. All permanent accounts are transactions in
NOT closed from period to period. The the journal 2nd Step in accounting cycle
90. Petty Cash balance is carried forward to the next (journalizing)
Fund accounting period
103. Rent
Cash that is to be used for petty/small Expense
payments that cannot be conveniently Rental for the use of equipment, office,
made with checks. building, and land spaces owned by
others.
91. Posting The transfer of journal entries to
104. REVENUE Adjustment Analysis
the
Calculate for the EARNED portion of the
respective ledger accounts
92. Posting revenue.
journal 3rd Step in accounting cycle
Adjusting Journal Entry
entries to
Record a REVENUE and matched against
the ledger
a RECEIVABLE.
(posting)
105. Revenue increases in economic benefits during the
93. Posting
accounting period in the form of inflows
Reference is left blank when the journal entry is
or P.R. (or or enhancements of assets or decreases
made, which is used later when the
Account of liabilities that result in increases in
entries are transferred to the ledger
Code) equity, other than those relating to
accounts.
contributions from equity participants.

94. Prepaid 106. Revenue Initial Recognition:

Expenses that are paid in advance
Expenses Method Deferred revenues are recorded as REVENUE
currently held by the company as evidence
Adjustment Analysis:
of a future service to be provided by a
95. Prepaid Calculate for the UNEARNED portion of the
third party.
expenses/ prepayment
prepayments Expenses are already paid in advance but Adjusting Journal Entry:
are not yet incurred or used. Record a LIABILITY (Unearned Revenue)
96. Preparing the
Financial 107. Revenue
Revenue should be recognized at the time
Statements 6th Step in accounting cycle Recognition
it is earned (when goods are delivered or
Principle
97. Preparing when services have been rendered).
108.
the post-
REVERSIN a journal entry that is just the opposite of
closing trial 9th Step in accounting cycle G ENTRIES the adjusting entry made at the end of the
balance
preceding accounting period. It simply
98. Preparing the reversed the adjusting journal entry of the
Trial Balance previous period at the beginning of the
99. Preparing 4th Step in accounting cycle next period
the 109.
an optional step to simplify the
REVERSIN
G ENTRIES accounting process made at the
5th Step in accounting cycle beginning of the next accounting period.
worksheet 110. Right side Credit Side
and adjusting
entries 111. Salaries Salaries for services rendered
Expense by employees.
112. Sales/Service Revenues or gross income from sale of
Income company products and services.
113. - Simple Entry Entries involving only two accounts, one debit and one credit.
114. Statement of Cash Flows summarizes the cash receipts and cash disbursements for the accounting period.
115. Statement of Changes in Owner's
equity or Statement of Owner's shows the changes in the capital or owner's equity as a result of additional investment or
Equity withdrawals by the owner, plus or minus the net income or net loss for the year.

116. Statement of Financial Position or

Balance Sheet it shows the financial condition/position of a business as of a given period consisting of the
assets, liabilities, and capital.

117. Subsidiary Ledger Contains the groupings provided by the company to further classify each major account (i.e.,
may be according to operations, customer listing, etc.)
118. Supplies Items recognized by the company which are consumable over a period of time.

119. Supplies Expense Supplies used

120. T-Account the simplest form of an account. It was called by its name because of its form which
resembles the letter "T".

121. Temporary or Nominal Accounts Relate only to a given accounting period. They include all income statement accounts and
the
owner's drawing account. All temporary accounts are closed - bring to zero, at the end of the
accounting period.

122. Transplacement or Slide type of error where a decimal point has been moved or misplaced e.g., account balance of
2000 was written as 20.
123. Transposition type of error where the order of numbers entered in the journal entries were reversed e.g., if
an
account balance should have been 12 but was listed as 21.
124. Trial Balance A list of accounts and their balances at a given time.

125. Unearned Income Income received in cash now but to be provided or serviced in the future.
126. Unearned or deferred Revenue Cash has already been received from customers but income has not yet been earned.

127. Utilities Expense Expenses for electricity, water, and telecommunications.

 Financial Accounting Multiple Choice Questions: Chapter 1-3
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1. The duality of effect can be described as follows A

7. When expenses exceed revenues in a given period, C
A. When a transaction is recorded in the accounting
A. Stockholders equity will not be impacted
system at least two effects on the basic accounting
B. Stockholders equity will be increased
equation will result
C. Stockholders equity will be decreased
B. When an exchange takes place between two parties, both
D. One cannot determine the impact on stockholders equity
parties must record the transaction
without information about the specific revenue
C. When a transaction is recorded both the balance sheet
and the income statement must be impacted 8. When should a company report the cost an insurance C
D. When a transaction is recorded, one account will always policy as an expense?
increase and on account will always decrease A. When the company first signs the policy
B. When the company pays for the policy
2. The expense recognition principle ("matching") controls D
C. When the company receives the benefits form the policy
A. Where on the income statement expenses should be
over its period of coverage
presented
D. When the company receives payments from the
B. When revenues are recognized on the income
insurance company for its insurance
statement
C. The ordering of current assets and current liabilities 9. When should companies that sell gift cards to
D. When costs are recognized as expenses on the
income statement B customers report revenue?
3. If a company incorrectly records a payment as an A A. When the gift card is issued and cash is received
asset, rather than as an expense, how will this error B. When the gift card is used by the customer
affect net income in the current period? C. At the end of the year in which the gift card is issued
A. Net income will be too high D. None of the above
B. Net income will be too low 10. Which account is least likely to be debited when A
C. Net income will not be affected by this error revenue is recorded?
D. Its a mystery; nobody really knows A. Account Payable
4. If a publicly traded company is trying to maximize its B. Accounts receivable
C. Cash
D. Unearned
B perceived value to decision makers external to the corporation,
the company is most likely to report too 11. Which of the following accounts normally has a debit
small a value for which of the following on it balance
sheet? B balance?
A. Assets A. Unearned Revenue
B. Liabilities B. Retained Earnings
C. Retained earnings C. Rent expense
D. Contributed Capital D. Sales Revenue
5. The T-account is used to summarize which of the 12. Which of the following describes how assets are listed C
on the balance sheet?
D following? A. In alphabetical order
A. Increases and decrease to a single account in the B. In order of magnitude, lowest value to highest value
accounting system C. In the order they will be used up or turned in cash
B. Debits and credits to a single account in the D.From least current to most current
accounting system
C. Changes in specific account balance over a time
period
D. All of the above describe how T-accounts are used by
accountants
6. Total assets on a balance sheet prepared on any date

D must agree with which of the following?

A. The sum of total liabilities and net income as shown on
the income statement
B. The sum of total liabilities and contributed capital
C. The sum of total liabilities and contributed capital
D. The sum of total liabilities and contributed capital and
retained earnings
13. Which of the following is false regarding the balance C A. The accounts shown on a balance sheet represent the basic
sheet? accounting equation for a particular business.
 B. The retained earning balance shown on the balance sheet
18. Which of the following is the entry to be recorded by C
must agree with the ending retained earning balance shown
law firm when it receives a payment from a new client
on the statement of retained earnings.
that will be earned when service are provided in the
future?
C. The balance sheet summarizes the net changes in
A. Debit accounts receivable; credit legal services
specific account balances over a period of time.
revenue
B. Debit unearned revenue; credit legal service
D. The balance sheet reports the amount of assets,
revenue
liabilities, and stockholders equity of a business at a point
C. Debit cash; credit unearned revenue
in time.
D. Debut unearned revenue; credit cash
14. Which of the following is not an asset? D
19. Which of the following is true? D
A. Cash
A. FASB creates SEC
B. Land
B. GAAP creates FASB
C. Equipment
C.SEC creates CPA
D.Contributed Capital
D. FASB creates GAAP
15. Which of the following is not one of the four basis
20. Which of the following is true regarding the income A
statement?
B financial statements?
A. The balance Sheet A. The income statement is sometimes called the
B. The audit Report statement of operations
C. The income statement
D. The statement of cash flows B. The income statement reports revenue, expenses, and
16. Which of the following is not one of the items required A liabilities
to be shown in the heading of a financial statement?
A. The Financial statement prepares name C. The income statement only reports revenue for which
B. The title of the financial report cash was received at the point of sale
C. The financial reporting date or period
D. The name of the business entity D. The income statement reports the financial position of a
business at a particular point in time.
17. Which of the following is not required by the Sarbanes-
21. Which of the following items is not specific account in

D Oxley Act?
B a company's accounting record?
A. Top managers of public companies must sign a A. Accounts Receivable
report certifying their responsibility for the financial B. Net Income
statements C. Sales Revenue
B. Public companies must maintain an audited system of D. Unearned Income
internal control to ensure accuracy in accounting reports 22. Which of the following regarding GAAP is true? C
C. Public companies must maintain an independent A. GAAP is an abbreviation for generally applied
auditors accounting principles
D. Top managers of public companies must be members of B. Changes in GAAP always affect the amount of
the American Institute of Certified Public Accountants. income reported by a company
C. GAAP is the abbreviation for generally accepted
accounting principles
D. Changes to GAAP must be approved by the Senate
Finance Committee
23. Which of the following regarding retained earnings is C
false?

A. Retained earnings is increased by net income

B. Retained earnings is a component of stockholders'
equity on the balance sheet
C. Retained earnings is an asset on the balance sheet
D. Retained earnings represents earning not
distributed to stockholders in the form of dividends
24. Which of the following statements describe transactions that would be recorded in the accounting system? A
A. An exchange of an asset for a promise to pay
B. An exchange of an promise for another promise to pay
C. Both of the above
D. None of the above
25. Which of the following statements regarding the statement of cash flows is false? C
A. The statement of cash flow separates cash inflow and outflows into three major categories: operating, investing and financing
B. The ending cash balance shown on the statement of cash flows must agree with the amount shown on the balance sheet at the end of
the same period
C. The total increase or decrease in cash shown on the statement of cash flows must agree with the bottom line (net income or net
loss) reported on the income statement
D. The statement of cash flows covers a period of time
26. Which of the following statements would be considered true regarding debits and credits? D
A. In any given transaction, the total dollar amount of the debit and the total dollar amount of the credit must be equal
B. Debits decrease certain accounts and credits decrease certain accounts
C. Liabilities and stockholders equity accounts usually end in credit balances while assets usually end in debit balances
D. All of the above
27. Which of the following statements would be considered true regarding the balance sheet? D
A. One cannot determine the true current value of a company be reviewing just its balance sheet
B. The balance sheet reports assets only if they have been acquired through identifiable transactions
C. A balance sheet shows only the ending balances in a summarized system as of a particular date
D. All of the above
28. Which of the following would not be a goal or external users reading a company's financial statements? B
A. Understanding the current financial state of the company
B. Assessing the company's contribution to social and environmental polices
C. Predicting the company's future financial performance
D. Evaluating the company's ability to generate cash from sales
 Financial Accounting and Reporting
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1. Accounting The art of recording, classifying,

18.Conservatism Avoids overstating assets or income in
summarizing and interpreting transactions Principle the preparation of financial statements
and events which are in part at least of Assets = Liabilities + Owner's Equity
a financial characyer to provide users 19. Consistency Use of the same accounting principles and
with quantitative information that is methods from year to year within
intended to be useful in making a company
Accounting economic decisions
2. 20. Cost Constraint Benefit should exceed the cost incurred

Equation 21. Cost Constraint Accounting standard-setters weigh the

Principle cost that companies will incur to provide
3. Accounting Creates a common understanding
Standards the information against the benefit that
between preparers and users of Financial
financial statement users will gain from
Statements particularly on how items are
having the information available.
treated under accounting

4. Annual 22. Current Cost current purchase price

Principal way of providing
financial
Financial information to external 23. Enhancing Intended to increase the usefulness of
Statements users Qualitative the financial information
Characteristics
5. Annually Financial Accounting
24. Enhancing Comparability, verifiability, timeliness,
6. Any time Managerial Accounting Qualitative and understandability
7. Asset A resource with economic value that an Characteristics
individual, corporation or country owns Expanded
25. Assets = Liabilities + Owner's Capital -
or controls with the expectation that it Accounting Owner's Drawings + Revenues - Expenses
will provide future benefit. Equation
8. Asset Probable future flow of future
26. Expense A decrease in owner's equity resulting from
Recognition economic benefit to the entity
the operation of a business
Measurable with reliability
27. Expense Match expenses with revenues in the
9.Calendar Year Accounting period that begins on Recognition period when the company makes efforts
January 1
Principle to generate those revenues
and ends on December 31.
10. Chart of A list of all accounts used by a
28. External Users Financial Accounting
Accounts business
29. External Users investors, creditors, customers,
11. Classifying Sorting or grouping of similar and of Accounting government
interrelated economic transactions into Information
their respective class
30. Faithful The numbers and descriptions match
Aka: Posting
Representation what really existed or happened
12. Communicating Preparing and distributing accounting
31. Faithful
reports to potential users of Information that is complete, neutral,
Representation
accounting information and free from error
32. Financial
13. Comparability Ability to compare the accounting the branch of accounting that
Accounting
information of different companies prepares financial statements for use
because they use the same accounting by owners, creditors, suppliers, and
principles. other external stakeholders
33. Financial
14. Completeness All the information that is necessary for Reporting Provision of financial information about
faithful representation is provided an entity to external users that is useful
to
15.Conceptual Summary of the terms and concepts that
them in making economic decisions
Framework underlie the preparation and presentation
of Financial Statements 34. Fiscal Year A fiscal period consisting of 12 consecutive
months.
16. Conceptual Not a PFRS and hence does not define
Framework standards for any particular measurement 35. free from error View that information that is accurate will
17. Confirmatory be more representationally faithful.
Helps users confirm or correct prior
Value
 expec 36. Qualitative Relevance and Faithful representation
tation Fundamen Characteristics
s tal
37. GAAP Generally Accepted Accounting Principles 52. Manufacturing A type of business that changes basic inputs
38. Going Business into products that are sold to
The assumption that the company will
Concern individual customers.
Assumption continue in operation for the
foreseeable future. 53. Matching Requires matching expenses incurred in
39. Government Principle an accounting period with the revenue
Accounting encompasses the processes of
earned in the same period
analyzing, recording, classifying,
summarizing and
communicating all transactions involving the 54. Materiality The maximum amount by which the auditor
receipt and disposition of government believes the financial statements could
funds and property and interpreting the be misstated and still not affect the
results thereof decisions of users.
40. Historical acquisition cost 55. Measuring Determining the monetary amounts at which
Cost the elements of financial statements are to
be recognized
41. Identifying recognition or non-recognition of
"accountable" events or transactions 56. Merchandising Buys finished products and resells them
Business to individuals or other businesses
42. Income Increase in economic benefit during the
accounting period in the form of an inflow 57. Monetary Unit Principle that assumes transactions
or an increase in asset or decrease in Assumption and events can be expressed in
liability money units.
43. Income
-Cash-method taxpayers recognize income 58. Net Income Revenues - Expenses
Recognition
when it is received.
59. Net Loss When expenses are greater than income
-Income is realized regardless of whether
payments are received in money, property, 60. Neutrality The information contained in a Financial
or services. Statement must be free from bias
-Income is taxed in the period in which a 61. Owner's The amount remaining after the value of
cash-method taxpayer has a right to Equity all liabilities is subtracted from the value
receive payment without substantial of all assets
restrictions. Predictive
44. Internal 62.
Helps provide accurate expectations
Users Managerial Accounting Value about the future
45. Internal marketing managers, production supervisors, 63. Present Value discounted value or future exchange price
Users of finance directors, and company officers
Accounting 64. Principle of Dictates that financial statements and
Full Disclosure related notes are sufficient to allow
46. Interpreting ratios
financial statement users a legitimate
47. "LAWS" GAAP basis for making informed judgments
about the company.
48. Liability Present obligations of the entity arising
from past transactions or events the 65. Private The field of accounting whereby
settlement of which is expected to result in Accounting
accountants are employed by a
an outflow from the entity of resources business firm or a not-for-profit
embodying economic organization.
benefits 66. Prudence The desire to exercise care and caution
49. Liability Probable sacrifice of future economic when dealing with the uncertainties in
Recognition benefit to the entity as a result of past the measurement process
transactions/events 67. Public The field of accounting where
Amounts received but not reported as Accounting accountants and their staff provide
revenue in the income statement services on a fee basis. "independent"
Amounts reported as expenses but which 68. Qualitative The qualities or attributes that make
have not been paid Characteristics financial accounting information useful to
50. Luca Pacioli, -Father of Accounting and "bookkeeping" the users
1494 -Italian 69. Realizable
current selling price
Managerial Value
51. accounting used to provide information
Accounting and analyses to managers inside the
organization
to assist them in decision 70. Recognition Process of reporting an asset, liability,
making income or expense on the face of
the financial statements of an
entity
71. Recording Systematically maintaining a record of all economic business
transactions. Aka: Journalizing

72. Relevance The capacity of information to make a difference in a decision made by users

73. Revenue An increase in owner's equity resulting from the operation of a business
74. Service Business A business that carries out activities that are consumed by its customers
75. Substance Over
Form Transactions should be accounted for in accordance with their economic substance and reality and not
merely their legal form

76. Summarizing Includes preparation of whole set of Financial Statement

Aka: FS Preparation
77. Timeliness Having information available to decision-makers before it loses its capacity to influence decisions
78. Time Period
Assumption Presumes that the life of a company can be divided into time periods, such as months and years.

79. Understandability Requires that financial information must be comprehensible

80. Understandability Assumes that a user has a reasonable knowledge of accounting

81. Verifiability Implies consensus among different measurers