Accounting 201 Exam 1 - University of Nebraska - Lincoln

What is the objective of financial accounting

used to provide information to potential investors and creditors to allow them to make decisions about if they should invest in a business

liabilities

amounts owed to creditors

stockholders equity

owners claim to resources (assets)

dividends

a percentage of a company's earnings that is owed to its shareholders as a share of its profits. NOT an expense

revenues

are the amounts a company is entitled to receive from its customers for the products sold and services provided during a certain period

expenses

are the costs of providing a products and services and other business activities incurred during a certain period

financing activities

transactions the company has with investors and creditors

investing activities

transactions involving the purchasing sale of resources that are expected to benefit the comment for several years

operating activities

transactions that relate to the primary operations of the company

assets

total resources of the company

what are the four primary financial statements

income statement

balance sheet

statement of cash flows

statement of stockholders equity

income statement

shows the company's revenues and expenses and their difference referred to as net income or net loss

balance sheet

displays the state of a company's assets, liabilities, ad stockholders equity at a particular date while following the basic accounting equation

statement of cash flows

displays changes in cash during a certain time period that are a result of operating, investing and financing activities

statement of stockholders equity

displays the state of items contained in the balance sheet under stockholders equity which are common stock and retained earnings

point in time

balance sheet displays the current state (value) of assets, liabilities, and stockholders equity at a certain date

interval of time

income statement, statement of stockholders equity, measurement of cash flows, display changes of values they present over an interval of time

accounting equation

Assets = Liabilities + Stockholders' Equity

GAAP

Generally Accepted Accounting Principles

- set of accounting rules raised by FASB and GASB

role of the auditor in the financial reporting process

express an independent opinion about the company's financial statements whether or not the statements are fairly prepared in accordances to GAAP

10k form and disclosure notes

the form that is used by a company to file an annual report with the SEC - DN are also included

quarterly

how often are public companies required to file financial statements with SEC

current report

filed on an 8-K to report major events on a timely basis

current asset

asset that can or will be converted into cash within a year

concurrent assets

used for more than a year, not cash

accounts receivable

money that customers owe to the business for gods or services that have bee provided but not yet paid for

inventory

goods and materials that the business holds for the purpose of selling to customers

prepaid expenses

payments the business has made in advance for services or goods it will receive in the future

PPE

long term physical assets like buildings or machinery

intangible assets

non physical assets but have value like a patent or trademark

historical cost

focuses on the past, what was originally paid

fair value

looks at the present (current market value)

net realizable value

estimates what the business expects to collect, less costs

present value

projects future cash flows, adjusted for time and risk

current liabilities

short term debts due within a year

noncurrent liabilities

long term debts due after a year

accounts payable

money the company owes to the suppliers for goods or services it has received but not yet paid for

deferred revenue

money a company has received in advance for goods or services has not yet provided

accused liabilities

expenses the have been incurred by the company but not yet paid

notes

a written promise to pay a certain about of money at a future date

bonds

leases payable

the amount a company owes for the use of an asset under a lease agreement (renting office space)

Contributed Capital

money invested by shareholders in exchange for ownership (stock)

retained earnings

is money the company has earned from its business operations and kept to reinvest rather than paying it out as dividends

two limitations of the balance sheet

- the difference between a company's book value and its market value

- the potential misuse of estimates and judgments

revenues

amount of resources resulting from providing goods or services to customers

gains

increases in economic benefits that result from activities outside the companies regular business operations

expenses

the costs of operating a business

losses

decreases in equity from activities outside of the company's regular business operations

COGS (cost of goods sold)

the accumulated total of all costs used to create a product or service, which has been sold

single-step income statement

groups all revenues and expenses together, with a single calculation for net income

Multi-Step Income Statement

breaks down revenues and expenses into categories, giving more detailed insight into the companies performance

limitations of the income statement

- inclusion of recurring and nonrecurring items

- inclusion of operating and non-operating items

- potential misuse of estimates and judgments

asset is what

debit

liabilities are what

credit

stockholders equity are what

credit

revenues are what

credit

expenses are what

debit

when would be credit an asset

when you decrease the value

when would be debit a liability

when you decrease the liability

T-account

tools in accounting that provide a straightforward was to visualize account transactions and balances

Accural Basis Accounting

reporting income when it is earned and expenses when they are incurred

contra asset

An account with a credit balance that is deducted from the related asset account on the balance sheet.

why do companies need to prepare closing entries

helps companies reset temporary accounts

Liquidity

the ease with which an asset can be converted into cash

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