Accounting 1 Final Exam - Black

Accounting

An information system that provides reports to stakeholders about the economic activities and condition of a business.

Income Statement

A summary of the revenue and expenses for a specific period of time, such as a month or a year.

Balance Sheet

A list of the assets, liabilities, and stockholders’ equity as of a specific date, usually at the close of the last day of a month or a year.

Statement of Stockholder’s Equity

A summary of the changes in the stockholders' equity in a corporation that have occurred during a specific period of time, such as a month or a year.

Debits and Credits

Amount entered on the left or right side of an account.

GAAP

Generally accepted guidelines for the preparation of financial statements.

FASB

The authoritative body that has the primary responsibility for developing accounting principles.

IFRS

\*International Financial Reporting Standards

IASB

An organization that issues International Financial Reporting Standards for many countries outside the United States.

Matching Concept

A concept of accounting in which expenses are matched with the revenue generated during a period by those expenses.

Revenue Recognition

A concept of accounting that states that revenues are recorded when earned, which is when the services have been performed or products have been delivered to customers.

Concept

Net Income (loss)

The amount by which revenues exceed expenses.

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The amount by which expenses exceed revenues.

Accounting Equation

Assets=Liabilities+Owner’s Equity.

Assets

The resources owned by a business.

Liabilities

The rights of creditors that represent debts of the business.

Expenses

Amounts used to generate revenue; assets used up or services consumed in the process of generating revenues.

Revenues

Increases in owner’s equity as a result of providing services or selling goods to customers.

Capital/Equity

The rights of the owners of a business.

Unearned Revenue

\n The liability created by receiving revenue in advance.

Prepaid Expenses

Assets created by making advanced payments for expense items, such as insurance premiums or supplies, that will be used in the business in the future.

\*Accrued Expenses

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Amounts used to generate revenue; assets used up or services consumed in the process of generating revenues.

T-Account

The simplest form of an account, which consists of an account title, a debit side, and a credit side.

Journal Entries

The record of a transaction entered in a journal, made up of at least one debit and one credit.

Normal Balances

Accrual Basis Accounting

A basis of accounting under which revenues and expenses are reported on the income statement in the period in which they are earned or incurred.

Trial Balances

A summary listing of the titles and balances of accounts in the ledger, which is used to verify that debits equal credits.

Adjusting Entries

The journal entries that bring the accounts up to date at the end of the accounting period.

Contra Account

An account offset against another account.

Current Assets

Cash and other assets that are expected to be converted to cash or sold or used up, usually within one year or less, through the normal operations of the business.

Current Liabilities

Liabilities that will be due within a short time (usually one year or less) and that are to be paid out of current assets.

Fiscal Year

The annual accounting period adopted by a business.

Fixed Assets

Long-term or relatively permanent tangible assets such as equipment, machinery, buildings, and land.

Gross Profit

Sales minus the cost of goods sold.

Multi-step Income Statement

A form of income statement that contains several sections, subsections, and subtotals.

Cost of Merchandise Sold

The cost of merchandise sold recognized as an expense; the cost of finished goods available for sale minus the ending finished goods inventory.

Internal controls

The policies and procedures used to safeguard assets, ensure accurate business information, and ensure compliance with laws and regulations.

Sarbanes-Oxley

An act passed by Congress to restore public confidence and trust in the financial statements of companies.

Credit Terms

Terms for payment on account by the buyer to the seller.

Merchandise Inventory

Physical - A detailed listing of merchandise on hand.

Perpetual inventory

The inventory system in which each purchase and sale of merchandise is recorded in the inventory account and related subsidiary ledger; therefore, the inventory records are updated continuously.

Periodic Inventory

An inventory system in which the inventory records are updated only after a physical count has been taken at periodic intervals, usually at the end of an accounting period.

Net Sales

A method of recording a sales invoice at the amount net of any discounts for early payment.

FOB Shipping

Freight terms in which the buyer pays the transportation costs from the shipping point to the final destination.

FOB point/destination

Freight terms in which the seller pays the transportation costs from the shipping point to the final destination.

FIFO, LIFO

First in First out

Last in First out

Cost of Goods Sold

The cost of merchandise sold recognized as an expense; the cost of finished goods available for sale minus the ending finished goods inventory.

Bank Statement

A summary of all checking account transactions mailed to the depositor or made available online by the bank each month.

Accounts receivable

An asset, which is a claim against the customer created by selling merchandise or services on credit.

Allowance for Doubtful Accounts

A contra asset account for accounts receivable in which is recorded the estimate for uncollectible accounts when using the allowance method.

Allowance method

The method of accounting for uncollectible receivables that recognizes an expense by estimating future uncollectible accounts at the end of the accounting period.

Bad debt expense

The operating expense incurred because of the failure to collect receivables.

Direct write-off method

The method of accounting for uncollectible receivables that recognizes an expense only when an account is determined to be worthless.

Net Realizable value

The estimated selling price of an item of inventory less any direct costs of disposal, such as sales commissions; the value of the receivables reduced to the amount that is expected to be collected or realized, computed as accounts receivable less allowance for doubtful accounts.

Notes receivable

A customer’s written promise to pay an amount and possibly interest at an agreed-upon rate; amounts that customers owe for which a formal, written instrument of credit has been issued.

Receivables

All money claims against other entities, including people, business firms, and other organizations.

Installment note

A debt that requires the borrower to make equal periodic payments to the lender for the term of the note.

Amortization

The periodic transfer of the cost of an intangible asset to expense or of a bond discount to interest expense.

Net Book value

The difference between the cost of a fixed asset and its accumulated depreciation.

Capital expenditures

The costs of acquiring fixed assets, adding to a fixed asset, improving a fixed asset, or extending a fixed asset’s useful life.

Copyright

The exclusive right to publish and sell a literary, artistic, or musical composition.

Depletion

Using up natural resources that cannot be replaced (oil, coal, ect.)

Depreciation

The systematic periodic transfer of the cost of a fixed asset to an expense account during its expected useful life.

Double-declining balance method

A method of depreciation that provides for a declining periodic depreciation expense over the expected useful life of an asset.

Fixed assets

Long-term or relatively permanent tangible assets such as equipment, machinery, buildings, and land.

Goodwill

An intangible asset that is created from such favorable factors as location, product quality, reputation, and managerial skill.

Intangible assets

Long-term assets that are used in the operations of a business, are not held for sale, and are without physical qualities.

Patents

Exclusive rights to produce and sell goods with one or more unique features.

Trademark

A name, term, or symbol used to identify a business and its products.

Residual value

The estimated value of a fixed asset at the end of its useful life.

Straight-line depreciation method

A method of amortizing a bond discount or premium that provides for equal amounts of discount (or premium) to be written off to interest expense each period.

Units-of-activity method

A method of depreciation that provides the same amount of depreciation expense for each unit of an asset’s activity, which may be expressed in hours, miles driven, or quantity produced.

Accounts Payable

The liability created by a purchase on account.

Notes Payable

Payroll

The total amount paid to employees for services they provided during a certain period.

Income Taxes

FICA (Social security & Medicare)

The amount paid by the employee, calculated as gross pay less payroll deductions.

Net Pay (solve for)

The amount paid the employee, calculated as gross pay less payroll deductions.

Gross Pay (solve for)

The total earnings of an employee for a payroll period.

FUTA/SUTA

Federal/State unemployment tax act

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Employer is not required to deduct from employee’s pay

Bank reconciliation

The analysis that details the items responsible for the difference between the cash balance reported on the bank statement and the balance of the cash account in the ledger.

Bond Amortization

A form of interest-bearing note used by corporations to borrow on a long-term basis.

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The periodic transfer of the cost of an intangible asset to expense or of a bond discount to interest expense.

Contract Rate

The interest rate to be paid on the face amount of a bond as specified in the bond indenture.

Discount

The excess of the face amount of bonds over their issue price or the excess of the par value of stock over its issue price.

Face Amount

The amount specified on the face of a bond and the amount for which it will sell if the market rate of interest equals the contract rate.

Market Rate

What the average cost of an item is

Easily purchased at a price elsewhere

Premium

The excess of the issue price of bonds over their face amount; the excess of the issue price of stock over its par value.

Identify which accounts go on which financial statements

Know the normal balances of accounts

Know journal entries for basic transactions

Know the nine steps of the accounting cycle in order.

Be able to calculate gross profit

Be able to calculate ending inventory and COGS of inventory using FIFO

Bank reconciliations: get adjusted cash balance from bank balance and book balance

Be able to calculate net realizable value on accounts receivable

Know how to calculate and journalize straight line & units of activity depreciation

Calculate the gain or loss on the disposal of a fixed asset

Calculate gross and net payroll

Know the journal entries to record payroll

Journal entries to issue a note and pay the interest.