ACCT 209 TAMU Exam 1

Income Statement format

NI=Rev.-Exp.

Balance Sheet format

Assets=Liab.+Total Stockholder's Equity

Statement of Retained Earnings format

Beg. Bal. in RE+NI-Dividends=End Bal. in RE

What is the connecting link between the income statement and the balance sheet?

Statement of Retained Earnings

What order must you PREPARE (not present) the financial statements?

1) Income Statement 2) Statement of Retained Earnings 3) Balance Sheet

Why must you prepare the financial statements in a certain order?

Because Net Income is needed in order to prepare the Statement of Retained Earnings, and ending balance of RE is needed to prepare the Balance Sheet

Cash

Asset

Marketable Securities

Asset

Accounts Receivable

Asset

Inventory

Asset

Prepaid Expenses

Asset

Supplies

Asset

Land

Asset

Buildings

Asset

Equipment

Asset

Machinery

Asset

Office Furniture

Asset

Intangible Assets

Asset

Accounts Payable

Liability

Wages Payable

Liability

Taxes Payable

Liability

Interest Payable

Liability

Unearned Revenue

Liability

Accrued Liabilities (or Accrued Expenses)

Liability

Notes Payable

Liability

Mortgages Payable

Liability

Bonds Payable

Liability

Common Stock (or Capital Stock)

Stockholder's Equity

Retained Earnings

Stockholder's Equity

For all asset, expense, and dividends accounts, the account balance is increased on the _______ side. For all other accounts, the balance is increased on the _______ side.

Debit; Credit

The goal of accounting is to provide information that will be ___________________.

useful in making decisions

Financial accounting provides information to _____

external users

Managerial accounting provides information to ____

company management (internal users)

Shows the result of operations (profitability) for a period of time

Income Statement

Shows changes in the equity accounts for a period of time

The Statement of Retained Earnings

Shows the financial position at a point in time. Shows Assets = Liabilities + Owners' Equity

Balance Sheet

Assets = Liabilities + Owners' Equity is known as the

accounting equation

Two items have an affect on retained earnings. What are they?

Net Income (from the income statement) and Dividends

Which RE appears on the balance sheet?

Ending Retained Earnings

Who has primary responsibility for the financial statements?

Company Management

What is the term for the guidelines that help accountants in recording business transaction and reporting financial information?

GAAP

What must balance after every transaction is recorded? What is this system of recording transaction called? And for each transaction, _____ must equal ______?

The Balance Sheet Equation; Double-Entry Accounting; debits; credits

In the trial balance lists, the total of the _____ balances must equal the total number of the _____ balances.

debit; credit

Which type of accounting requires that revenues be recorded when earned and expenses when incurred?

Accrual Basis

When do adjusting entries occur?

At the end of the accounting period

Individuals or organizations that hold the ownership of corporations

Stockholders

System required by US GAAP that guides the timing of recording revenues and expenses

Accrual Basis

The accounting guideline that requires that income should be recorded when it is earned, rather than when the cash is received from the customer

Revenue Recognition

The accounting guideline that states that expenses should be reported in the same time period as the revenues that the expense helped generate

Matching Principal

An event that has a financial impact on an organization and can be recorded in a dollar amount

Transaction

Quantitative reports and related disclosure describing and detailing the operations, financial position, and cash flows of an organization; used for communicating information about an organization to decision makers (Part of Annual Report)

Financial Statements

A recognized set of guidelines used in the United States to guide the reporting of accounting information

GAAP

Type of entry recorded at the end of the accounting period to ensure that all revenues and expenses are properly reported and update the balances of assets and liability accounts

Adjustment

Left side of T account

Debit

Right side of T account

Credit

List of accounts and their balances, prepared to prove that the ledger accounts are in balance

Trial Balance

Accumulated total of the net income earned by the organization in excess of the dividends distributed to owners

Retained Earnings

The process of analyzing, organizing and recording financial information and reporting this information to decision makers

Accounting

The recording part of the accounting process

Bookkeeping

An agency created by Congress to protect investors by ensuring that all investors have access to high quality financial information

SEC (Securities and Exchange Commission)

An independent, seven-member organization created by the SEC

FASB (Financial Accounting Standards Board)

Responsible for setting the accounting standards out of the US

IASB (International Accounting Standards Board)

A more detailed annual report filed to SEC within 60 days after the end of the fiscal year

Annual Report (10-K)

Who conducts the Auditor's Report?

An independent accounting firm who is looking to determine if the statements of the company are represented "fairly" (part of the Annual Report)

Management's opportunity to discuss the results, goals for the future, ect. (part of Annual Report)

Management Discussion and Analysis (MD&A)

Assets must be recorded at the cash amount at the time that the asset was required

Cost Principle

All information that could be important to a decision maker must be reported

Full Disclosure

Allows accountants to deal with unimportant items in an expedient but theoretically incorrect manner (a constraint of qualitative characteristics)

Materiality

Do the benefits of including information in the financial statements exceed the cost of providing it

Cost-Benefit

A separate legal entity owned by stockholders

Corporation

Provides descriptions, detail, required decisions (part of Annual Report)

Notes to Statements

What are the elements of the Annual Report (10-K)?

Financial Statements, Notes to Statements, Auditor's Report, and Management Discussion and Analysis (MD&D)

Statement of Financial Position: Reports on a company's financial position as of a specific date

Balance Sheet

Statement of Operations or Statement of Earnings or Profit and Loss Statement (PNL): shows the results of operations for a period of time

Income Statement

Statement of Stockholder's Equity: shows the changes in retained earnings over a period of time

Statement of Retained Earnings

Shows the changes in cash for a period of time

Statement of Cash Flows

Resources expected to provide a future benefit

Assets

Source of the resources; obligations for debts

Liability

source of the resources; represents the owners' claim to the assets

Stockholders' Equity (or Shareholders' Equity or Owners' Equity)

Income that isn't kept but given to the owners

Dividends

Consists of Stock and related accounts; contributed capital represents amount that owners invested in the business

Common Stock (Contributed Capital)

Increases to a company's resources for providing goods and services; what the company earns from customers

Revenue

Decreases to a company's resources from generating revenue

Expenses

System based on the accounting equation (Assets = Liabilities - Equity) that states every entry must have a corresponding and opposite entry to a different account and the accounts must always be balanced

Double Entry Accounting

The collection of all accounts of a firm

General Ledger

The book of original entry; provides a chronological record of each transaction for a firm

General Journal

Reports as of a specific date?

Balance Sheet

The first financial statement prepared?

Income Statement

Reports only revenues and expenses?

Income Statement

A formal presentation of the accounting equation?

Balance Sheet (Assets = Liabilities + Equity)

The connecting link between the income statement and balance sheet?

Statement of Retained Earnings

The affect of costs incurred for advertising?

Affects expense

The affect of assets received for services performed?

Affects revenue

The affect of cash received for services that will be performed at a later date?

Does not affect equity

The affect of cash distributed to stockholders?

Affects dividends

The affect of cost incurred for supplies used?

Affects expense

The affect of cash purchase of equipment?

Does not affect equity

The affect of cash received from investors?

Affects common stock

T/F. The primary role of accounting is to determine the amount of taxes that a company will be required to pay

FALSE

On which statement would Cash, Receivables, and Payables appear?

Balance Sheet