Accounting Final Exam (Terms)

Accounting

the information system that identifies, records, and communicates the economic events of an organization to users

Asset

A resource owned by an entity

Liability

An obligation of an entity

Stockholders' (proprietors, partners) Equity

The owner's claim on total assets (Common stock, Capital stock, Preferred stock, Dividends, Retained earnings)

Order of liquidity in WileyPLUS

Cash, short-term investments, accounts receivable, notes receivable, supplies, merchandise inventory, prepaid expenses then other current assets

Order of magnitude in WileyPLUS

List the account with the largest dollar amount first

Current ratio (liquidity ratio)

Calculated by dividing the current assets by the current liabilities and is used as a measure to evaluate a company's ability to pay short-term debt

Working capital (liquidity ratio)

the difference between the current assets and current liabilities

Earnings per share (EPS) (profitability ratio)

A measure of the net income earned on each share of common stock

Debt to total assets (solvency ratio)

Ratio measures the percentage of total financing provided by creditors or Total Liabilities / Total Assets

Free cash flow (solvency ratio)

Cash provided by operating activities adjusted for capital expenditures and dividends paid

Book Value

the difference between the cost of a depreciable asset and its related accumulated depreciation (contra account)

Cash-basis accounting

an entity records revenue when cash is received and records expenses when cash is paid

Accrual-basis accounting

An entity records revenue in the period the revenue is earned (revenue recognition principle) and matches expenses to the period in which the revenue was earned (expense recognition or sometimes called the matching principle)

Service enterprise

a company that makes most of its revenue by providing a service -- accounting firm, dentist, doctor, etc.

Merchandising company

a company that makes most of its revenue by selling a product (inventory)

Net sales

the sales revenue minus sales returns and allowances and sales discounts

Gross profit

the excess of net sales of merchandise over the cost of the merchandise

Gross profit rate

calculated by dividing gross profit by net sales

Perpetual inventory system

a detailed inventory system in which a company maintains the cost of each inventory item and the records continuously show the inventory that should be on hand

Periodic inventory system

an inventory system in which a company does not maintain detailed records of goods on hand and determines the cost of goods sold only at the end of an accounting period. Cost of goods sold and inventory are only updated at the end of the accounting period.

FOB destination

a freight term indicating that inventory is "Free On Board" to its destination. The seller pays the freight costs and holds title to the goods until they are transported to their destination.

FOB shipping point

a freight term indicating that inventory is "Free On Board" only to its shipping point. The buyer pays the freight costs and holds title to the goods as soon as the goods are at the shipping point and until they are transported to their destination.

Freight-in

considered a cost of purchasing an inventory item and is included in Cost of Goods Sold

Freight-out

is NOT considered a cost of inventory and is included in Selling Expenses

Promissory note

a written promise to pay a specified amount of money on demand or at a definite time. Shows amount and interest rate.

Allowance for doubtful accounts

the contra ccount which is used on the financial statement to reduce Accounts receivable to its NET REALIZABLE VALUE

Net (Cash) realizable value

the amount a company expects to actually be able to receive in cash for an asset

Direct write-off method

a method of accounting for debts that involves expensing accounts at the time the specific account is determined to be uncollectible. The method used for tax accounting purposes.

Allowance method

a method of accounting for debts that involves estimating uncollectible accounts at the end of each period and matching estimated expenses with revenue recognized during the period. The preferable method used for financial accounting purposes.

Revenue expenditure

An expenditure which is immediately matched with revenue of the period -- an expense

Capital expenditure

an expenditure which increases the company's investment in plant assets which are expected to be used to earn revenue over more than one time period

Straight line depreciation

a method in which periodic depreciation is the same for each year of the tangible plant asst's useful life. This method is called amortization if used to allocate cost of an intangible asset.

Accelerated depreciation

Declining-balance

a method in which periodic depreciation is higher in the early years of an asset's useful life.

an accelerated depreciation method that applies a constant rate to the declining book value of the asset and produces a decreasing annual depreciation expense over the useful life of the asset.

Units-of-activity depreciation

a method in which the useful life of the asset is expressed in terms of the total units of production or use expected from the assets. This method is called depletion if being used to allocate costs of natural resources.

FICA

Social security and Medicare taxes are commonly called FICA taxes.

FUTA & SUTA

Federal and state unemployment taxes. Paid only by employer.

Capital stock

what a corporation issues to shareholders. It can either be common/preferred stock

Common stock

the class of stock that represents residual ownership of the corporation

Preferred stock

a class of stock that has contractual preferences over common stock in certain areas

Authorized shares

the number of shares of a class of stock authorized by the corporation's charter. the maximum number of shares the corporation can legally issue.

Issed shares

the number of shares of a class of stock that has been issued (usually sold) to stockholders

Outstanding shares

the number of shares of a class of stock hold by stockholders. The shares used in calculting dividends payable

par value

an arbitrary value assigned to stock when a corporation is first organized

no-par value stock

capital stock that has not been assigned a value in the corporate charter

stated value

an amount per share assigned by the corporation's board of directors to no-par stock

legal capital

the amount associated with capital stock that has been issued by a corporation. legal capital is generally the par value or stated value of the shares issued and must be retained in the business for the protection of corporate creditors

paid-in capital

the amount stockholders paid in to the corporation in exchange for shares of ownership

additional paid-in capital

the amount of paid-in capital in excess of par value. this amount is shown separate from the stock par value on the financial statements.

Dividends arrears

preferred dividends that were supposed to be declared but were not declared during a given period

Operating Activities

- Collections from customers

- Cash paid to suppliers

- Interest and taxes paid

- Receipt of interest on notes receivable

- Payment of interest on notes payable

- Depreciation

- Amortization of patent

- Accounts receivable/payable inc./dec.

- Inventory inc./dec.

Investing Activities

- Proceeds from the sale of equipment

- Sale of building at book value

- Purchase of land

- Purchase of equipment

Financing Activities

- Issuance of preferred stock

- Payment of long-term debt

- Cash dividends declared and paid

- Issuance of bonds

- Retirement of bonds

Noncash Investing and Financing Activities

- Purchase of building, signed a long-term note payable for the cost

- Purchase of equipment, signed a long-term note payable for the cost

- Exchange of land for a patent

- Conversion of bonds into common stock

- Issuance of bonds for land