Chapter 1 & 2 Accounting Exam

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Revenue Recognition Principle

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Accounting

43 Terms

1

Revenue Recognition Principle

revenue is recognized when good or services are provided to customers and at the amount expected to be received from the customer

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2

Business Entity Assumption (entity concept)

a business is accounted for separately from other business entities and its owner

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3

Going Concern Assumption

accounting information presumes that the business will continue operating instead of being closed or sold

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4

Cost Principle (measurement principle)

accounting information is based on actual cost; cost is measured on a cash/cash-to-equal basis

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5

Matching Principle (expense recognition principle)

a company records the expenses it incurred to generate the revenue reported

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6

Full Disclosure Principle

a company reports the details behind financial statements that would impact users’ decisions

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7

Assets

resources a company owns that are expected to yield future benefits

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8

Liabilities

creditor’s claims on assets (things you owe)

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9

Equities (capital)

owner’s claim on assets; the sum of assets subtracted from liabilities

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10

Revenues

money that a company earns from sale of products or services

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11

Expenses

cost of providing products and services to customers

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12

Sole Proprietorship

1 owner

No additional business income tax

The owner is responsible for proprietorship debt

Not a separate legal entity

The business ends with owner death or choice

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13

Partnership

2 or more owners

No additional business income tax

Partners are jointly responsible

Not a separate legal entity

Business ends with partner death or by choice

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14

Corporation

1 or more (shareholders)

Additional corporate income tax

Shareholders not responsible for debt

Separate legal entity with same responsibilities

Indefinite business life

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15

Limited Liability Company (LLC)

1 or more owners (members)

No additional business income tax

Members not liable for debts

Separate legal entity with same responsibilities

Indefinite business life

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16

Financial Accounting

focuses on the needs of external users and must follow GAAP

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17

Managerial accounting

focuses on the needs of internal users

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18

Internal user

directly manage the organization

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19

External users

do not directly run the organization and have limited access to the accounting information (gets info from general-purpose financial statements)

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20

Opportunity

must be able to commit fraud with low risk of getting caught

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21

Pressure

must feel pressure or have incentive to commit fraud

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22

Rationalization

justifies fraud/ignores criminal nature

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23

Income Statement

Revenue - Expenses = Net Income

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24

Statement of Owner’s Equity

Beginning capital + owner’s investments + net income - withdrawals = end capital

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25

Balance sheet

assets = liabilities + equity

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26

Statement of Cash Flows

(+/-) Operating cash flows (-/+) Investing cash flows (-/+) Financing Cash flows = Change in cash

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27

Type: asset

Normal Balance: debit

Statement: balance sheet

Prepaid Insurance

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28

Type: liability

Normal Balance: credit

Statement: balance sheet

Magazine subscription collected in advance

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29

Type: withdrawal

Normal Balance: debit

Statement: balance sheet/ statement of owner’s equity

C. David, Withdrawals

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30

Type: revenue

Normal balance: credit

Statement: income statement

sales

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31

Type: Capital

Normal Balance: Credit

Statement: balance sheet

C. Pen, Capital

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32

Type: expense

Normal Balance: debit

Statement: Income statement

Utilities Expense

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33

Securities and Exchange Commission

SEC stands for

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34

Chief executive officer

CEO stands for

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35

Financial Accounting Standards Board

FASB stands for

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36

International Accounting Standards Board

IASB stands for

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37

International Financial Reporting Standards

IFRS stands for

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38

American Institute of Certified Public Accountants

AICPA

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39

Generally Accepted Accounting Principles

GAAP

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40

revenue - expenses

net income equals

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41

net income/average total income

return on assets equals

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42

total liabilities / total assets

debit ratio equals

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43

The date of the transaction

the title of accounts debited and the amount

the title of accounts credited and the amount

a brief explanation of the transaction below the line of entry

A journal entry requires

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