A200 Exam (Terms and Definitions) latest updated version already graded A+ 2025-2026

What is Accounting?

A way to view a company through a financial Lense

What is the focus of financial accounting versus managerial accounting?

Financial: Info for external decision makers such as Investors & Creditors

Managerial: Info for company managers for decision-making, planning & control

What are the main types of business entities?

Sole Proprietorship, General Partnership and C Corporation

How many owners in a C Corporation?

Most states allow one; some require two to serve as officers

How do C Corporations raise capital

Sell Stock

Mangement in C Corporation

Board of Directors, officers, annual meeting and annual reporting required

Liability in a C Corporation

shareholders are not liable for the debts of the corporation

Taxation in C Corporation

Taxed twice. Both corporations and shareholders are taxed

What are some of the advantages of the corporate form of business?

Limited Liability

What are some of the disadvantages of the corporate form of business?

Taxed Twice

What are business entities

The people or businesses that accountants report on. (Owners, investors, lenders, the business, the customers, the employees)

Which legal form is most common?

Sole Proprietorships

How are the interests of shareholders different than creditors?

They get to Vote, Receive dividends and Assets, if any, in dissolution

What do the terms "shareholder", "stockholder", and "creditor" mean?

Shareholder/Stockholders: Considered Owners, Dividends, increased stock value and voting rights.

Creditors: Loaners. Expect: Interest, Repayment, No voting rights

What are the main categories of the accounting equation?

Assets, Liabilities, and Stockholders' equity

What is a "claim" to the assets or the "source" of the assets?

Investors and creditors are entitled to make claims on the assets

Assets source transactions

An asset account increases, and a corresponding claims account increases

Asset Exchange transactions

decrease one asset and increase another asset

Asset use transactions

decrease the total amount of assets and the total amount of claims

Which accounts are used to account for issuing stock?

SHE

What is the minimum number of accounts that are affected by a transaction?

2

Are dividends always paid at the same time as they are declared?

No

Accounts Payable

liability

Accounts Receivable

asset

accrued expenses payable

liability

Short and Long term investments

asset

Common Stock

Stockholder's Equity

(Blank) Revenue

revenue

(Blank) Payable

liability

Unearned Revenue

liability

(Blank) Expenses

Expenses

COGS

expense

Land

asset

Buildings

asset

additional paid-in capital (APIC)

stockholders equity

Supplies

asset

Building

asset

retained earnings

stockholders equity

Notes recievable

asset

Inventory (To be sold)

asset

Point in Time

The balance sheet is an example of a financial statement that is reported as of a point in time, typically at the end of a period

Period of Time

refers to a time span over which a company's performance is measured, such as a month, quarter, or year. Financial statements like the income statement, statement of stockholders' equity, and statement of cash flows report information over a period of time.

Balance Sheet

The accounting equation is Assets = Liabilities + Stockholders’ Equity.

Income Statement

the formula is Revenues – Expenses = Net Income (NI).

Multi-Step Income Statement

separates operating revenues and expenses from non-operating items. It calculates gross profit, operating income, and net income.

Operating items

include revenues from core business activities and costs such as cost of goods sold and operating expenses.

Non-operating items

include things like interest expense, gains or losses on sales of assets, and other income.

Calculations for Ending Retained Earnings

Beginning Common Stock + Stock Issued = Ending Common Stock.

Beginning Retained Earnings + Net Income – Dividends = Ending Retained Earnings.

Treasury stock

reduces total stockholders' equity because it represents repurchased shares.

Preferred stock

is a class of stock with a fixed dividend, no voting rights, and preference over common stock in the distribution of assets

Operating activities

cash from the company's main business operations

Investing activities

cash from buying or selling long-term assets like property or equipment.

Financing activities

cash from borrowing or repaying debt, issuing stock, or paying dividends.

What is GAAP and who establishes the rules?

GAAP stands for Generally Accepted Accounting Principles, which are the standards and rules that accountants follow in the preparation of financial statements.

Financial Accounting Standards Board (FASB) is responsible for establishing these rules

Who monitors publicly traded companies?

Publicly traded companies are monitored by the Securities and Exchange Commission (SEC).

What is IFRS?

International Financial Reporting Standards (IFRS) are global accounting standards used by many countries outside the U.S.

Accrual accounting

records revenues when earned and expenses when incurred, regardless of when cash is received or paid.

Under US GAAP

Cash basis accounting

records revenues and expenses only when cash is exchanged.

Revenue Recognition Principle

when the company satisfies its performance obligation (i.e., when goods or services are delivered to the customer)

Expense Recognition Principle

when they are incurred to generate revenue, regardless of when cash is paid.

Temporary Accounts:

are closed out at the end of the accounting period to prepare for the next period. (revenues, expenses, dividends)

Permanent accounts

carry their balances forward. (assets, liabilities, equity)

Steps in the Accounting Cycle

1. Recording transactions

2. Adjusting entries

3. Preparing financial statements

4. Closing temporary accounts

Markup

refers to the difference between the cost of a product and its selling price.

Gross Margin

is the difference between Sales Revenue and Cost of Goods Sold (COGS).

Gross Margin = Sales Revenue - Cost of Goods Sold (COGS)

Reporting Gains/Losses on the Multi-Step Income Statement

typically reported in the non-operating section of the income statement under “Other Income (Expenses)”.

Historical Cost

The primary GAAP measurement for most assets and liabilities on the balance sheet

Amortized Cost

Used for certain assets like loans or bonds, where the cost is gradually reduced over time through amortization or depreciation.

Net Present Value (NPV)

The present value of future cash flows, used for long-term investments and liabilities.

Fair Value (Market Value)

The price an asset could be sold for in the market. This is used for assets like marketable securities that are traded in active markets.

How Does a Company Benefit from Issuing Stock?

it raises capital without incurring debt

Par Value

the legal capital per share of stock that is recorded in the company's books.

Why Par value is important

establishes the minimum legal capital the company must retain for the issuance of shares.

Effect of Stock Issued on the Accounting Equation

Cash (Assets) increases.

Common Stock (at par) increases in the equity section.

Additional Paid-In Capital (APIC) increases for any amount received over par value.

Calculating Par Value

Total Par Value = Par Value per Share × Number of Shares Issued

Book value

refers to the value recorded on the balance sheet (stockholders' equity divided by outstanding shares).

What is Treasury Stock?

refers to shares that were once issued but have been repurchased by the company.

Effect of Treasury Stock on Stockholders' Equity

reduces total stockholders' equity

What is Preferred Stock?

type of stock that has features of both equity and debt.

Horizontal Analysis

Also known as trend analysis, this method compares financial statement data across multiple periods to identify trends and changes in performance over time.

Horizontal Analysis equation

Dollar Change=Current Year Amount−Prior Year Amount

Vertical Analysis

expressing each item in a financial statement as a percentage of a base amount within the same period.

Purpose of Internal Controls

to ensure the accuracy and reliability of a company’s financial reporting, safeguard assets, ensure compliance with laws and regulations, and promote operational efficiency.

Five Key Elements of a Strong System of Internal Control

1. Control Environment:

2. Risk assesment

3. Control activities

4. Info and Coms

5. Monitoring

The Fraud Triangle

1. Opportunity

2. Pressure

3. Rationalization

Purpose of an Audit

to examine the financial statements of a company to determine whether they are presented fairly and in accordance with Generally Accepted Accounting Principles (GAAP).

Three Types of Auditor Opinions

1. Unqualified

2. Qualified

3. Adverse

Role of the Auditor in the Control System

Review and assess the company’s internal controls as part of the financial audit. They help identify weaknesses in the control system and provide recommendations for improvement.

provide independent assurance