BU127 Final Exam

Statement of financial position

Reports the financial position (assets, liabilities, and shareholders equity) of an accounting entity at one point in time.

Accounting entity

Is the organization for which financial data are to be collected.

Statement of comprehensive income

Reports the change in shareholders' equity during a period from business activities, excluding exchanges with shareholders.

Statement of earnings

Reports the revenues and expenses of the accounting period.

Accounting period

The time period covered by the financial statements.

Statement of changes in equity

Reports all changes to shareholders' equity during the accounting period.

Retained Earnings

Reflect the net earnings that have been generated since the creation of the company but not distributed yet to shareholders as dividends.

Notes

Provide supplemental information about the financial condition of a company, without which the financial statements cannot be fully understood.

IFRS

Are guidelines for the measurement rules used to develop the information in financial statements.

Report to management

Indicates managements' primary responsibility for financial statement information and the steps to ensure the accuracy of the company's records.

Audit report

Describes the auditors' opinion of the fairness of the financial statement presentations and the evidence gather to support that opinion.

Audit

Is an examination of the financial reports to ensure that they represent what they claim and form to IFRS.

Relevance

Can influence a decision; it has predictive and/or confirmatory value.

Material amounts

Are amounts that are large enough to influence a user's decision.

Faithful representation

Suggests that information provided in financial statements must reflect the substance of the underlying transactions, which may differ from their legal form.

Comparability

Accounting information across business is enhanced when similar accounting methods have been applied.

Verifiable

Information is _____________, if independent accountants can agree on the nature and amount of a transaction.

Timely

Information enhances the information's ability to predict future values and to confirm past values.

Understandability

Is the quality of information that enables users to comprehend its meaning.

Cost constraint

Suggests that information should be produced only if the perceived benefits of increased decision usefulness exceed the expected costs of providing that information.

Separate-entity assumption

States that the activities of each business must be accounted for separately from the activities of its owners.

Unit-of-measure assumption

States that the accounting information should be measured and reported in the national monetary unit.

Continuity assumption

States that businesses are assumed to continue to operate into the foreseeable future.

Historical cost principle

Requires assets to be recorded at the historical cash-equivilant cost, which is cash paid plus the current monetary value of all non-cash considerations also given on the date of the exchange.

Assets

Are economic resources controlled by an entity as a result of past transactions or events and from which future economic benefits may be obtained.

Current assets

Are assets that will be used or turned into cash, normally within one year. Inventory is always considered to be this, regardless of the time needed to produce and sell it.

Non-current assets

Are considered to be long term because they will be used or turned into cash over a period longer than the next year.

Liabilities

Are present debts or obligations of the entity that result from past transactions and that will be paid with assets or services.

Current liabilities

Are obligations that will be paid in cash or satisfied by providing service within the coming year.

Non-current liabilities

Are a company's debts that have maturities extending beyond one year from the date of the statement of financial position.

Shareholders equity

Is the financing provided by the owners and the operations of the business.

Contributed capital

Results from shareholders providing case tho the business.

Retained earnings

Refers to the accumulated earnings of a company that are not distributed to the shareholders and are reinvested in the business.

Transaction

Is an exchange between a business and one or more external parties to a business or a measurable internal event, such as adjustments for the use of assets in operations.

Account

Is a standardized format that organizations use to accumulate the monetary effects of transactions on each financial statement item.

Transaction analysis

Is the process of studying a transaction to determine its economic effect on the entity in terms of the accounting equation.

Journal entry

Is an accounting method for expressing the effects of a transaction on various accounts, using the double-entry bookkeeping system.

Operating cycle

Is the time it takes for a company to pay cash to suppliers, sell goods and services to customers, and collect cash from customers.

Periodicity assumption

Means that the long life of a company can be reported in shorter periods.

Gross profit

Net sales less cost of sales.

Cash basis accounting

Records revenues when cash is received and expenses when cash is paid.

Accrual basis accounting

Records revenues when earned and expenses when incurred, regardless of the timing of cash receipts or payments.

Revenue principle

States that revenues are recognized when the significant risks and rewards of ownership are transferred to the buyer, it is probable that future economic benefits will flow to the entity, and the benefits and the costs associated with the transaction can be measured reliably.

Matching process

Requires that expenses be recorded when incurred in earning revenue.

Accounting cycle

Is the process used by entities to analyze and record transactions, adjust the records at the end of the period, prepare financial statements, and prepare the records for the next cycle.

Deferred revenues

Are previously recorded liabilities that need to be adjusted at the end of the accounting period to reflect the amount of revenues earned.

Accrued revenues

Are previously unrecorded revenues that need to be recorded at the end of the accounting period to reflect the amount earned and its related receivable account.

Deferred expenses

Are previously acquired assets that need to be adjusted at the end of the accounting period to reflect the amount of expense incurred in using the assets to generate revenue.

Accrued expenses

Are previously unrecorded expenses that need to be recorded at the end of the accounting period to reflect the amount incurred and its related payable account.

Trial balance

Is a list of all accounts with their balances that provides a check on the equality of the debits and credits.

Contra account

Is an account that is an offset to, or reduction of, the primary account.

Carrying amount

Is the difference between its acquisition cost and accumulated depreciation, its related contra account. (Of an asset)

Income summary

Is a temporary account used inly during the closing process to facilitate closing temporary accounts.

Post closing trial balance

Should be prepared as the last step of the accounting cycle to check that debits equal credits and that all temporary accounts have been closed.

Direct method

Method of presenting the operating activities section of the statement of cash flows reports components of cash flows form operating activities as gross receipts and gross payments.

Indirect method

Method of presenting the operating activities section of the statement of cash flows adjusts net earnings to compute cash flows form operating activities.

Board of directors

Elected by the shareholders to represent their interests, is responsible for maintaining the integrity of the company's financial reports.

Unqualified audit opinion

Is the auditors' declaration that the financial statements are fair representations in all material respects in conformity with IFRS.

Press release

Is a written public news announcement normally distributed to major news services.

Lenders

Include suppliers and financial institutions that lend money to companies.

Private investors

Include individuals who purchase shares in companies.

Prudence

Suggests that care should be taken not to overstate assets and revenues or understate liabilities and expenses.

Sales returns and allowances

Is a reduction of gross sales revenues for return of or allowances for unsatisfactory goods.

Allowance method

Bases bad debt expense on an estimate of uncollectible accounts.

Bad debts expense

Is the expense associated with estimated uncollectible trade receivables.

Allowance for doubtful accounts

Is a contra-asset account containing the estimated uncollectible trade receivables.

Aging of trade receivables method

Estimates uncollectible accounts based on the age of each trade receivable.

Bank statement

Is a monthly report from a bank that show deposits recorded, cheques cleared, other debits and credits, and a running bank balance.

Bank reconciliation

Is the process of verifying the accuracy of both the bank statement and the cash accounts of a business.

Raw materials inventory

Includes items acquired for the purpose of processing into finished goods.

Work-in-process inventory

Includes goods in the process of being manufactured.

finished goods inventory

Includes manufactured goods that are complete and available for sale.

Direct labour

Refers to the earnings of employees who work directly on the products being manufactured.

Factory overhead

Includes manufacturing costs that are not raw material or direct labour costs.

Cost of goods available for sale

BI + P - EI = COS

Perpetual inventory

A detailed inventory record is maintained, recoding each purchase and sale during the accounting period.

Periodic inventory

Ending inventory and cost of sales are determined at the end of the accounting period based on a physical count.

Specific identification method

Identifies the cost of the specific item that was sold.

FIFO method

Assumes that the oldest units (first in) are the first units sold (first out).

Weighted average cost method

Uses the weighted-average unit cost of the goods available for sale for both cost of sales and ending inventory.

LCNRV

Is a valuation method departing from the cost principle; it serves to recognize a loss when the net realizable value drops below cost.

long lived assets

Are tangible or intangible resources owned by a business and used in it operations to produce benefits over several years.

Intangible assets

Have property ownership rights but not physical substance.

Acquisition cost

Is the net cash-equivialnt amount paid or to be paid for the asset.

Capitalized interest

Represents interest on borrowed funds directly attributable to construction until the asset is ready for its intended use.

Basket purchase

Is an acquisition of two or more assets in a single transaction for a single lump sum.

Ordinary repairs and maintenance

Are expenditures for normal operating upkeep of long-lived assets.

Revenue expenditures

Maintain the productive capacity of the asset during the current accounting period only and re recorded as expenses.

Extraordinary repairs

Are infrequent expenditures that increase the asset's economic usefulness in the future.

Betterments

Are costs incurred to enhance the productive or service potential of a long-lived asset.

Capital expenditures

Increase the productive life, operating efficiency or capacity of the asset and are recorded as increase in asset accounts, not as expenses.

Depreciation

Is the process of allocating the acquisition cost of buildings and equipment over their useful lives by using a systematic and rational method.

Estimated useful life

Is the expected service life of an asset to the current owner.

Residual value

Is the estimated amount to be recovered, less disposal costs, at the end of the estimated useful life of an asset.

Straight line depreciation

Is the method that allocates the cost of an asset in equal periodic amount over its useful life. `

units of production depreciation

Is a method to allocate the cost of an asset over its useful life based on the reaction of its periodic output to its total estimated output.

declining balance depreciation

Is the method that allocates the cost of an asset over its useful life based on a multiple of the straight line rate.

Depletion

Is the systematic and rational allocation of the cost of a natural resource over the period of exploitation.

Amortization

Is the systematic and rational allocation of the acquisition cost of an intangible asset over its useful life.

Goodwill

Is the excess of the purchase price of a business over the market value of its identifiable assets and liabilities.