Studied by 5 people
UH Manoa Professor Boochun Jung
What is in the balance sheet? (hint: the formula)
Balance sheet: Assets = liabilities + owner’s equity
and “balance as of”
What is the difference between internal users and external users
Internal: managers and employers of a company
External: anyone OUTSIDE the company
If it’s not quantifiable then..
it’s not part of accounting system
Managerial accounting provides information for ___ users
internal users
Financial reporting provides information for ___ users
external users
The objective of financial reporting is to: provide ___ information in making investment and credit decisions to ___ users.
useful information to external users
What are the 4 financial statements?
Income Statement
Balance Sheet
Statement of Retained Earnings
Statement of Cash Flows
Financial statements are prepared..
quarterly (not audited) and annually (audited)
What are the rules of accounting? (hint: it’s a title)
U.S. GAAP (generally accepted accounting principles)
Who makes the rules of accounting?
FASB (Financial Accounting Standards Board)
Who enforces the rules of accounting?
SEC (Securities and Exchange Commission)
Assets are on the ___ side of the equation
left side
T/F: Assets are anything with future economic benefits
True
Examples of Assets?
Tools & Equipment, Cash, Inventory, Buildings, PPE (property, plant, equipment)
Examples of liabilities?
Accounts payable, anything payable, unearned revenue
What is in owner’s equity?
Capital Stock (investment/investor gives u money), Retained Earnings (sales, net income, revenue, dividends)
What are the order of financial statements to complete?
1) Income Statement
2) Statement of Retained Earnings
3) Balance Sheet
4) Statement of Cash Flows
How are income statement and statement of retained earnings related?
by net income
How are the balance sheet and statement of retained earnings related?
because they both have retained earnings
What is in the income statement? (hint: formula)
I/S statement: revenues - expenses = net income
What is in the statement of retained earnings? (hint: formula)
R.E.: Beginning R/E + net income - dividends = ending retained earnings
Ending R.E. - Beginning R.E. = ?
Net income - dividends
Depreciation Expense goes on which financial statement?
Income Statement (an expense, because business didn’t do their service, but was paid)
Sales is on which financial statement?
I/S statement (revenue)
What does statement of cash flows contain?
operating activities
investing activities
financing activities
Examples of cash flows from operating activities? (hint: what are operating activities)
incur employee salaries and wages; sell products and services; make inventory purchases
What are examples of cash flows from investing activities? (hint: what are investing activities)
buying or selling property, plant and equipment, purchases/sell longterm investments
Examples of cash flows from financing activities (hint: what are financing activities)
selling stocks, borrowings, pay cash dividends
What is the order of the accounting cycle?
1) analyzing
2) journaling
3) posting
4) (unadjusted) trial balance
5) adjusting entries
What side is debit on?
Left side (increase)
What side is credit on?
Right side (decrease)
What is D.E.A.D.?
Dividends, Expenses, Assets, Debit (anything else is credit)
Debits are decreased by?
Credit
Credits are decreased by?
Debit
Journal entry is explaining
what happened in the transaction.
Ending amount should be the same/balanced
Debit is shortened as
Dr.)
Credit is shortened as
Cr.)
What is step 3 posting?
Transferring amounts to T accounts
What is a ledger? (don’t think you have to memorize for exam)
file or book containing company’s accounts
Step 4 preparing is ___
all balances taken from ledger
used to prove equality of debit and credit balances
working paper, not a statement
)What are the assumptions and principles u have to memorize?
Economic Entity Concept
Monetary Unit Assumption
Going Concern
Periodicity
(Historical) Cost Principle
Revenue Recognition Principle
Matching Principle
Accrual Basis and Revenue Recognition Principle are ___
the same! because revenues are recognized when they are realized and earned. (usually at the time of sales)
What is the economic entity concept?
basically we assume personal and business assets are kept separate (financial statements, records)
What is the monetary unit assumption?
We assume that money is the common denominator (the default unit for financial statements)
What is going concern?
we assume that a business will continue indefinitely
What is periodicity?
we assume a company can divide their economic activities in time periods
AKA performance can be split monthly, quarterly, or annually
What is the cost principle?
Record assets and liabilities at what u paid to buy them and continue to value them at historical cost until sold.
Example: building bought $20k in 1975 and is now worth $100k
What is the revenue recognition principle?
revenues are recognixed when a good or service is performed
What is the matching principle?
expenses should match with revenue “let the expenses follow the revenue”
Prepaid expenses are ____ until ___
are assets until used and then becomes an expense
Example: your body is an asset and when you die it becomes an expense (planning a funeral etc)
For accrual basis: revenue is recognized when
when earnings process is complete
For accrual basis: an expense is recognized
when incurred to generate revenue AKA when it happens
Do we care about cash basis?
NO!! Free your mind. Erase it
What are the two types of costs?
Unexpired costs and expired costs
Unexpired costs hold:
future economic benefit (an asset)
Expired costs hold:
no additional economic benefit, (an expense)
An asset changes to an expense when ____
when the benefits expire AKA when item is sold
Step 5: Adjusting Entries use what 2 principles?
Revenue recognition principle and Matching principle
Adjusting entries are classified as:
prepaid expenses, unearned revenue, accrued revenues, accrued expenses
accrued = accrual basis
Adjusting entries are made at the _____ of the accounting period
at the end of the accounting period
If your company recieved investment from a company then that is ….
Capital Stock —> Owner’s Equity
If your company made/purchased investment of another company that is ….
An Asset
Depreciation is a debit or credit?
Depreciation is a debit because it is an expense
Accumulated depreciation is a debit or a credit?
Accumulated depreciation is a credit because it reduces the value of an asset over tie
Financial statements are prepared from ___
the adjusted trial balance
What can be used to evaluate profitability
Net income percentage
ROE (return on equity)
ROA (return on assets)
T/F the higher the net income percentage the more profitable the company is
TRUE!
What are current assets
cash or other assets that are expected to be turned into cash, sold, consumed within one year or one operating cycle
Examples of current assets
cash, accounts receivable, inventory, supplies, short term investments
What are long-term/non current assets?
assets that do not meet the definition of current assets (longer than one year or one operating cycle)
Examples of non-current assets
notes receivable, fixed assets (land, machinery, plant assets), intangible assets (patents, copyright, trademark)
What are current liabilities?
Any obligations that will be satisfied within one year or one operating cycle
Examples of current liabilities?
taxes payable, salaries payable, interest payable etc
What are long-term liabilities?
any obligations that do not meet the definition of current liabilities
Examples of long-term liabilities?
notes payable, loans payable
How is a prepaid expense adjusted?
Dr. Expense
Cr. Asset
I/S: expenses overstated. net income overstated
B/S: assets overstated, equity overstated
How are unearned revenues adjusted?
Dr. Liability
Cr. Revenue
I/S revenues understated. net income overstated
B/S liabilities overstated. equity understated
How are accrued expenses adjusted?
Dr. Expense
Cr. Liability
I/S: expenses understated. net income overstated
B/S: liabilities understated. equity overstated
How are accrued revenues adjusted?
Dr. Asset
Cr. Revenue
I/S revenues understated. net income understated
B/S assets understated. equity understated.
Net income percentage formula?
Net income / revenue
Note 
Flashcard (41)