Exam 2 Financial Accounting 1

financing activity

does this transaction involve changing the company’s debt or owner’s equity structure?

investing activity

does this transaction involve buying or selling long-term productive assets or financial investments?

income smoothing

decreasing current high earnings to recognize earnings

classification shifting

misclassifying operating expenses as non-operating expenses to report higher operating income

net sales / average accounts receivable

accounts receivable turnover ratio

net income / net sales

profit margin

estimate

change in accounting _______ = account for it in the current period and prospectively; do NOT treat retrospectively

principle

change in accounting _________ make a retrospective adjustment; adjust beginning retained earnings to preserve consistency and comparability

how all material errors must be corrected

when books are already closed, adjust beginning retained earnings. if the books are not closed, fix it in period, no retrospective adjustment

no depreciation

direct method cash flows statement

depreciation is included

indirect method statement of cash flows

comprehensive income

= net income + other comprehensive income

fair values

to find gain or loss compare beginning and ending ____________

4, because rounding

what number is the least likely to show up in an EPS?

revenue recognition principle

recognize revenue when the performance obligation to the customer is satisfied

record expected revenue to earn while considering the expected amount that will be returned

how to record revenue for sales with returns

there is no sales revenue to record here, because it is a financing transaction, not a sales transaction

how to record revenue for sales with intention of buying back

record revenue at a point in time

how to record revenue when dealing with functional intellectual property rights

record deferred/unearned revenue when they are purchased, and record revenue when they are redeemed

how to record revenue for gift cards

recognize revenue when the performance obligation is complete; record deferred/unearned revenue when the customer pre-pays

how to record revenue for customer advance payments

recognize revenue overtime

how to record revenue when dealing with symbolic intellectual property rights