Partnerships and Corporate Accounting Flashcards

Flashcards covering partnerships, corporate accounting, and financial statement analysis.

General Partnership

A business structure where owners share profits and have unlimited personal liability for debts.

Partnership Asset Contribution

Non-cash assets contributed by a partner are recorded at their current market value.

Partnership Profit/Loss Sharing

If no agreement exists, profits and losses are shared equally; otherwise, as agreed upon.

Capital Contribution

The net amount of money and property that a partner contributes to the entity.

Net Contribution

The sum of total assets less total liabilities in a partnership.

Capital Account Transfer

Occurs when a partner sells a portion of their interest; the partnership records a transfer of capital, not the cash exchange.

Bonus Method

Used when a new partner's capital account exceeds their contribution; the difference is absorbed by existing partners' capital accounts.

Partner Retirement at Book Value

The withdrawing partner receives cash equal to their capital account balance. No gains or losses recognized.

Bonus to Withdrawing Partner

Excess assets paid to a withdrawing partner are absorbed by the remaining partners, reducing their capital accounts.

Partnership Liquidation

Process of selling assets, settling liabilities, and distributing remaining assets to partners when the partnership dissolves.

Outstanding Stock

Shares of stock that have been issued and are currently held by stockholders; excludes treasury stock.

Retained Earnings

Internally generated equity from profitable operations not distributed to stockholders.

Par Value

Nominal value assigned to a share of stock by the issuing company.

Stated Value

Assigned to no-par stock, it represents the minimum value for which the shares can be issued.

Treasury Stock

A company's own stock that has been reacquired and is held for future use.

Declaration Date

Date on which the board of directors formally approves a dividend, creating a liability.

Dividends in Arrears

Unpaid dividends on cumulative preferred stock that must be paid before common shareholders receive dividends.

Date of Record

Cutoff date to determine which shareholders are eligible to receive a declared dividend. No journal entry is made.

Stock Dividend

Distribution of additional shares of a company's own stock to its stockholders.

Stock Split

Increases the number of shares outstanding and reduces the par value per share proportionally.

Land Cost

Includes all costs necessary to acquire the land and prepare it for its intended use.

Land Improvements

Costs that enhance the land for its intended use, separate from the land itself, such as fencing or lighting.

Machine Cost

Includes all costs necessary to bring the asset to its intended use, such as purchase price, installation, and transit insurance.

Revenue Expenditure

A cost that is expensed in the period it is incurred because it does not extend the useful life or improve the asset significantly.

Double-Declining-Balance Method

Allocates a higher amount of depreciation in earlier years and gradually decreases in later years.

Units-of-Production Method

Allocates depreciation based on the asset’s actual usage.

Straight-Line Depreciation

A method of calculating depreciation which charges an equal amount to depreciation expense each year of the asset's service life.

Depreciable Book Value

The remaining depreciable book value will be spread over the asset’s new useful life.

Plant Asset Disposal

The business must ensure that the asset’s depreciation is updated to reflect the time it has been used up to the disposal date.

Depletion

Expense that results from the usage of a natural resource.

Intangible Assets

Convey special rights from patents, copyrights, trademarks, and other creative works.

Goodwill

The positive difference between the purchase price of a company and the fair market value of its identifiable net assets.

Sales Tax Payable

The amount of sales tax collected from customers that is owed to the state.

Unearned Revenue

Cash received in advance of providing goods or performing services.

Note Payable at Maturity

At the maturity of a note payable, a borrower will pay the principal plus interest.

Gross Pay

The total sum of money an employee earns, before deductions, and after overtime incentives.

Net Pay

The amount an employee takes home after deductions such as income tax and other withholdings are subtracted from gross pay.

FICA—OASDI Taxes

The Federal Insurance Contributions Act Old Age, Survivors, and Disability Insurance tax has a ceiling on the amount of earnings that are subject to the tax.

Federal Unemployment Tax (FUTA)

A tax paid only by the employer.

FICA

It is mandatory for both the employer and employee to pay.

Internal Controls over Payroll

Payroll accounting should be separate from hiring and firing of employees.

Accrued Vacation Benefit

Paid with a debit to Vacation Benefits Payable and a credit to Cash.

Contingent Liability

A potential liability that depends on a future event.

Accounting for Contingent Liabilities

If more than remote, but less than probable, should be disclosed in financial statement notes.

Statement of Cash Flows

Links accrual-based Income Statement and cash reported on the Balance Sheet.

Operating Activities Section

Reports on activities that create revenues or expenses for the entity’s business.

Financing Activities Section

Reports cash inflows and outflows related to long-term liabilities and equity.

Debt-Financed Asset Purchase

The purchase of equipment with financing is considered a financing activity.

Financing Activity

The section of the Statement of Cash Flows that includes borrowing cash and paying off loans.

Investing Activities Section

Includes increases and decreases in long-term assets.

Typical Order of Sections on a Statement of Cash Flows

Operating, investing, financing.

Indirect Method/ Depreciation Expense

Added back as an adjustment to Net Income in the operating activities section.

Indirect Method/Cash Flows

Increases/decreases in current liabilities impacts cash balance.

Statement of Cash Flows/ Financing Activities

Includes the issuance of stock and the payment of cash dividends.

Statement of Cash Flows/Cash Paid

Financing activities includes borrowing cash and paying off loans.

Ratio Analysis

Used most effectively to compare a company against other companies in the same industry and to denote trends within the company.

Free Cash Flow

A calculation of planned investments and cash dividends deducted from net cash provided by operating activities.

Accounting Policies/ Financial statements

Included in the notes to financial statements.

Horizontal Analysis

Compares financial statement line items from year to year for the same company.

Trend Analysis

Expressing each year’s financial statement line item as a percentage of the base year amount.

Vertical Analysis

A process of performing a percentage analysis of individual financial statements.

Working Capital

Current assets minus current liabilities

Cash Ratio

A measure of a company's financial sustainability, calculated by (Cash + Cash equivalents) divided by Total current liabilities.

Inventory Turnover Ratio

Cost of goods sold divided by average merchandise inventory.

The Gross Profit Percentage

Gross Profit / Net Sales.

Financial Leverage

The higher the debt to equity ratio, the higher the financial leverage.

Financial Leverage

The higher the debt to equity ratio, the higher the financial leverage.

P/E Ratio

Shows the market price of $1 of earnings.