ACC221 Final Exam Full Review

Current Assets

Assets that can be converted into cash in less than one year.

ex. (Cash, AR, inventory, short-term investments)

Horizontal Analysis (% Change)

(Current Year $ Amount - Prior Year $ Amount) / Prior Year $ Amount

C Corporations

Advantages: limited liability, unlimited size of ownership,can sell stocks to raise cash

Disadvantages: filings with SEC & IRS

Examples: U.S. Bank, Starbucks, etc.

501 (c) (3) Non-Profit Organization

Advantages: charitable or educational institutions fundedby donations, etc., tax-exempt, people who give themreceive tax write off

Disadvantages: profits needs to be reinvested in theorganization, difficult to get approval from IRS

Examples: Cincinnati Squash Club, Samaritans Purse

S-Corporations

Advantages: up to 100 owners, private, limited liability, ifan owner dies, S-corp continue to exist, control

Disadvantages: multiple tax and legal filings with IRS andstate, BOD is required

Examples: Cincinnati Sports Club, Chick-Fil-A

Partnership

Advantages: no filing with the state because it is a legaldocument, limited liability, easy to dissolve

Disadvantages: ceases to exist if the partner dies

Examples: real estate

LLC

Advantages: no risk with losing personal assets, file adocume with the state, could be any type of business

Disadvantages: hard to convert into public company

Examples: financial planning firm

Sole Proprietorship

Advantages: Easy to form; owner managed, owner is thesole investor

Disadvantages: "unlimited liability"

Examples: photographer, author, etc.

Trial Balance

ne of the financial reports that lists the balances of all general ledger accounts at a specific point in time, ensures total debits equal total credits

Pre-Closing Trial Balance

Lists all account balances, including temporary accounts, before closing entries.

Post-Closing Trial Balance

Includes only permanent accounts after closing entries to ensure the books are balanced. (Revenue and expense accounts should always be zero on the post closing trial balance)

Manufacturing Companies

a business that uses raw materials to create finished products

Merchandising Companies

a company that buys goods and then resells them (retail and wholesale)

Service Companies

a company that generates revenue by providing "intangible" services (e.g. plumbing company)

Long Term Assets

Assets that last longer than one year.

ex. (PP&E, intangible assets, long term investments)

Charitable Companies

a company that is established for charity purposes them (e.g. Dayton Children's Hospital

Cash Equivalents

Can be turned into cash (liquefied) within three months. '

ex. (Treasury bills, money market funds, commercial paper)

Short Term Investments

Can be turned to cash in less than 12 months.

ex. Stocks, bonds, or mutual funds held for trading.

Deferred Tax Asset

A tax benefit recorded when a company has overpaid taxes orhas tax-deductible expenses that can be applied to future periods.

ex. (It's been prepaid and will get a future tax benefit)

Inventory

Goods held for sale or production by a company.

Book Value of PP+E

The original cost of PP&E minus accumulated depreciation.

ex. (Equipment - AD = book value)

Amortization

The allocation of the cost of an intangible asset over its useful life.

ex. patent, trademark, etc.

Depreciation

The allocation of the cost of a tangible fixed asset over its useful life.

Goodwill

The premium paid above the fair market value of net assets in a business acquisition, representing brand value, reputation, or synergies.

ex. Starbucks: Reputation, Customer Base, etc.

Capital Costs

Costs recorded as an assetand depreciated over time because theyprovide future economic benefits.

Operating Costs

Costs expensed immediatelybecause they provide benefits only inthe current period.

Intangible Assets

Non-physical assets that have value.

Current Liabilities

Require payment, or become due within one year (12 months). ex. Accounts Payable, short term debt, accrued expenses

Long Term Liabilities

Liabilities that are due in greater than 12 months. ex. Long term bonds payable, leases, etc.

Current Portion of LT Debt

In current section because it's due in next 12 months. ex. Part of a loan that is due this year. ($5 million total, but $500,000 due this year)

Working Capital

Ability to pay bills in near future of company.

Equation

Working Capital: = Current Assets - Current Liabilities

Stored Gift Card Value (Deferred Revenue)

The value of outstanding gift cards that have not yet been redeemed, considered a liability because the company owes goods/services. ex Record as liability until redeemed

Notes Payable

A written promise to repay borrowed money, either short-term or long-term. ex. Loan from the bank (5 years - LT) (This year - ST)

Deferred Tax Liabilities

Future tax obligations a company owes due to temporary differences between financial reporting and tax rules.

Separation of Duties

The individual entering the accounting transaction is not the same person signing the checks.

Access Controls

Passwords on computers and accounting systems, providing different levels of access based on corporate authority.

Physical Audits

Hand counting cash and inventory at the end of the day. Comparing the physical count to the accounting record.

Standardised Documentation

A "paper trail" - Matching a receiving report of an inventory delivery with the invoice for payment.

Trial Balances

Used to determine if debits equal credits in an accounting system.

Reconciliations

Bank reconciliations involve comparing the bank's balance of cash with our accounting system's account balance and researching the difference.

Approval Authority

Requiring a second signature on checks over a certain amount.

Authorized stock

Number of shares available to sell by a company.

Issued stock

The number of shares that have actually been issued to shareholders.

Dividends

Payments made to shareholders from a company's retained earnings. ex. Declaring a dividend to shareholders. *Remember Date of Declaration

Treasury Stock

Value of shares that have been repurchased by company. ex. Reduces equity held by shareholders

Operating Activities Section

Measure of how much cash was generated (positive number) or used (negative number) by the operations of the business.

Investing Activities Section

This is a measure of how much cash was generated (used) by activities related to investing in the company.

Financing Activities Section

This is a measure of how much cash was generated (used) by activities related to financing the company.

Horizontal Analysis

Compares financial data across multiple periods, showing changes over time in both dollar amount and percentage. This helps us identify trends and

change.

Net Profit Margin %

Shows how much of each dollar of revenue becomes net profit. Higher = more profitable.

Current Ratio

Assesses short-term liquidity. It shows whether a company can cover short-term obligations (those due within a year).

Debt-to-Equity Ratio

Indicates the balance between company financing from debt vs. equity. High = more financial risk

Working Capital

A company's short-term liquidity and financial health. It shows how much cash a company has available to cover its immediate obligations.

Return on Equity Ratio

ROE measures how effectively a company is using its equity base to generate profit. In other words, it shows how much profit is generated for every dollar of equity invested by shareholders.