ACCT 2301 FA2024 Final Exam Review Topics

Revenue recognition principle

To include the personal assets and transactions of a business's owner in the records and reports of the business would be in conflict with this principle.

Going-concern assumption

This assumption implies that a business will continue to operate indefinitely.

Business entity assumption

This principle requires that a business's financial activities be kept separate from those of its owners.

Monetary unit assumption

This assumption states that financial transactions should be recorded in a stable currency.

Objectivity principle

This principle requires that financial statements be based on objective evidence.

Measurement (Cost) principle

This principle requires that all goods and services purchased be recorded at actual cost.

Expense recognition (Matching) principle

This principle prescribes that a company record its expenses incurred to generate the revenue reported.

Fraud triangle

This concept includes Opportunity, Rationalization, and Pressure as its components.

Lender

An external user of accounting information.

Unearned revenues

Liabilities recorded when customers pay in advance for products or services.

Accounts receivable

These are held by a seller and are promises of payment from customers to sellers.

Debit

This is used to record an increase in an asset account.

Credit

This is used to record a decrease in an asset account.

Prepaid accounts

These are assets from prepayments of future expenses.

Ledger (or General Ledger)

The collection of all accounts and their balances is called this.

Adjusting entries

The main purpose of these entries is to recognize transactions and events that are not yet recorded.

T-account

The left side of a T-account is the debit side.

Normal balance of Services Revenue

This is a credit.

Normal balance of Cash account

This is a debit.

Normal balance of an expense account

This is a credit.

Normal balance of Unearned Revenue

This is a credit.

Normal balance of Accounts Receivable

This is a debit.

Effect on accounting equation

If a company uses $1,410 of its cash to purchase supplies, one asset increases $1,410 and another asset decreases $1,410, causing no effect.

Land purchase recording

The land should be recorded in the purchaser's books at $161,000.

Business activities

Accounting communicates, records, and identifies these activities.

Credit increase

This is used to record an increase in Accounts Payable.

Credit decrease

This is used to record a decrease in Accounts Receivable.

Adjusting Entries

Entries made to update account balances.

Prepaid Expenses

Payments made in advance for future expenses.

Unearned Revenue

Cash received before services are performed.

Accrued Expenses

Expenses incurred but not yet paid.

Accrued Revenues

Revenues earned but not yet received.

Cash Basis Accounting

Recognizes revenues when cash is received.

Accrual Basis Accounting

Recognizes revenues when earned, regardless of cash.

Net Income

Total revenues minus total expenses.

Cost of Goods Sold

Direct costs attributable to sold goods.

Gross Profit

Net sales minus cost of goods sold.

Insurance Expense

Cost allocated for insurance coverage period.

Office Supplies Expense

Cost of office supplies used during the period.

Transportation Costs

Costs incurred to transport goods purchased.

Cash Discounts

Reduction in price for early payment.

Sales Revenue

Income generated from selling goods/services.

Accounts Receivable

Money owed by customers for sales made.

Merchandise Inventory

Goods available for sale to customers.

Freight Costs

Shipping costs incurred for purchased goods.

Purchase Returns

Goods returned to suppliers for credit.

Adjusting Entry for Revenue

Debit Unearned Revenue, credit Revenue earned.

Adjusting Entry for Expenses

Debit Expense, credit Prepaid Expense.

Cash Received in Advance

Payment received before service delivery.

Management Services Expense

Cost for management services over a period.

Net Sales

Total sales minus returns and allowances.

Expense Recognition

Matching expenses to revenues in the same period.

Financial Statement Comparability

Consistency in reporting across periods.

FIFO Method

First-in, first-out inventory valuation method.

LIFO Method

Last-in, first-out inventory valuation method.

Weighted-Average Cost

Average cost per unit for inventory valuation.

Cost of Goods Sold (COGS)

Total cost of inventory sold during a period.

Ending Inventory

Value of unsold inventory at period's end.

Perpetual Inventory System

Continuous tracking of inventory levels.

Bank Statement

Monthly summary of bank account transactions.

Internal Control System

Processes to monitor and control business activities.

Cash Equivalents

Short-term, highly liquid investments.

Promissory Note

Written promise to pay a specified amount.

Allowance Method

Estimates bad debts expense in the same period.

Direct Write-Off Method

Records bad debts when they are deemed uncollectible.

Interest Accrual

Recognition of interest expense over time.

Salvage Value

Estimated value of an asset at end of life.

Depreciation Expense

Allocation of an asset's cost over its useful life.

Statement of Cash Flows

Reports cash inflows and outflows for a period.

Accounts Payable

Money a company owes to its suppliers.

Bad Debts Expense

Estimated uncollectible accounts receivable.

Customer Checks

Payments made by customers via checks.

Cash Sales

Sales transactions settled immediately in cash.

Inventory Valuation

Determining the worth of inventory on hand.

Financial Statements

Reports summarizing financial performance and position.

Audit

Independent examination of financial records.

Technological Controls

Use of technology to safeguard assets.

Regular Reviews

Periodic assessments of financial processes.

Divided Responsibilities

Separation of duties to prevent fraud.