bmgt final

Business

an organization in which basic resources are assembled and processed to provide goods or services to customers

Profit

The difference between the amounts received from customers for goods or services and the amounts paid for the inputs used to provide the goods or services

Accounting

An information system that provides reports to users about the economic activities and condition of a business

Managerial accounting

the area of accounting that provides users with information

Private accounting

Managerial accountants employed by a business are employed in \__________

Financial Accounting

The area of accounting that provides external users with information

General-purpose financial statements

one type of financial accounting report that is distributed to external users

Public Accounting

accountants and their staff who provide services on a fee basis are said to be employed in \___________

Private Accounting

Accountants employed by a business firm, government, or a not-for-profit organization are said to be employed in \____________

CPAs

Public accountants who have met a state's education, experience, and examination requirements

GAAP

Has the primary responsibility for developing accounting principles

SEC

an agency of the US government that has authority over the accounting and financial disclosures for companies whose shares of ownership are traded and sold to the public

IASB

Many countries outside of the US use generally accepted accounting principles adopted by the \__________

Business entity concept

the activities of a business are recorded separately from the activities of its owners, creditors, or other businesses

Proprietorship

owned by one individual

Partnership

owned by two or more individuals

Corporation

organized under federal or state statutes as a separate legal taxable entity

Cost Concept

amounts are initially recorded in the accounting records at their cost or purchase price

Objectivity Concept

requires that the amounts recorded in the accounting records be based on objective evidence

Unit of Measure Concept

requires that economic data be recorded in dollars

Assets

Resources owned by a business

Liabilities

the rights of creditors are the debts of the business, which are called \___________

Owner's Equity

The rights of the owners

Assets = Liabilities + Owner's Equity

The accounting equation

Business Transaction

An economic event or condition that directly changes an entity's financial condition or its results of operations

Account Payable

The liability created by a purchase on account

Prepaid Expenses

Items such as supplies that will be used in the business in the future (are assets)

Revenue

Increases in OE as a result of selling services or products to customers

Expenses

the using up of assets or consuming services in the process of generating revenues

Financial Statements

Financial reports that summarize the financial condition and operations of a business

Income Statement

Reports the revenues and expenses for a period of time

Statement of Owner's Equity

Reports the changes in the owner's equity for a period of time

Balance Sheet

A list of the assets, liabilities, and owner's equity as of a specific date

Account Form

form of balance sheet that lists the assets on the left and the liabilities and owner's equity on the right

Statement of Cash Flows

A summary of the cash receipts and cash payments for a specific period of time

Total Liabilites divided by Total Owner's Equity

Ratio of Liabilities to OE

Account

Accounting systems are designed to show the increases and decreases in each accounting equation element as a separate record. This record is called an \_____

Ledger

A group of accounts for a business entity

Chart of Accounts

A list of the accounts in the ledger

Drawing

account that represents the amount of withdrawals made by the owner

Double-Entry Accounting System

\-All businesses use

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\-Requires every business transaction to be recorded in at least two accounts

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\-Also requires the total debts be recorded for each transaction to be equal to the total credits recorded

Unearned Revenue

The liability created by receiving the cash in advance of providing the service

Trial Balance

The equality of debits and credits in the ledger should be proven at the end of each accounting period by preparing a \__________

Transposition

When the order of the digits is changed by mistake

Slide

The entire number is moved one or more spaces to the right of the left by mistake

Horizontal Analysis

The amount of each item on a current financial statement is compared with the same item on an earlier statement

Accounting period concept

requires that revenues and expenses be reported in the proper period

Accrual Basis of Accounting

revenues are reported on the income statement in the period in which they are earned

Revenue Recognition Concept

The accounting concept supporting the reporting of revenues when they are earned regardless of when cash is received

Matching Concept

The accounting concept supporting reporting revenues and related expenses in the same period

Cash Basis of Accounting

revenues and expenses are reported on the income statement in the period in which cash is received or paid.

Prepaid Expenses

The advance payment of future expenses and are recorded as assets when cash is paid

Unearned Revenues

The advance receipt of future revenues and are recorded as liabilities when cash is received.

Accrued Revenues

Unrecorded revenues that have been earned and for which cash has yet to be received

Accrued Expenses

unrecorded expenses that have been incurred and for which cash has yet to be paid

Depreciation

As time passes, the decrease in usefulness of an asset

Book Value

= Cost - Accumulated Depreciation

Vertical Analysis

Comparing each item in a financial statement with a total amount from the same statement

Classified Balance Sheet

a balance sheet that was expanded by adding subsections for (1) current assets, (2) property, plant, and equipment, (3) current liabilities, and (4) long-term liabilities.

Current Assets

Cash and other assets that are expected to be converted into cash, sold, or used up usually within a year or less, through the normal operations of the business

Notes Receivable

written promises by the customer to pay the amount of the note and possibly interest at an agreed rate

Property Plant and Equipment (fixed assets or plant assets)

assets that depreciate over a period of time. Land is an exception, since it is not subject to depreciation

Current Liabilities

Liabilities that will be due within a short time (usually one year or less) and that are to be paid out of current assets

Long Term Liabilites

Liabilities not due for a long time (usually more than one year)

\
(Long Term Notes Payable, Mortgage Payable, Bond Payable)

Permanent Accounts

\-Accounts that are relatively permanent from year to year

\
\-These accounts are carried forward from year to year

Temporary Accounts

\-Accounts that report amounts for only one period

* are not carried forward because they relate to only one period.

Income Summary

A temporary account that is only used during the closing process

Accounting Cycle

The accounting process that begins with analyzing and journalizing transactions and ends with preparing the accounting records for the next period's transactions

Fiscal Year

The annual accounting period adopted by a business

Natural Business Year

When a business adopts a fiscal year that ends when business activities have reached the lowest point in its annual operation

Liquidity

The ability to convert assets into cash

Solvency

The ability of a business to pay its debts

Working Capital

the excess of the current assets of a business over its current liabilities

WC = Current Assets - Current Liabilities

Working capital equation?

Current Ratio

another means of expressing the relationship between current assets and current liabilities

CR = Current Assets/Current Liabilities

Current Ratio equation?

Sarbanes-Oxley Act of 2002

applies only to companies whose stock is traded on public exchanges. Its purpose is to restore public confidence and trust in the financial statements of companies.

Internal Control

Broadly defined as the procedures and processes used by a company to:

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\-Safeguard its assets.

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\-Process information accurately.

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\-Ensure compliance with laws and regulations.

Employee Fraud

The intentional act of deceiving an employer for personal gain

Elements of Internal Control

Control Environment, Risk assessment, control procedures, monitoring, information and communication

Cash Short and Over Account

Salespersons may make errors in making change for customers or in ringing up cash sales. As a result, the amount of cash on hand may differ from the amount of cash sales. Such differences are recorded in a \___________

Electron Funds Transfer (EFT)

Cash may also be received from customers through ____________. Customers may authorize automatic electronic transfers from their checking accounts to pay monthly bills

Voucher System

Set of procedures for authorizing and recording liabilities and cash payments

Voucher

Any document that serves as proof of authority to pay cash or issue and EFT

Bank Statement

A summary received from the bank (usually monthly) of all checking account transactions

Bank Rec.

an analysis of the items and amounts that cause the cash balance reported in the bank statement to differ from the balance of the cash account in the ledger

Petty Cash Fund

It is usually not practical for a business to write checks to pay small amounts. Thus, it is desirable to control such payments by using a special cash fund, called a \____________

Cash equivalents

A company's excess cash is normally invested in highly liquid investments. These investments are called \_____________

Compensating Balance

Banks may require depositors to maintain minimum cash balances in their bank accounts. Such a balance is called a \_________________

Gross Profit

The cost of merchandise sold is subtracted from sales to arrive at \__________

COMS

When merchandise is sold, the revenue is reported as sales, and its cost is recognized as an expense is called \________

Merchandise Inventory

Merchandise on hand (not sold) at the end of an accounting period

Periodic Inventory System

If merchandise inventory at the end of the period is determined by taking a physical count of inventory on hand, a \________________ is being used.

Perpetual Inventory System

Under the \____________, the amounts of inventory purchased, available for sale, and sold are continuously updated in the inventory records

Debit Memo

informs the seller of the amount the buyer proposes to debit to the account payable due the seller.

\
\-for purchase returns and allowances

Credit Memo

authorizes a credit to (decreases) the buyer's account receivable -For a sales return or allowance

FOB Shipping Point

If ownership of the merchandise passes to the buyer when the seller delivers the merchandise to the freight carrier, the terms are said to be ________

\-title passes at common carrier

\- buyer pays

\-increases cost of inventory

FOB Destination

If ownership of the merchandise passes to the buyer when the buyer receives the merchandise, the terms are said to be _______________

\-title passes at warehouse

\-selling expense to seller

Trade Discounts

When wholesalers offer special discounts to certain classes of buyers who order large quantities

report form

When the balance sheet is presented in a downward sequence in three sections, it has been prepared using the \_______