Accounting 207 Final Exam University Of Delaware

PCAOB

Public Company Accounting Oversight Board.
The group charged with determining auditing standards and reviewing the performance of auditing firms.

Periodic Inventory

There is a physical inventory count done. They do this usually quarterly, but it could be done just once a month.

Cost

Consists of all expenditures necessary to acquire an asset and make it ready for its intended use.

Discount (On a Bond)

The difference between the face value of a bond and its selling price when a bond is sold for less than its face value

Discontinued Operations

Disposal of a significant component of a business, income statement reports the gain or loss from discontinued operations, net of tax.

Bonds issued at a discount

Interest expense on the bonds will be GREATER than the interest paid.

Segregation of Duties

is the concept of having more than one person required to complete a task.

Balance Sheet

1. Assets
2. Liabilities
3. Stockholders Equity
4. Assets Should Equal Liabilities & Stockholders Equity

Going Concern Assumption

The assumption that the company will continue in operation for the foreseeable future.

Revenue Recognition Principle

An accounting principle under the GAAP that determines the specific conditions under which income becomes realized as revenue. Generally, revenue is recognized only when a specific critical event has occurred and the amount of revenue is measurable.

Conservatism Principle

A branch of accounting that requires a high degree of verification before making a legal claim to any profit. Accounting Conservatism will recognize all probable losses as they are discovered and most expenditures as they are incurred. Revenue will be deferred until it is verified.

Consistency

Use of the same accounting principles and methods from year to year within a company

Cash Method of Accounting

Is the more commonly used method of accounting in small business. Income is not counted until cash ( or a check ) is actually received, and expenses are not counted until they are actually paid.

Accrual Method of Accounting

Transactions are counted when the order is made, the item is delivered, or the services occur, regardless of when the money us actually received or paid. In other words, income is counted when the sale occurs, and expenses are counted when you receive the goods or services. You don't have to wait until you see the money, or actually pay money out of your checking account to record a transaction.

SOX

Sarbanes- Oxley Act of 2002.
Regulations passed by congress to reduce unethical corporate behavior.

Debits

Left side (What You Have)
Dividends
Expenses
Assets (Decrease in Assets is a credit)
Losses

FIFO

First in, First Out
An inventory costing method that assumes the earliest goods purchased are the first to be sold. Most companies use FIFO

FOB Destination

Freight Terms indicating that ownership of goods remains with the seller until the goods reach the buyer.

Lower Of Cost or Market (LCM)

A basis whereby inventory is stated at the lower of either its cost or its market value as determined by current replacement cost

Perpetual Inventory

Inventory levels are known, look at a computer and know exactly what is there. Most businesses are Perpetual now a days, (Even though you know your inventory, at least once a year perpetual businesses will take a physical inventory to minimize inventory shrinkage.) Also, two entries are required to make a sale.

Accounts Receivable

Amounts customers owe to an account.

Revenue Expenditures

Expenditures that are immediately charged against revenues as an expense.

Capital Expenditures

Expenditures that increase the company's investment in plant assets.

Straight Line Depreciation

A method in which companies expense an equal amount of depreciation for each year of the assets useful life.

Book Value

The Value of which an asset is carried on a balance sheet.

Disposal of Assets

Getting rid of an asset or security.

Bonds

A form of interest bearing notes payable issued by corporations, universities, and governmental entities.

Callable Bonds

Bonds that the issuing company can redeem (Buy Back) at a stated dollar amount prior to maturity.

Convertible Bonds

Bonds that can be converted into common stock at the bondholders option.

Secured Bonds

Bonds that have specific assets of the issuer pledged as collateral. (The assets back up the bonds)

Bond Certificate

A legal document that indicates the name of the issuer, the face value of the bonds, and other data such as the contractual interest rate and the maturity date of the bonds.

Premium (On a Bond)

The difference between the selling price and the face value of a bond when a bond is sold for more than its face value.

Par Value Stock

Capital Stock that has been assigned a value per share in the corporate charter.

No- Par Value Stock

Capital Stock that has not been assigned a value in the corporate charter.

Retained Earnings Restrictions

Circumstances that make a portion of Retained Earnings currently unavailable for dividends.

Treasury Stock

A corporations own stock that has been reacquired by the corporation and is being held for future use.

Comprehensive Income

Other comprehensive income contains all changes that are not permitted to be included in profit or loss.
Ex: Unrealized gains, Foreign currency translation adjustments, ETC.

Operating Activities

The cash effects of transactions that create revenues and expenses. MOST IMPORTANT They enter in determination of net income.

Investing Activities

Cash Transactions that involves the purchase or disposal of investments and PPE and lending money and collecting loans.

Financing Activities

Obtaining cash from issuing debt and repaying the amounts borrowed and obtaining cash from stockholders, repurchasing shares, and paying dividends.

Sustainable Income

The Net income adjusted for irregular revenues, expenses, gains, or losses. The most likely level of income to be obtained in the future.

Extraordinary Items

Events and transactions that are unusual in nature and infrequent in occurrence, report items net of taxes in a separate section of income statement below discontinued operations.

Copyright

Gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator PLUS 70 years

Current Liability

Obligations due to be paid within one year.

Long Term Liability

Obligations due to be paid over one year.

Issued Stock

The number of authorized shares that is sold to and held by the shareholders of a company, regardless of whether they are insiders, institutional investors, or the general public.

Accounting Equation

Assets= Liability + Stockholders Equity

Inventory Equation

Beg Inv
+ Purchases
Available for sale
- Ending Inventory
Cost of Goods Sold

Calculating Accounts Receivable Equation

Net Realizable Value= (Accounts Receivable Balance) x (Rate Given) - Allowance for Doubtful Accounts

Interest Formula

I=PRT
I=Interest
P=Principal
R=Rate (Decimal)
T=Time

Straight Line Depreciation Equation

Depreciation Expense= (Cost- Salvage Value)/ Life

Disposal of Assets Equation

Sales Price- Book Value
Positive Answer= Gain
Negative Answer= Loss

Common Stock Equation

Issued Shares x Par Value

Gross Profit Equation

GP= Sales- COGS

Gross Profit Rate Formula

Gross Profit Rate= GP/Net Sales

Calculating Cost of Goods Sold

COGS= Available for sale - Ending inventory

Calculating Total Amount of Paid- in Capital in Excess of Par

Example: Issued 60 Shares of $100 par value stock for $7000
$7000- (60 shares)($100)= $1,000

Weighted Average Equation

Weighted Average= Cost of Goods Available for Sale / Total Units Available for Sale

Retained Earnings Formula

Beg Retained earnings + net income -dividends paid

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Income Statement

1. Revenues
2. Expenses
3. Difference of that is Net income/loss

Historic cost

An accounting principle that states that companies should record assets at their costs.

Matching Principle

matches expenses with revenues in the period when the company makes efforts to generate those revenues.
Example: A salesman earns a 5% commission on sales shipped and recorded in January. The commission of $5,000 is paid in February. You should record the commission expense in January.

Objectivity Principle

States that accounting information and financial reporting should be independent and supported with unbiased evidence. This means that accounting information must be based on research and facts, not a preparers opinion. The Objectivity Principle is aimed at making financial statements more relevant and reliable

Business entity concept

Financial accounting is based on the premise that the transactions and balances of a business entity are to be accounted for separately from its owners. The business entity is therefore considered to be distinct from its owners for the purpose of accounting. Therefore, any personal expenses incurred by owners of a business will not appear in the income statement of the entity.

GAAP

Generally Accepted Accounting Principles.
The common set of accounting principles, standards, and procedures that companies use to compile their financial statements. Companies that use GAAP must maintain their accounting records by using the Accrual basis of Accounting.

FASB

Financial Accounting Standards Board.
A 7 Member independent board consisting of accounting professionals who establish and communicate standards of financial accounting and reporting in the United States. FASB standards, known as GAAP, govern the preparation of corporate financial reports and are recognized as authoritative by the SEC.

IASB

International Accounting Standards Board.
An accounting standard setting body that issues standards adopted by many countries outside of the U.S.

IFRS

International Financial Reporting Standards.
Accounting Standards, issued by the IASB. Goal is to achieve a world wide set of accounting standards.

Credits

Right side (What You Owe)
Gains
Income
Revenues
Liabilities (Decrease in Liability is a debit)
Stockholders Equity, Common Stock
Retained Earnings

LIFO

Last in, First Out
An inventory costing method that assumes that the latest units purchased are the first to be sold. Results in the lowest taxable income during inflation.

FOB Shipping Point

Freight Terms indicating that ownership of goods passes to the buyer when the public carrier accepts the goods from the seller.

Just In Time (JIT) Inventory

Inventory system in which companies manufacture or purchase goods just in time for the use.

Weighted Average

Average cost that is weighted by the number of units purchased at each unit cost.

Specific Identification Method

Used if a company can positively identify which particular units are sold and which are still in ending inventory.

Unsecured Bonds

Bonds issued against the general credit of the borrower. Are not backed by equipment, revenue, or mortgages on real estate. Instead, the issuer promises that they will be repaid. This promise is frequently called "full faith and credit."

Contingencies

Events with uncertain outcomes that may represent potential liabilities.

Common Stock

A security that represents ownership in a corporation

Retained Earnings

Net Income that a company retains in the business.

Non Cash Activities

Direct issuance of common stock to purchase assets, conversions of bonds into common stock, direct issuance of debt to purchase assets, and exchanges of plant assets.

Bonds issued at a premium

Interest expense on the bonds will be LESS than the interest paid.

Authorized Stock

The number of shares that a corporations charter allows it to sell.

Preferred Stock

Preferred stock is listed separately from common stock and trades at a different price. Unlike common stockholders, preferred stockholders are not usually entitled to voting rights, but they do have a higher claim on assets and earnings than do common shareholders.

Cash Equivalents

Are short term investments sufficiently close to their maturity date that their value is not sensitive to interest rate changes.

Net Income Equation

Net Income= Revenue- Expenses

Calculating Total Cost Equation

Total Cost: Sales Price- Returns- discount+ transportation

Book Value Equation

Book Value= Cost- Accumulated Depreciation

Annual Amortization Equation

AA= (Issue Price- Par Value) / Life

Interest Expense Equations

Interest Payable + Discount
Interest Payable - Premium

Calculating Outstanding Stock

(Big price of Common Stock Shares/ price)- Shares Reaquired

Calculating Total Amount of the Cash Dividend

(Outstanding Shares Given) x (Price Per Share)

Working Capital Equation

WC= Current Assets- Current Liabilities