Final Accounting INT fall 2024

Who is the primary user of financial accounting information?
Investors, creditors, and other external decision-makers.
Which entities currently establish U.S. accounting standards?
The Financial Accounting Standards Board (FASB).
Which entities have enforcement authority of accounting standards for public companies?
The Securities and Exchange Commission (SEC).
What is GAAP?
Generally Accepted Accounting Principles (GAAP) are the guidelines for financial accounting and reporting in the U.S.
Why do we need a conceptual framework in accounting?
It provides a foundation for consistent standards and helps resolve accounting disputes.
Know how the Assumptions, Principles, and Constraint apply to GAAP we have learned?
Assumptions (e.g., going concern), principles (e.g., revenue recognition), and constraints (e.g., cost-benefit) guide the application of GAAP.

What is the normal account balance (debit or credit) for common accounts?
Assets and expenses have debit balances; liabilities, equity, and revenues have credit balances.
What are the primary purposes of adjusting entries?
To ensure revenues and expenses are recognized in the correct period.
How do you make the journal entries for common transactions?
Identify the accounts affected, determine the increase or decrease, and record the debit and credit amounts.
What is the trial balance?
A list of all accounts and their balances, used to ensure debits equal credits.
What is an accrued expense?
An expense incurred but not yet paid or recorded.

What are the major elements/categories of the income statement, and what comprise each element?
Revenues, expenses, gains, losses, and net income: operating / non-operating
How do you account for changes in estimates?
Adjust future periods without restating prior financial statements.
What items appear in the retained earnings statement?
Beginning retained earnings, net income, dividends, and adjustments for errors or changes in accounting principles.
How do you calculate earnings per share?
Divide net income available to common shareholders by the weighted average number of common shares outstanding.
What items are included in comprehensive income?
Net income and other comprehensive income, such as unrealized gains or losses on investments.

What are the major elements/categories of the balance sheet, and what comprise each element?
Assets, liabilities, and equity, classified into current and noncurrent categories.
How do you classify assets as current or noncurrent?
Current assets are expected to be converted to cash or used up within one year; noncurrent assets are long-term.
In what order are current assets presented in the balance sheet?
By liquidity, starting with cash.
What is a contra account?
An account that offsets another account, such as accumulated depreciation or allowance for doubtful accounts.

What are the major elements/categories of the cash flow statement, and what goes into each element?
Operating, investing, and financing activities, with each showing cash inflows and outflows.
How do you calculate cash flow from operations under the indirect method?
Start with net income and adjust for non-cash items and changes in working capital.
How do the different financial statements relate to each other?
Under accrural accounting, The income statement affects retained earnings on the balance sheet, and changes in cash flow affect the cash account.
What is financial statement analysis?
The process of evaluating a company’s financial health and performance using ratios and trends.
What is the most prevalent objective of financial statement analysis?
To assess profitability, liquidity, and solvency.

What is the time value of money?
Money today is worth more than the same amount in the future due to its earning potential.
When is the time value of money used in accounting transactions?
For long-term receivables, payables, leases, and pensions.
What is an annuity, and how does that relate to a single sum?
An annuity is a series of equal payments; it can be valued as the present or future value of a series of single sums.
What is compounding, and how does it change the time value of money?
Compounding calculates interest on the principal and previously earned interest, increasing future value.

At a broad level, when can you recognize revenue?
When a performance obligation is satisfied.
Be able to identify performance obligations in a contract.
Performance obligations are distinct goods or services promised in a contract.
What contractual amount should be used as the transaction price?
The price excludes amounts like discounts, rebates, and non-performance penalties.
What method do you use to measure revenue recognition over time?
Use the percentage of completion method for construction contracts.

What is cash and a cash equivalent?
Cash includes currency and bank deposits; cash equivalents are short-term investments readily convertible to cash.
How do you prepare a bank reconciliation?
Match the bank statement balance to the company’s cash account, adjusting for outstanding items and errors.
How do you account for bad debts under the allowance method?
Estimate uncollectible accounts, recording bad debt expense and an allowance; write-offs reduce accounts receivable and the allowance.
What are the key accounting considerations when selling receivables?
Determine if the sale is with or without recourse and recognize any gains or losse,,lks.

What costs should be included in inventory?
Purchase cost, conversion costs, and other costs to bring inventory to its present condition and location.
What are the key differences between inventory costing methods?
FIFO assumes oldest costs are sold first; LIFO uses the newest costs, affecting COGS and taxes.
What impact do prior period misstatements have on current period financial statements?
They carry over, ,impacting retained earnings and potentially requiring restatements.

What are the methods to value/measure inventory?
Cost, lower of cost or net realizable value, or market value.
What is net realizable value?
The estimated selling price minus costs to sell.
What is the entry to adjust inventory to net realizable value?
Debit loss on inventory write-down and credit inventory.
What are the characteristics of a perpetual and a periodic inventory system?
Perpetual updates continuously; periodic updates at period-end.

What does it mean to capitalize something?
To record a cost as an asset rather than an expense.
How and at what value is equipment capitalized?
At its purchase price plus costs to prepare it for use.
When is a gain or loss recognized on the sale of equipment?
When the selling price differs from the net book value.
What costs are capitalized to property, plant, and equipment, and what costs are expensed?
Capitalize purchase price and preparation costs; expense maintenance and repairs.
What is the net book value of an asset?
The asset’s cost minus accumulated depreciation.