Financial Accounting and Reporting

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1. 1. To provide external Two broad functions of 14. Bookkeeping the process of recording the accounts or
users with information that Accounting transactions of an entity
is useful in making, among
15. Business Is an activity where goods or services are
others, investment and
exchanged for money.
credit decisions; and
2. To provide internal users 16. Businessman or A person who is engaged in business
with information that is entrepreneur
useful in managing the 17. Communicating the accountant summarizes the information
business processed in the accounting system
2. Accontable events Are recorded in the books of 18. Cooperative Registered with the Cooperative
accounts Development Authority (CDA)
3. Account The basic storage of 19. Cooperative Owned by more than one individual.
information in accounting Formed in accordance with the provisions
4. Accountable events Affects the assets, liabilities, of The Philippine Cooperative Code of
(Economic events) equity, income or expenses of a 2008.
business 20. Cooperative An association of individuals who joined
5. Accounting A process of identifying, together to contribute capital and
recording and communicating cooperate in order to achieve certain
economic information that is goals.
useful in making economic 21. Corporation Owned by more the one individual.
decisions Created by Operation of Law rather than a
6. Accounting Is a process with the basic contract
purpose of providing 22. Corporation Is an artificial being or juridical person
information about economic
23. Cost Systematic recording and analysis of the
activities that is intended to be
Accounting costs of materials, labor, and overhead
useful in making economic
incident too the production of goods or
decisions
rendering of services
7. Accounting referred as the "language of
24. External Users 1. Existing and potential investors
business"
2. Lenders and Creditors
8. Accounting as an A system that consists of an 3. Government Agencies
Information system input, a process and an output 4. Non-managerial employees
9. Accounting Education teaching accounting and 5. Customers
accounting-related subjects in 6. public
an organize learning 25. External Users Who are not directly involves in managing
environment the business.
10. Accounting Education Becoming a certified public 26. Financial Impact of fair value measurement on the
accountant Accounting financial statements
11. Accounting Research Careful analysis if economic 27. Financial Focuses on the information needs of
events and other variables to Accounting external users
understand their impact and
28. Financial the branch of accounting that focuses on
other variables to understand
Accounting general purpose financial statements
their impact on decisions.
29. Financial Information expressed in money.
12. Auditing Inspection of an entity's
Information
financial statements or business
process to ascertain their 30. Financial Includes the financial statements plus other
correspondence with an Report information provided outside the financial
establish criteria statements
13. Auditing Internal controls and modern 31. Financial the provision of financial information about
technology Reporting and entity that is useful to external users.
32. Financial The structured representation of an entity's 51. Partners Business owner of Partnership are called
Statements financial position and results of its _________.
operations.
52. Partnership Owned by two or more individuals who
33. Fra Luca Father of modern accounting entered into a contract.
Pacioli
53. Partnership Registered with the Securities and Exchange
34. General information designed to meet the common Commission (SEC)
Purpose needs of most statement users. It is
54. Posting The accountant classifies the effects of the
accounting provided by financial accounting and is
event on the accounts
information prepared primarily for external users.
55. Practical Art Accounting requires the use of creative skills
35. Government Accounting for the government and its
and judgement
Accounting instrumentalities, focusing attention on
custody of public funds. 56. Primary To provide information about an entity's
objective of economic resources (Assets), claims to those
36. Hybrid Engage in more than one type of activity.
Financial resources (liabilities and equity), and
Business
Reporting changes in those resources (income, expense
37. Identifying The accountant analyzes each business and other changes)
transaction and identifies whether the
57. Process the recording, classifying and summarizing
transaction is "accountable event" or "non-
accountable evet". 58. Qualitative Information expressed in words or
Information descriptive form.
38. Inputs Identified accountable events
59. Quantitative Information expressed in numbers, quantities,
39. Internal Users 1. Business owners who are directly involved
Information or units
in managing the business
2. Board of directors 60. Reporting Is required, or chooses, to prepare financial
3. Managerial Personnel entity statements

40. Internal Users Who are directly involved in managing the 61. Secondary To provide useful in assessing the entity's
business. Objective of management stewardship.
financial
41. Journalizing The accountant recognizes (records) the
reporting
or Recording identified "Accountable events".
62. Service Offers services as its main product rather
42. Management Inventory management and its effect on
Business than physical goods.
Accounting earnings
63. Service Offer professional skills, expertise, advice,
43. Management Involves the accumulation and
business lending service, and similar services
Accounting communication of information for use by
internal users. 64. Shares of Ownership in a corporation is represented as
Stocks ______
44. Management Focuses on the information needs of internal
Accounting users 65. Social Accounting is a "body of knowledge" which
Science has been systematically gathered, classified
45. Management Offshoot of management Accounting
and organized
Advisory
Services 66. Sole or the most common and simplest form of
Single business organization
46. Manufacturing Buys raw materials and processes them into
Proprietorship
Business final products. Changes the physical form of
the goods. 67. Sole or Owned by one individual.
Single
47. Members Owners of cooperative are called __________
Proprietorship
48. Merchandising Is one that buys and sells goods without
68. Sole Business owner of Sole Proprietorship
Business changing their physical form.
Proprietor
49. Non- Not recorded in the books of accounts
69. Sole Registered with the Department of Trade and
Accountable
Proprietorship Industry (DTI)
events
50. output accounting report that is communicated to
the users
70. Special Purpose Information designed to meet the specific needs of particular statement users. It is provided by management
accounting accounting or other branches of accounting and is prepared primarily for internal users.
information
71. Stockholders or Owners of Corporation
Shareholders
72. Tax accounting Preparation of tax returns and rendering of tax advice, such as the determination of tax consequences of
certain proposed business endeavors
73. Types of business 1. Service Business
according to activities 2. Merchandising
3. Manufacturing
 Financial Accounting Flashcards
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1. Accelerated a depreciation method that writes off a 17. Acid-Test Ratio of the sum of cash plus short-term
depreciation relatively larger amount of the assets costs ratio investment plus net current receivable
method nearer the start of its use full life than the divided by total current liabilities, tell
straight line method does whether the entity can pay all its current
liabilities if they come due immediately. Also
2. Account the record of the changes that have occurred
called the quick ratio
in a particular asset, liability or stockholders
equity during a period 18. acid test ratio of the sum of cash plus short term
ratio investment plus net current receivables
3. Account A balance-sheet format that lists assets on the
divided by total current liabilities. Tell
format left and liabilities and stockholders equity on
whether the entity can pay all its current
the right
liabilities if they come due immediately. Also
4. Accounting the information system that measures business called the quick ratio
activities, processes that information into
19. Adjusted A list of all the ledger accounts with their
reports and financial statements and
Trial Balance adjusted balances
comminicates the results to decisions makers
20. aging-of- A way to estimate bad debts by analyzing
5. Accounting Assets = Liabilities + Owner's Equity
receivables individual accounts receivable according to
Equation
the length of time they have been receivable
6. accounts the number of times per year a company pays from the customer
payable off its accounts payable
21. Allowance The estimated amount of collection
turnover
for losses.Another name is Allowance for
7. Accounts Net sales divided by average net accounts Uncollectible Doubtful Accounts.
receivable receivable Accounts
turnover
22. Allowance A method of recording collection losses
8. accounts measures a company's ability to collect cash method based on estimates of how much money the
receivable from credit customers. To compute accounts business will not collect from its customers
turnover receivable turnover divide net credit sales by
23. amortization the systematic reduction of a lump sum
average net accounts receivable
amount. expense that applies to intangible
9. Accrual An expense or a revenue that occurs before assets in the same way depreciation applies
the business pays or receives cash. An to plant assets and depletion applies to
accrual is the opposite of a deferral natural resources
10. Accrual Accounting that records the impact of a 24. Asset an economic resource that is expected to be
accounting business event as it occurs, regardless of of benefit in the future
whether the transaction affected the cash
25. asset The dollars of sales generated per dollar of
11. Accrued An expense incurred but not yet paid in cash turnover assets invested formula is net sales divided
Expense by average total asset
12. accrued an expense incurred but not yet paid in cash. 26. Audit A periodic examination of a company's
expense also called accrued liability financial statements and the accounting
13. accrued a liability for an expense that has not yet been systems, control and records that produce
liability paid also called accrued expense them. Audits may be either external or
internal. External audits are usually
14. Accrued A revenue that has been earned but not yet
performed by Certified Public accountants
Revenue received cash
27. authorized Maximum number of shares a corporation
15. Accumulated The cumulative sum of all depreciation
stock can issue under its charter
Depreciation expense from the date of acquiring a plant
asset 28. Available for all investments not classified as held to
sale maturity or trading securities
16. Accured A liability for an expense that has not yet
securites
Liability been paid by the company
29. average cost Inventory costing method based on the 46. capital The amount that stockholders and lenders
method average cost of inventory during the period. charge charge a company for the use of their money.
Average cost is determined by dividing the Calculated as notes payable + current
cost of goods available by the number of maturities on longterm debt+longterm
units available. Also called the weighted- debt+stockholders equity x cost of capital
average method
47. capital Expenditure that increases an assets capacity
30. Bad-debt Another name for uncollectible account expenditure or efficiency or extends its use full life. capital
expense expense expenditures are debited to an asset account
31. Balance List of an entity's assets liabilities and 48. capital lease is assumed to be a capital lease if it
Sheet owners equity as of a specific date. also lease meets any one of four criteria. 1 the lease
called the statement of financial position transfers title of the leaded asset to the lesse. 2
the lease contains a bargain purchase option.3
32. Bank Collection of money by the bank on behalf
the lease term is 75% or more of the estimated
collections of a depositor
useful life of the leased asset. 4 the present
33. Bank A document explaining the reasons for the value of the lease payments is 90% or more of
Reconciliation difference between a depositors records and the market value of the leased asset
the banks records about the depositor's cash
49. Cash Money and any medium of exchange that a
34. Bank Document showing the beginning and bank accepts at face value
Statement ending balances of a particular bank
50. Cash-basis Accounting that records only transactions in
account listing the months transactions that
accounting which cash is received or paid
affected the account
51. Cash A budget that projects the entity's future cash
35. benchmarking the comparison of a company to a standard
Budget receipts and cash disbursements
set by other companies with a view toward
improvement 52. cash the number of days it takes to convert cash
conversion inventory, inventory to receivable, and
36. Board of Group selected by the stockholders to set
cycle receivable back into cash after paying off
directors policy for a corporation and to appoint its
payables. The formula is days inventory
officers
outstanding + days sales outstanding - days
37. board of Group elected by the stockholders to set payables outstanding
directors policy for a corporation and to appoint its
53. Cash Investments such as a time deposits,
officers
Equivalent certificated of deposit, or high-grade
38. bonds groups of notes payable issued to multiple government securities that are considered so
payable lenders called bondholders similar to cash that they are combined with
39. Book value The asset's cost minus accumulated cash for financial disclosure purposes in the
depreciation balance sheet

40. book value Amount of owners equity on the company's 54. cash highly liquid short term investments that can
books for each share of its stock equivalents be converted into cash immediately

41. book value common stockholders equity divided by the 55. cash flows cash receipts and cash payments
per share of number of shares of common stock 56. chairperson Elected by a corporations board of directors
common outstanding. The record amount for each usually the most powerful person in the
stock share of common stock outstanding corporation
42. Budget A quantitative expression of a plan that 57. channel a type of financial statement fraud that is
helps managers coordinate the entity's stuffing accomplished by shipping more to customers
activities (usually around the end of the year) than they
43. bylaws Constitution for governing a corporation ordered, with the expectation that they may
return some or all of it. the objective is to
44. callable bond bonds that are paid off early at a specified
record more revenue than the company has
price at the option of the issuer
actually earned with legitimate sale and
45. capital Another name for the owners equity of a shipments
business
58. Chapter 2 Transaction Analysis
59. Chapter 3 Accrual Accounting & income
60. Chapter 4 Internal Control & Cash 80. consignment An inventory arrangement where the seller
sells inventory that belongs to another party.
61. Chapter 6 Inventory and cost of goods sold
The seller does not include consigned
62. Chapter 7 Plant Assets, Natural Resources, & merchandise on hand in its balance sheet
intangibles because the seller does not own this
63. Chapter 8 Long-term investment & the time value of inventory
Money 81. consolidated financial statements of the parent company
64. Chapter 10 Liabilities financial plus those of majority owned subsidiaries as
statement if the combination were a single legal entity
65. Chapter 10 Stockholders Equity
82. Continuity the entity will continue to operate long
66. Chapter 11 The income statement,the statement of
assumption enough to use existing assets (land buildings
comprehensive income,and the statement
equipment and supplies)
of stockholders equity
83. Contra An account that always has a companion
67. Chapter 12 Statement of cash flow
Account account and whose normal balance is
68. Chapter 13 Financial statement Analysis opposite that of the companion account
69. Chart of List of a company accounts and their 84. contributed the amount of stockholders equity that
accounts account numbers capital stockholders have contributed to the
70. Check Document instructing a bank to pay the corporation. Also called paid in capital
designated person or business the 85. Controller The chief accounting officer of a business
specified amount of money
86. controlling ownership of more than 50% of an investee
71. Classified A balance sheet that shows current assets majority company's voting stock
balance sheet separate from long-term assets and current interest
liabilities separate from long-term liabilities
87. convertible bonds or notes that may be converted into
72. clean opinion an unqualified option bonds or the issuing company's common stock at the
73. Closing entries Entries that transfer the revenue, expense notes investors option
and dividends balances from these 88. copyright exclusive right to reproduce and sell a book,
respective accounts to the retained musical composition, film, other work of art,
earnings account or computer program. Issued by the federal
74. Closing the The process of preparing the accounts to government, copyrights extend 70 years
Books begin recording the next period's beyond the authors life.
transactions. Closing the accounts consists 89. Corporation a business owned by stockholders. A
of journalizing and posting the closing corporation is a legal entity, an artificial
entries to set the balances of the revenue, person in the eyes of the law
expense, and dividends accounts to zero.
90. cost of cost of the inventory the business has sold to
Also called closing the accounts
goods sold customers
75. common size a financial statement that reports only
91. cost of formula that brings together all the inventory
statement percentage ( no dollar amounts)
goods sold data for the entire accounting period:
76. Common Stock The most basic form of capital stock model Beginning inventory+purchases=goods
77. common stock the most basic form of capital stock. the available. Then, goods available minus
common stockholders own corporation ending inventory=cost of goods sold

78. comprehensive a company's change in total stockholders 92. Credit The right side of an account
income equity from all sources other than from the 93. Creditor The party to whom money is owed
owners of the business
94. cumulative preferred stock whose owners must receive
79. Computer A malicious program that enters a preferred all dividends in arrears before the corporation
Virus company's computer system by email or stock can pay dividends to the common
other means and destroys program and stockholder
data files
95. Current An Asset that is expected to be converted to 109. Debt ratio Ratio of total liabilities to total assets. States
Asset cash, sold, or consumed during the next 12 the proportion of a company's assets that is
months or within the business's normal financed with debt
operating cycle if longer than a year
110. debt ratio ratio of total liabilites divided by total assets.
96. Current An asset that is expected to be converted to states the proportion of a companys assets
Assets cash, sold, or consumed during the next 12 that is financed with debt.
months, or within the business's normal
111. Deferral An adjustment for which the business paid or
operating cycle if longer than a year
received cash in advance. Examples include
97. Current A debt due to be paid within one year or prepaid rent, prepaid insurance, and supplies
Liabilities within the entity's operating cycle if the cycle
112. Deficit Negative balance in retained earnings caused
is longer than a year
by a net loss over a period of years
98. Current A debt due to be paid within one year or
113. deficit Debit balance in the retained earnings
Liability within the entity's operating cycle if the cycle
account
is longer than a year
114. depletion that portion of a natural resource's cost that is
99. current the amount of the principal that is payable
used up in a particular period. Depletion
portion of within one year
expense is computed in the same way as
long term
units of production depreciation. A depleted
debt
asset usually flows into inventory and
100. Current Ratio Current assets divided by current liabilities. eventually to cost of goods sold as the
measure a company's ability to pay current resource is sold
liabilities with current assets
115. Deposits in A deposit recorded by the company but not
101. current ratio current assets divided by current liabilites. transit yet by its bank
measures a companys ability to pay current
116. depreciable the cost of a plant asset minus its estimated
liabilities with current assets
sold residual value
102. days in sale ratio of average net accounts receivables to
117. Depreciation Allocation of the cost of a plant asset to
receivables one days sales. indicates how many days
expense over its useful life
sales remain in accounts receivables
awaiting collection. Also called the 118. direct format of the operating activities of section of
collection period and days sales method the statement of cash flows lists the major
outstanding categories of operation cash receipts
(collections from customers and receipts of
103. days payable accounts payable turnover expressed in
interest and dividends) and cash
outstanding days 365 divided by turnover
disbursements (payments to suppliers to
104. Days' sales in Ratio of average net accounts receivable to employees for interest and income taxes)
receivables one days sales. Indicated how many days
119. Direct write A method of accounting for bad debts in
sales remain in Accounts receivables
off method which the company waits until a customers
awaiting the collection. Also called the
account receivables proves uncollectible and
collection period
then debits. Uncollectible accounts expense
105. debentures Unsecured bonds-bonds backed only by the and credits the customers account
good faith of the burrower receivables.
106. Debit The left side of an account 120. disclosure A business's financial statements must report
principle enough information for outsiders to make
107. debit A document issued to the seller (vendor)
knowledge decisions about the business. the
memorandum when an item of inventory that is unwanted
company should report relevant, reliable, and
or damaged is returned. This document
comparable information about its economic
authorizes a reduction (debit) to accounts
affairs
payable for the amount of the goods
returned. 121. discount ( on Excess of a bonds face par value over its
a bond) issue price
108. debtor the party who owes money
122. dividend Distribution (usually cash) by a corporation
to its stockholders
123. Dividends Distributions (usually cash) by a corporation to 134. economic Used to evaluate a companys operating
its stockholders value performance. EVA combines the concepts of
added accounting income and corporate finance to
124. dividend ratio of dividends per share of stock to the
measure whether the companys operatins
yield stocks market price per share. tells the
have increased stockholders wealth. EVA= net
percentage of a stocks market value that the
income + interest expense - capital charge
company returns to stockholders as dividends
135. efficent a capital market in which market prices fully
125. double an accelerated depreciation method that
capital reflect all information available to the public
declining computes annual depreciation by multiplying the
market
balance assets decreasing book value by a constant
method percentage which is two times the straight line 136. Electronic System that transfers cash by electronic
rate fund communication rather than by paper
transfer documents
126. double Corporations pay income tax on corporate
taxation income. then, the stockholders pay personal 137. Encryption Mathematical rearranging of data within an
income tax on the cash dividends that they electronic file to prevent unauthorized access
receive from corporations to information
127. doubtful- Another name for uncollectible account expense 138. Entity An organization or a section of an
account organization that, for accounting purposes,
expense stand apart from other organizations and
individual as a separate economic unit
128. DuPont a detailed approach to measuring rate of return
Analysis on equity. in this chapter we confine our 139. equity the method used to account for investments in
discussion to return on assets, compromising the method which the investor has 20-50% of the
fist two components of return on equity, investee's voting stock and can significantly
calculated as follows: net profit margin(net influence the decision of the investee
income before taxes/net sales) times total asset
140. equity another name for leverage ratio
turnover(net sales/average total assets)
multiplier
129. DuPont a detailed approach to measuring rate of return
141. estimated expected cash value of an asset at the end of
analysis on equity: Net profit margin (net income before
residual its useful life. Also called residual value, scrap
taxes /net sales)x total asset turnover (net
value value or salvage value
sales/average total assets)x leverage ratio
(average total asset/average stockholders 142. estimated length of service that a business expects to
equity) useful life get from an asset. May be expressed in years,
units of output, miles, or other measures
130. Dupont detailed method analzing rate of return on
Analysis common stockholders equity. Rate of return on 143. Ethics Standards of right and wrong that transcend
sales x asset turnover x leverage = return on economic and legal boundaries. Ethical
average common stockholders equity standards deal with the way we treat others
and restrain our own action because of the
131. earnings Amount of a company's net income earned for
desires, expectations, or rights of others or
per share each share of its outstanding common stock
because of our obligations to them
132. earnings amount of a company's net income per share of
144. Exception Identifying data that is not within "normal
per share its outstanding common stock
Reporting limits" so that managers can follow up and
133. earnings the characteristics of an earnings number that take corrective action.Exception reporting is
quality make it most useful for decision making. the used in operating and cash budgets to keep
degree to which earnings are an accurate company profits and cash flow in line with
reflection of underlying economic events for management's plans
both revenues and expenses, and the extent to
145. Expense The basis for recording expenses. Directs
which earnings from a company's core
Recognition accountants to identify all expenses incurred
operations are improving over time. Assuming
Principle during the period, to measure the expenses,
that revenues and expenses are measured
and to match them against the revenue earned
accurately, high quality earnings are reflected in
during that same period
steadily improving sales and steadily declining
costs over time so that income from continuing
operations follows a high and improving pattern
over time
146. Expenses Decrease in retained earnings that results 160. foreign the measure of one country's currency against
from operations; the cost of doing business; currency another country's currency
opposite of revenuse exchange
rate
147. extraordinary Also called extraordinary gain or loss
gains and 161. foreign the balancing figure that brings the dollar
losses currency amount of the total liabilities and stockholders
translation equity of the foreign subsidiary into agreement
148. Fair value the amount that a business could sell an
adjustment with the dollar amount of its total assets
asset for, or the amount that a business
could pay to settle liability 162. franchise privileges granted by a private business or a
and government to sell a product or service in
149. fair value the amount that a seller would receive in the
licenses accordance with specified conditions
sale of an investment to a willing purchaser
on a given date. Securities and available for 163. Fraud An intentional misrepresentation of facts made
sale securities are valued at fair market for the purpose of persuading another party to
values on the balance sheet date. other act in a way that causes injury or damage to
assets may be recorded at fair market value that party
on occasion
164. Fraud The three elements that are present in almost
150. fair value the asset's estimated market value at a Triangle all cases of fraud. These elements are motive,
particular date opportunity and rationalization on the part of
the perpetrator
151. Fidelity bond An insurance policy taken out on employees
who handle cash 165. Fraudulent Fraud perpetrated by management by
Financial preparing misleading financial statements
152. Financial The branch of accounting that provides
reporting
accounting information to people outside the firm
166. free cash the amount of cash available from operation
153. Financial Business documents that report financial
flows after paying for planned investments in plant
statements information about a business entity to
assets
decision makers
167. future measures the future sum of money that given
154. Financing Activities that obtain from investors and
value current investment is "worth" at a specified
activities creditors that cash needed to launch and
time in the future assuming a certain interest
sustain the business a section of the
rate
statements of cash flow
168. Generally Accounting guidelines formulated by the
155. financing activities that obtain from investors and
Accepted financial accounting standards board that
activities creditors the cash needed to launch and
Accounting govern how accounting is practiced
sustain the business a section of the
Principles
statement of cash flows
169. going holds that the entity will remain in operations
156. Firewall An electronic barrier usually provided by
concern for the foreseeable future
passwords, around computerized data files
assumption
to protect local area networks of computers
from unauthorized access 170. good will excess of the cost of an acquired company
over the sum of the market values of its net
157. First-in, first FIFO inventory costing method by which the
assets, assets minus liabilties
out cost first costs into inventory are the first costs
method out to cost of goods sold. Ending inventory 171. gross another name for gross profit
is based on the costs of the most recent margin
purchases.
172. gross another name for the gross profit method
158. FOB Acronym for "free on board";used in quoting margin
shipping terms method
159. foreign- the measure of one country's currency 173. gross another name for the gross profit percentage
currency against another country's currency margin
exchange percentage
rate
174. gross profit sales revenue minus cost of goods sold. Also
called gross margin
175. gross profit a way to estimate inventory based on a 188. Internal Organizational plan and related measures
method rearrangement of the cost of goods sold Control adopted by an entity to safeguard assets,
model: beginning inventory +net encourage adherence to company policies,
purchases=goods available minus cost of promote operational efficiency, and ensure
goods available sold=ending inventory. Also accurate and reliable accounting records
called the gross margin method
189. International Accounting guidelines, formulated by the
176. gross profit gross profit divided by net sales revenue. Also Financial International Accounting Standards Board
percentage called the gross margin percentage Reporting (IASB).U.S companies are expected to adopt
Standards these principles for their financial statements
177. hedging to protect oneself from losing money in one
so that they can be compared with those of
transaction by engaing in a counterbalance
companies from other countries
transaction
190. inventory the merchandise that a company sells to
178. held to bonds and notes that an investor intends to
customers
maturity hold until maturity
investments 191. inventory ratio of costs of good sold to average
turnover inventory . indicates how rapidly inventory is
179. Historical Principle that states that assets and services
sold.
cost should be recorded at their actual cost
principle 192. inventory ratio of cost of goods sold to average
turnover inventory. Indicates how rapidly inventory is
180. horizontal study of the percentage changes in
sold
analysis comparitive financial statments
193. investing activities that increase or decrease the long
181. impairment the condition that exists when the carrying
activites term assets available to the business; a
amount of a long lived asset exceeds the
section of the statement of cash flows
amount of the estimated cash flows from the
asset. Under GAAP once impaired the carrying 194. Investing Activities that increase or decrease the long-
value of a long lived asset may never be Activities term assets available to the business, a
increased. Under IFRS if the fair value is section of the statement of cash flow
impaired it can be increased in the future
195. investment An earning rate used to estimate the value of
182. Imprest A way to account for petty cash by capitalization an investment in stock
System maintaining a constant balance in the petty rate
cash account, supported by the fund (Cash
196. Issued stock Number of shares a corporation has issued
plus Payment Tickets) totallung the same
to its stockholders
amount
197. Journal The chronological accounting record of an
183. income A financial statement listing an entity's
entity's transactions
statement revenues, expenses, and net income or net
loss for a specific period. Also the statement 198. lapping A fraudulent scheme to steal cash through
of operations misappropriating certain customer payments
and posting payments from other customers
184. indirect format of the operating activities section of
to the affected accounts to cover it up.
method the statement of cash flows; starts with net
Lapping is caused by weak internal controls
income and reconciles to cash flows from
(improper access to cash and monitoring
operating activites
activities)
185. intangible An asset with no physical form, a special right
199. last in first LIFO inventory costing method by which the
assets to current and expected future benefits
out cost last costs into inventory are the first costs
186. interest the burrowers cost of renting money from a method out to cost of goods sold. This method
lender. Interest is revenue for the lender and leaves the oldest costs, those of beginning
expense for the burrower inventory and the earliest purchases of the
period in ending inventory
187. interest another name for the times interest earned
coverage ratio 200. lease rental aggrement in which the tennant (lesse)
ratio agrees to make rent payments to the
property owner (lessor) in exchange for the
use of the asset
201. Ledger The book of accounts and their balances
202. legal Minimum amount of stockholders equity that a 216. Long-term debt A liability that falls due beyond one year
capital corporation must maintain for the protection of from the date of the financial statements
creditors. For corporations with par-value stock,
217. long term any investment that does not meet the
legal capital is the par value for the stock
investment criteria of a short term investment;any
issued
investment that the investor expects to
203. lessee tenant in a lease agreement hold longer than a year or that is not
readily marketable
204. lessor property owner in a lease agreement
218. Long-term A liability that is not a current liability
205. leverage using burrowed funds to increase the return on
Liability
equity. successful use of leverage means
earning more income on burrowed money than 219. lowest of cost LCM requires that an asset be reported in
the related interest expense, thereby increasing or market rule the financial statements at whichever is
the earnings for the owners of the business. lower, its historical cost or its market
Also called trading on the equity value, current replacement cost for
inventory
206. leverage earnings more income on burrowed money than
the related interest expense, thereby increasing 220. management The branch of accounting that generates
the earnings for the owners of the business. accounting information for the internal decisions
Also called trading on the equity makers of a business such as top
executives
207. leverage ratio of average total assets divided by average
ratio common stockholders equity. Measures the 221. marketable Another name for short term investment
proportion of average total assets actually securities
owned by the stockholders
222. market interest interest rate that investors demand for
208. leverage the ratio of total asset divided by total ratio loaning their money. Also called
ratio stockholders equity, showing the proportion of effective interest rate
total stockholders equity to total assets. tells
223. market value (of Price for which a person could buy or
the mixture of a companys debt and equity
a stock) sell a share of stock
financing and is useful in calculating rate of
return on stockholders equity through the 224. maturity the date on which a debt instrument must
dupont model be paid

209. Liability An economic obligation (a debt) payable to an 225. maturity date the date on which the debtor must pay
individual or an organization outside the the note
business 226. Misappropriation Fraud committed by employees by
210. limited no personal obligation of a stockholder for of assets stealing assets from the company
liability corporation debts. A stockholders can lose no 227. Modified a special depreciation method used only
more on an investment in a corporations stock Accelerated for income tax purposes. Assets are
than the cost of the investment cost recovery grouped into classes and for a given
211. limited A business organization in which the business system class depreciation is computed by the
liability (not the owner) is liable for the company's double declining balance method
company debts 228. multi-step An income statement that contains
212. liquidation The amount a corporation must pay a preferred income subtotals to highlight important
value stockholder in the event the company liquidates statement relationships between revenues and
and goes out of business expenses

213. Liquidity Measure of how quickly an item can be 229. natural assets such as oil and gas reserves, coal
converted to cash resources mines, or stand of timber accounted for
as long term assets when purchased or
214. lock-box A system of handling cash receipts by mail
developed, their cost is transferred to
system whereby customers remit payment directly to
expense through a process called
the bank rather than through the entity's mail
depletion
system
230. net income, net Excess of total revenues over total
215. Long- An Asset that is not a current asset
earnings,net expenses,Revenues minus Expenses=net
term
profit income
asset
231. net loss Excess of total expenses over total 246. parent an investor company that owns more than 50%
revenue company of the voting stock of a subsidiary company
232. net profit computed by the formula net income 247. partnership An association of two or more persons who
margin divided by net sales. this ratio measures co-own a business for profit
the portion of each net sales dollar
248. par value arbitrary amount assigned by a company to a
generated in net profit
share of its stock
233. net working A measure of liquidity; Current assets
249. Password A special set of characters that must be
capital minus current liabilities
provided by the user of computerized
234. noncontrolling a subsidiary company's equity that is held program or data files to prevent unauthorized
minority by stockholders other than the parent access to those files
interest company
250. patent a federal government grant giving the holder
235. Non sufficient A "hot" check one for which the payers the exclusive right for 20 years to produce and
funds check bank account has insufficent money to pay sell an invention
the check. NSF checks are cash receipts
251. payroll Employee compensation a major expense of
that turn out to be worthless
many businesses
236. operating Activities that create revenue or expenses
252. pension Employee compensation that will be received
Activities in the entity's major line of business; a
during the retirement
section of the statement of cash flow, it
also affects the income statement 253. percent of computes uncollectible account expenses as a
sales percentage of net sales. Also called the
237. operating activities that create revenue or expense in
method income statement approach because it focuses
activities the entity's major line of business; a section
on the amount of expense to be reported on
of the statement of cash flows . operating
the income statement
activities affect the net income statement
254. periodic an inventory system in which the business
238. Operating A budget of future net income. The
inventory does not keep a continuous record of the
budget operating budget projects a company's
system inventory on hand. Instead, at the end of the
future revenue and expenses. It is usually
period, the business makes a physical count of
prepared by line item of company's income
the inventory on hand and applies the
statement.
appropriate unit costs to determine the cost of
239. Operating Time span during which cash is paid for the ending inventory
cycle goods and services that are sold to
255. Permanent Asset, liability, and stockholders equity
customers who pay the business in cash
accounts accounts that are not closed at the end of the
240. operating a lease in which the lessee does not period
lease assume the risks or rewards of asset
256. perpetual an inventory system in which the business
ownership
inventory keeps a contiuous record for each inventory
241. Outstanding A check issued by the company and system item to show the inventory on hand at all times
checks recorded on its books but not yet paid by
257. Petty Cash Fund containing a small amount of cash that is
its bank
used to pay minor amounts
242. outstanding stock in the hands of stockholders
258. Phishing Creating bogus websites for the purpose of
stock
stealing unauthorized data, such as names,
243. Owners equity the claim of the owners of a business to addresses, social security number, bank
the assets of the business. Also called accounts and credit card numbers
Capital, Stockholders Equity or net assets
259. Plant asset Long-lived assets, such as land, buildings, and
244. Paid-in Capital the amount of stockholders equity that equipment used in the operation of the
stockholders have contributed to the business. Also called fixed assets
corporation. Also called contributed
260. plant long lived assets such as land, buildings and
capital
assets equipment, used in the operation of the
245. paid in capital the amount of stockholders equity that business. Also called fixed assets or property
stockholders have contributed to the and equipment
corporation. Also called contributed
capital
261. Posting Copying amounts from the journal to the 277. rate of Net income divided by average total assets.
ledger return on This ratio measures a companys success in
assets using its assets to earn income for the
262. preferred stock that gives its owners certain
persons who fiance the business
stock advantages, such as the priority to receive
dividends before the common stockholders 278. rate of Net income minus preferred dividends,
and the priority to receive asset before the return on divided by average common stockholders
common stockholders if the corporation common equity. A measure of profitability. Also called
liquidates stockholders return on equity. Also can be computed with
equity Dupont analysis
263. premium on a excess of a bonds issue price over its face
bond (par) value 279. rate of net income minus preferred dividends,divided
return on by average common stockholders equity. a
264. Prepaid A category of miscellaneous assets that
common measure of profitability. Also called return on
expenses typically expire or get used up in the near
stockholders equity
future. Examples include prepaid rent,
equity
prepaid insurance, and supplies
280. rate of ratio of net income to net sales. A measure of
265. present value the value on a given date of a future
return on profitability. Also called return on sales
payment or series of future payments,
net sales
discounted to reflect the time value of
money 281. rate of net income divided by average total assets.
return on The ratio measures a company's success in
266. president chief operating officer in charge of
total assets using its assets to earn income for the
managing the day to day operations of a
persons who finance the business. Also
corporation
called return on assets
267. pretax income before tax on the income statement
282. receivables monetary claims against a business or an
accounting
individual, acquired mainly by selling goods
income
or services and by lending money
268. price/earnings ratio of the market price of a share of
283. redeemable A corporation reserves the right to buy an
ratio common stock to the companys earnings
preferred issue of stock back from its shareholders with
per share. Measures the value that the stock
stock the intent to retire the stock
market places on one dollar of a
companys earnings 284. redemption the price a corporation agrees to eventually
value pay for its redeemable preferred stock set,
269. principal the amount borrowed by a debtor and lent
when the stock is issued
by a creditor
285. Remittance An optional attachment to a check
270. prior period a correction to beginning balance of
Advice (sometimes a perforated tear-off document
adjustment retained earnings for an error of an earlier
and sometimes capable of being
period
electronically scanned) that indicated the
271. proprietorship a business with a single owner payer date, and purpose of the cash
272. purchase a decrease in the cost of purchases payment. The remittance advice is often used
allowance because the seller has granted the buyer a as the source documents for posting cash
subtraction, an allowance from the amount receipts or payments
owed 286. Report A balance-sheet format that lists assets at the
273. purchase a decrease in the cost of purchases earned Format top, followed by liabilities and stockholders
discount by making an early payment to the vendor equity below

274. purchase a decrease in the cost of purchases 287. retained the amount of stockholders equity that the
return because the buyer returned the goods to earning corporation has earned through profitable
the seller operation of the business and has not given
back to stockholders
275. quick ratio Another name for acid-test ratio
288. retained the amount of stockholders equity that the
276. quick ratio another name for the acid test ratio
earnings corporation has earned through profitable
operation and has not given back to
stockholders
289. return on asset also known as rate of return on 300. Short-term investments that a company plans to hold
asset. measures how profitably investment for one year or less. Also called
management has used the marketable securities
assets that stockholders and
301. short-term investment that a company plans to hold
creditors have provided the
investment for 1 year or less. Also called marketable
company
securities
290. return on assets Another name for rate of return
302. short term note payable that are due within one year
on total assets
notes payable
291. return on equity Another name for rate of of
303. Single-step an income statement that lists all the
return on common
income revenue together under a heading such as
stockholders equity
statement revenues or Revenues and gains. Expenses
292. Revenue Principle The basis for recording appear in a separate category called
revenues; tells accountants Expenses or perhaps Expenses and Losses
when to record revenue and
304. specific unit inventory cost method based on the
the amount of revenue to
cost method specific cost of particular units of
record
inventory
293. revenues increase in retained earnings
305. Stable- the reason for ignoring the effect of
from delivering good or
monetary unit inflation in the accounting records based
services to customers or
assumptions on the assumption that the dollar's
clients
purchasing power is relatively stable
294. sales discount percentage reduction of sales
306. stated interest interest rate that determines the amount of
price by the seller as an
rate cash interest the burrower pays and the
incentive for early payment
investor receives each year
before the due date. A typical
way to express sales discount 307. stated value An arbitrary amount assigned to no par
is "2/10,n/30". this means the stock; similar to par value
seller will grant a 2% discount 308. Statement of Reports cash receipts and cash payments
if the invoice is paid within 10 cash flow classified according to the entity's major
days and the entire amount is activities ; operating, investing and
due within 30 days financing
295. sales return and Merchandise returned for credit 309. Statement of Reports cash receipts and cash payments
allowance or refunds for services cash flow classified according to the entity's major
provided activities such as operating, investing, and
296. serial bond bonds that mature in financing
installments over a period of 310. statement of reports cash receipts and cash payments
time cash flows classified according to the entity's major
297. shareholders persons or other entities that activities; operating, investing and
own stock in a corporation. financing
Also called stockholders 311. statement of a statement showing all of the changes in
298. shareholders/stockholders A person who owns stock in a comprehensive stockholders equity during a period other
corporation income than transactions with owners. The
statement of comprehensive income
299. Shipping terms terms provided by the seller of
includes net income as well as other
merchandise that dictate the
comprehensive income such as
date on which title transfers to
gain/losses on available for sale securities
the buyer. A typical way to
and foreign currency translation
express shipping terms is
adjustments
through FOB terms.
312. statement of Summary of the changes in retained
retained earnings of a corporation during a specific
earnings period
313. statement of Reports the changes in all categories of 331. total asset a measure of efficiency in usage of total
stockholders stockholders equity during the period turnover assets. the ratio calculates how many times
equity per year total assets are covered by net
sales. Formula: net sales divided by
314. stock shares into which the owners equity in a
average total asset.
corporation
332. trading on another name for leverage
315. stock shares into which the owners equity of a
equity
corporation is divided
333. trading on earning more income on burrowed money
316. stock a proportional distribution by a corporation
the equity than the related interest expense thereby
dividend of its own stock to its stockholders
increasing the earnings for the owners of
317. stockholders a person who own stock in a corporation the business.Also called leverage, the
318. Stockholders the stockholders ownership interest in the power of which is illustrated through the
equity assets of a corporation leverage ratio

319. stockholders the stockholders ownership interest in the 334. trading stock investments that are to be sold in the
equity assets of a corporation securities near future with the intent of generating
profits on the sale
320. stock split an increase in the number of authorized
issued and outstanding share of stock 335. Transaction Any event that has a financial impact on the
coupled with a proportionate reduction in business and can be measured reliably
the stocks par value 336. Treasurer the individual in charge of the department
321. straight line depreciation method in which an equal that has final responsibility for cash
method amount of depreciation expense is assigned handling and cash management.the
to each year of asset use treasurer's department include cash
budgeting, cash collections, writing checks,
322. strong a currency whose exchange rate is rising
investing excess funds and making
currency relative to other nations curriencies
proposals for raising additional cash
323. subsidiary an investee company in which a parent needed
company owns more than 50% of the voting
337. treasury a corporations own stock that it has issued
stock
stock and later reacquired
324. taxable the basis for computing the amount of tax to
338. trend a form of horizontal analysis that indicated
income pay the government
percentage the direction a business is taking
325. Temporary The revenue and expense accounts that
339. Trial Balance A list of all the ledger accounts with their
Accounts relate to a limited period and are closed at
balances
the end of the period are temporary
accounts. For a corporation, the dividends 340. Trojan Horse A malicious program that hides within
account is also temporary legitimate programs and acts like a
computer virus
326. term the length of time for inception to maturity
341. uncollectible- cost to the seller of extending credit. Arises
327. term bonds bonds that all mature at the same time for a
account from the failure to collect from credit
particular issue
expense customers. Also called doubtful-account
328. Time-period Ensures that accounting information is expense or bad debt expense
concept reported at regular intervals
342. underwriter organization that purchases the bonds from
329. times ratio of income from operations to interest an issuing company and resells them to its
interest expense. Measures the number of times that clients or sells the bonds for a commission,
earned ratio operating income can cover interest expense. agreeing to buy all unsold bonds
Also called the interest coverage ratio
343. Unearned A liability created when a business collects
330. times ratio of income from operations to interest revenue cash from customers in advance of earning
interest expense. measures the number of times that the revenue. The obligation is to provide a
earned ratio operating income can cover interest expense. product or a service in the future.
Also called the interest coverage ratio
344. unit depreciation method by which a fixed
production amount of depreciation is assigned to each
method unit of output produced by the plant asset
345. unqualified An audit opinion stating that the financial statement are reliable
(clean) opinion
346. vertical analysis analysis of a financial statement that reveals the relationship of each statement item to a specified base which is
100% figure
347. weak currency a currency whose exchange rate is falling relative to that of other nations
348. weighted average The combined rate of return expected for a company by its creditors and investors. in general, the higher the
cost of capital risk associated with the company the greater the expected returns by creditors and investors
349. weighted average a weighted average returns demanded by the company's stockholders and lenders. often referred to as the
cost of capital weighted average cost of capital
350. weighted average another name for the average cost method
method
351. working capital current assets minus current liabilities measures a bussiness's ability to meet its short term obligations with its
current assets. Also called net working capital
 Finacc1 Learning Packet W1-W3
Study online at quizlet.com/_8ri4gx

1. Account An individual accounting record of increases 17. Accrued Revenues Revenues that have already
and decreases in a specific asset, liability, been earned by passage of time
owner's equity, revenue or expense item but are not yet recorded nor
cash has been received for the
2. Account the most basic summary device in accounting
amount of the revenue earned.
where increases, decreases and balance of
each element that appears in an entity's 18. Asset a resource controlled by the
financial statements are detailed. entity as a result of past events
and from which future economic
3. Accounting Is a process of identifying, measuring and
benefits are expected to flow to
communicating economic information
the entity.
4. Accounting Is an art of recording, classifying and
19. Asset Cost The acquisition cost relating to
summarizing in a significant manner
the long-lived asset item
5. Accounting Is a systematic process. "process" is a series
20. Asset DEBIT
of actions that produce something or that
Drawings
lead to a particular result
Expenses
6. Accounting Is an art. The word "art" refers to the design of
21. ASSET METHOD Initial Recognition:
how something can be performed
Prepayments are recorded as
7. Accounting Is an information system. ASSETS
8. Accounting is a service activity. It provides quantitative Adjustment Analysis:
information, primarily financial in nature Calculate for the EXPIRED
portion of the prepayment
9. Accounts Amounts due to 3rd parties for purchase on
Adjusting Journal Entry:
Payable credit.
Record an EXPENSE
10. Accounts Amounts due from customers arising from
22. Assets = Liabilities + THE FUNDAMENTAL
Receivable credit sales or credit services.
Owner's Equity ACCOUNTING EQUATION
11. Account a. Accounts affected in the transaction
23. Assets = Liabilities + This equation may be expanded
Titles and b. Brief narrative on the transaction
Owner's Equity - to show the changes that may
Explanations
Drawings + Revenues - happen to the equity portion of
(or
Expenses the equation:
Particulars)
24. Asset Salvage Value The estimated value of the long-
12. Accrual Basis - Recognizes revenue when earned (revenue
lived asset item at the end of its
recognition principle)
life determined by the entity.
- Recognizes expense when incurred (expense
recognition principle) 25. Bad Debts/Doubtful Are losses (lost revenues) to be
Accounts/ Uncollectible incurred by the entity due to
13. Accrual basis it requires that all business transactions and
Accounts uncollectible accounts.
other events are recognized in the accounting
records when they occur, rather than when the 26. BASIC ELEMENTS OF 1.Balance Sheet and Real
cash is received or paid. FINANCIAL Accounts
REPORTS/INFORMATION 2.Income Statement and
14. ACCRUALS Without an adjustment, the revenue account
Nominal Accounts
(and the related asset account) or the expense
account (and the related liability account) are 27. Building Physical structure on land used
understated.` in business.

15. Accruals - Accrued revenues 28. Calendar year meaning 12 months that starts on
- Accrued expenses January 1 and ends on
December 31
16. Accrued Payables for expenses already incurred/used
Expenses but not yet paid for. 29. Cash Basis - Recognizes revenue when cash
(Expenses is received from customer.
Payable) - Recognizes expense when
cash is paid to biller.
30. Cash in Bank Cash deposited in
savings/checking accounts.
31. Cash on Cash that is intended to be deposited with the 45. THE This a method of recording the business
Hand bank, DOUBLE- transactions in terms of the "dual effect" on
ENTRY the accounting elements. Under this system, a
32. Closing Formally recognize the transfer of net income
SYSTEM debit side entry must have a corresponding
Entries (or net loss) and owner's drawings to owner's
credit side entry.
capital. They also produce a zero balance in
each temporary account 46. Entity a concept which regards the business
Concept enterprise as separate and distinct from its
33. Compound Entries involving more than two accounts
owners and from other business enterprises.
Entry entered in the transaction.
47. Equipment used in business operations
34. Consistency a principle which requires the entity to use
Principle uniform accounting 48. Equity the residual interest in the assets of the entity
approaches/method/policies from period to after deducting all its liabilities.
period to allow comparability of financial
49. Estimated The expected term in which the long-lived
reports over time within a single entity.
Useful Life asset item is expected to be of use to the
35. Cost of The direct cost of the products sold or the company
Sales or services rendered.
50. Expense Adjustment Analysis
Services
Calculate for the INCURRED portion of the
36. Credit Increases in Liabilities Increases in Equity expense.
Increases in Revenue Adjusting Journal Entry
Decreases in Assets Record a EXPENSE and matched against a
Decreases in Drawings PAYABLE.
Decreases in Expenses
51. Expense Initial Recognition:
37. Date the transaction has transpired or happened) Method Prepayments are recorded as EXPENSES
Adjustment Analysis:
38. Debit Increases in Assets
Calculate for the UNEXPIRED portion of the
Increases in Drawings
prepayment
Increases in Expenses
Adjusting Journal Entry:
Decreases in Liabilities
Record an ASSET (Prepaid Account)
Decreases in Equity
Decreases in Revenue 52. Expense Expenses should also be recognized at the
Recognition time they are incurred and not at the time
39. DEFERRALS Are costs or revenues that are recognized at a
Principle when the entity paid.
date later than the point when cash was
originally exchanged. 53. Expenses decreases in economic benefits during the
accounting period in the form of outflows or
40. Deferrals - Prepaid expenses
depletions of assets or incurrences of
- Unearned revenues
liabilities that result in decreases in equity,
41. Depreciable The value of the asset to be depreciated other than those relating to distributions to
Amount calculated with the formula: Asset Cost - equity participants.
Asset Salvage Value
54. THE The key product or the end product of the
42. Depreciation Depreciable Amount ÷ Estimated Useful Life FINANCIAL accounting process is a set of documents
Expense (in years or months) STATEMENTS
43. Depreciation The allocation of long-lived asset cost over 55. Fiscal Year meaning 12 months that starts on any month
Expense its estimated useful life. This is the expense of the year other than January and ends 12
allotted for the wear and tear of property, months after the starting month.
plant, and equipment due to passage of time.
56. Full requires that companies disclose all
44. Depreciation That portion of the cost of buildings and Disclosure circumstances and events that would make a
Expense equipment allocated to one accounting Principle difference to financial statement users
period
57. Fundamental To better understand the manner in which
Concepts data are presented
58. Fundamental In the practice of accounting, principles 73. Land Real property owned and in use in the
Principles provide specific guidance on how operation of business.
transactions are to be identified, analyzed
74. Ledger The entire group of accounts maintained by a
and recognized in carrying out the
company. This is also called the book of final
accounting service.
entry.
59. general journal The simplest journal entry
75. Left Side Debit Side
60. General Contains all the major assets, liabilities,
76. Liabilities Credit
Ledger owner's equity, revenue and expenses
Equity
accounts.
Revenue
61. Going Concern a concept which assumes that the business
77. Liability a present obligation of the entity arising from
enterprise will continue to operate for an
past events, the settlement of which is
unforeseeable future.
expected to result in an outflow from the
62. Identifying and 1st step in accounting cycle entity of resources embodying economic
analyzing the benefits.
events to be
78. LIABILITY Initial Recognition:
recorded
METHOD Deferred revenues are recorded as
63. Income the income statement shows the result of LIABILITIES
Statement or operations for a given period. It consists of Adjustment Analysis:
Statements of the revenue, cost, and expenses. Calculate for the EARNED portion of the
Comprehensive prepayment
Income Adjusting Journal Entry:
Record a REVENUE
64. Income Summary account used to close the
Summary income and expense accounts 79. Matching All efforts (expenses) incurred by the
Principle company are matched with the results
65. Information A set of interrelated components that work
(revenues). Thus, expenses follow revenues.
system together to achieve common purpose.
80. Materiality a principle which recognizes that financial
66. Insurance Expired portion of the insurance availed.
reporting is only be concerned with
Expense
information that is significant enough for a
67. Interest Interest on debts or monetary obligations particular user to affect its decision
Expense
81. Measurement the historical cost principle or the fair value
68. Journal The book of original entry where Principle principle. Selection of which principle to
companies initially record transactions in follow generally relates to trade-offs
chronological order. For each transaction between relevance and faithful
the journal shows the debit and credit representation.
effects on specific accounts
82. Mortgage Loans payable secured by the entity's real
69. Journalizing Entering transaction data in the journal. In Payable estate property,
journalizing transactions, the double-entry
83. Notes Amounts due to 3rd parties supported by
system is used.
Payable promissory note.
70. Journalizing 7th Step in accounting cycle
84. Notes Amounts due from others supported by
and posting of
Receivable promissory note.
adjusting
journal entries 85. Objectivity a principle which states that all business
Principle transactions that will be entered in the
71. Journalizing 8th Step in accounting cycle
accounting records must be duly supported
and posting of
by verifiable evidence.
closing journal
entries 86. Owner's Value of cash and other assets contributed to
Capital the business by the owner of the business.
72. Journalizing 10th Step in accounting cycle
This account is increased by the profits not
and posting of
taken of the business and decreased by the
reversing
losses of the business.
journal entries
87. Owner's Value of assets withdrawn by the owner from 100. Profit or ________ is obtained when the amounts
Drawing the business. income received from customers are higher than the
cost of goods or services incurred
88. Periodicity the concept behind providing financial
concept accounting information about the economic 101. THE 1. Analyze
activities of an enterprise for specified time RECORDING Transactions
periods. PROCESS 2. Enter Transaction in a Journal
(Journalizing)
89. Permanent Relate to one or more future accounting
3. Transfer journal information to ledger
or Real periods. They include all financial position
(Posting)
accounts accounts and owner's capital accounts. All
permanent accounts are NOT closed from 102. Recording 2nd Step in accounting cycle
period to period. The balance is carried transactions
forward to the next accounting period in the journal
(journalizing)
90. Petty Cash Cash that is to be used for petty/small
Fund payments that cannot be conveniently made 103. Rent Rental for the use of equipment, office,
with checks. Expense building, and land spaces owned by others.
91. Posting The transfer of journal entries to the 104. REVENUE Adjustment Analysis
respective ledger accounts Calculate for the EARNED portion of the
revenue.
92. Posting 3rd Step in accounting cycle
Adjusting Journal Entry
journal
Record a REVENUE and matched against a
entries to
RECEIVABLE.
the ledger
(posting) 105. Revenue increases in economic benefits during the
accounting period in the form of inflows or
93. Posting is left blank when the journal entry is made,
enhancements of assets or decreases of
Reference which is used later when the entries are
liabilities that result in increases in equity,
or P.R. (or transferred to the ledger accounts.
other than those relating to contributions
Account
from equity participants.
Code)
106. Revenue Initial Recognition:
94. Prepaid Expenses that are paid in advance currently
Method Deferred revenues are recorded as REVENUE
Expenses held by the company as evidence of a future
Adjustment Analysis:
service to be provided by a third party.
Calculate for the UNEARNED portion of the
95. Prepaid Expenses are already paid in advance but are prepayment
expenses/ not yet incurred or used. Adjusting Journal Entry:
prepayments Record a LIABILITY (Unearned Revenue)
96. Preparing 6th Step in accounting cycle 107. Revenue Revenue should be recognized at the time it
the Financial Recognition is earned (when goods are delivered or
Statements Principle when services have been rendered).
97. Preparing 9th Step in accounting cycle 108. REVERSING a journal entry that is just the opposite of the
the post- ENTRIES adjusting entry made at the end of the
closing trial preceding accounting period. It simply
balance reversed the adjusting journal entry of the
98. Preparing 4th Step in accounting cycle previous period at the beginning of the next
the Trial period
Balance 109. REVERSING an optional step to simplify the accounting
99. Preparing 5th Step in accounting cycle ENTRIES process made at the beginning of the next
the accounting period.
worksheet 110. Right side Credit Side
and adjusting
111. Salaries Salaries for services rendered by
entries
Expense employees.
112. Sales/Service Revenues or gross income from sale of
Income company products and services.
113. - Simple Entry Entries involving only two accounts, one debit and one credit.
114. Statement of Cash Flows summarizes the cash receipts and cash disbursements for the accounting period.
115. Statement of Changes in Owner's shows the changes in the capital or owner's equity as a result of additional investment or
equity or Statement of Owner's withdrawals by the owner, plus or minus the net income or net loss for the year.
Equity
116. Statement of Financial Position it shows the financial condition/position of a business as of a given period consisting of the
or Balance Sheet assets, liabilities, and capital.
117. Subsidiary Ledger Contains the groupings provided by the company to further classify each major account (i.e.,
may be according to operations, customer listing, etc.)
118. Supplies Items recognized by the company which are consumable over a period of time.
119. Supplies Expense Supplies used
120. T-Account the simplest form of an account. It was called by its name because of its form which resembles
the letter "T".
121. Temporary or Nominal Accounts Relate only to a given accounting period. They include all income statement accounts and the
owner's drawing account. All temporary accounts are closed - bring to zero, at the end of the
accounting period.
122. Transplacement or Slide type of error where a decimal point has been moved or misplaced e.g., account balance of
2000 was written as 20.
123. Transposition type of error where the order of numbers entered in the journal entries were reversed e.g., if an
account balance should have been 12 but was listed as 21.
124. Trial Balance A list of accounts and their balances at a given time.
125. Unearned Income Income received in cash now but to be provided or serviced in the future.
126. Unearned or deferred Revenue Cash has already been received from customers but income has not yet been earned.
127. Utilities Expense Expenses for electricity, water, and telecommunications.
 Financial Accounting Multiple Choice Questions: Chapter 1-3
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1. The duality of effect can be described as follows A 7. When expenses exceed revenues in a given period, C
A. When a transaction is recorded in the accounting A. Stockholders equity will not be impacted
system at least two effects on the basic accounting B. Stockholders equity will be increased
equation will result C. Stockholders equity will be decreased
B. When an exchange takes place between two parties, D. One cannot determine the impact on stockholders
both parties must record the transaction equity without information about the specific revenue
C. When a transaction is recorded both the balance
8. When should a company report the cost an insurance C
sheet and the income statement must be impacted
policy as an expense?
D. When a transaction is recorded, one account will
A. When the company first signs the policy
always increase and on account will always decrease
B. When the company pays for the policy
2. The expense recognition principle ("matching") controls D C. When the company receives the benefits form the
A. Where on the income statement expenses should be policy over its period of coverage
presented D. When the company receives payments from the
B. When revenues are recognized on the income insurance company for its insurance
statement
9. When should companies that sell gift cards to B
C. The ordering of current assets and current liabilities
customers report revenue?
D. When costs are recognized as expenses on the
A. When the gift card is issued and cash is received
income statement
B. When the gift card is used by the customer
3. If a company incorrectly records a payment as an A C. At the end of the year in which the gift card is issued
asset, rather than as an expense, how will this error D. None of the above
affect net income in the current period?
10. Which account is least likely to be debited when A
A. Net income will be too high
revenue is recorded?
B. Net income will be too low
A. Account Payable
C. Net income will not be affected by this error
B. Accounts receivable
D. Its a mystery; nobody really knows
C. Cash
4. If a publicly traded company is trying to maximize its B D. Unearned
perceived value to decision makers external to the
11. Which of the following accounts normally has a debit B
corporation, the company is most likely to report too
balance?
small a value for which of the following on it balance
A. Unearned Revenue
sheet?
B. Retained Earnings
A. Assets
C. Rent expense
B. Liabilities
D. Sales Revenue
C. Retained earnings
D. Contributed Capital 12. Which of the following describes how assets are listed C
on the balance sheet?
5. The T-account is used to summarize which of the D
A. In alphabetical order
following?
B. In order of magnitude, lowest value to highest value
A. Increases and decrease to a single account in the
C. In the order they will be used up or turned in cash
accounting system
D.From least current to most current
B. Debits and credits to a single account in the
accounting system
C. Changes in specific account balance over a time
period
D. All of the above describe how T-accounts are used
by accountants
6. Total assets on a balance sheet prepared on any date D
must agree with which of the following?
A. The sum of total liabilities and net income as shown
on the income statement
B. The sum of total liabilities and contributed capital
C.The sum of total liabilities and contributed capital
D. The sum of total liabilities and contributed capital
and retained earnings
13. Which of the following is false regarding the balance C 18. Which of the following is the entry to be recorded by C
sheet? law firm when it receives a payment from a new client
that will be earned when service are provided in the
A. The accounts shown on a balance sheet represent future?
the basic accounting equation for a particular business. A. Debit accounts receivable; credit legal services
revenue
B. The retained earning balance shown on the balance B. Debit unearned revenue; credit legal service
sheet must agree with the ending retained earning revenue
balance shown on the statement of retained earnings. C. Debit cash; credit unearned revenue
D. Debut unearned revenue; credit cash
C. The balance sheet summarizes the net changes in
19. Which of the following is true? D
specific account balances over a period of time.
A. FASB creates SEC
B. GAAP creates FASB
D. The balance sheet reports the amount of assets,
C.SEC creates CPA
liabilities, and stockholders equity of a business at a
D. FASB creates GAAP
point in time.
20. Which of the following is true regarding the income A
14. Which of the following is not an asset? D
statement?
A. Cash
B. Land
A. The income statement is sometimes called the
C. Equipment
statement of operations
D.Contributed Capital
15. Which of the following is not one of the four basis B B. The income statement reports revenue, expenses,
financial statements? and liabilities
A. The balance Sheet
B. The audit Report C. The income statement only reports revenue for
C. The income statement which cash was received at the point of sale
D. The statement of cash flows
D. The income statement reports the financial position
16. Which of the following is not one of the items required A
of a business at a particular point in time.
to be shown in the heading of a financial statement?
A. The Financial statement prepares name 21. Which of the following items is not specific account in B
B. The title of the financial report a company's accounting record?
C. The financial reporting date or period A. Accounts Receivable
D. The name of the business entity B. Net Income
C. Sales Revenue
17. Which of the following is not required by the Sarbanes- D
D. Unearned Income
Oxley Act?
22. Which of the following regarding GAAP is true? C
A. Top managers of public companies must sign a A. GAAP is an abbreviation for generally applied
report certifying their responsibility for the financial accounting principles
statements B. Changes in GAAP always affect the amount of
B. Public companies must maintain an audited system of income reported by a company
internal control to ensure accuracy in accounting C. GAAP is the abbreviation for generally accepted
reports accounting principles
C. Public companies must maintain an independent D. Changes to GAAP must be approved by the Senate
auditors Finance Committee
D. Top managers of public companies must be members
23. Which of the following regarding retained earnings is C
of the American Institute of Certified Public
false?
Accountants.
A. Retained earnings is increased by net income
B.Retained earnings is a component of stockholders'
equity on the balance sheet
C. Retained earnings is an asset on the balance sheet
D. Retained earnings represents earning not
distributed to stockholders in the form of dividends
24. Which of the following statements describe transactions that would be recorded in the accounting system? A
A. An exchange of an asset for a promise to pay
B. An exchange of an promise for another promise to pay
C. Both of the above
D. None of the above
25. Which of the following statements regarding the statement of cash flows is false? C
A. The statement of cash flow separates cash inflow and outflows into three major categories: operating, investing and
financing
B. The ending cash balance shown on the statement of cash flows must agree with the amount shown on the balance sheet
at the end of the same period
C. The total increase or decrease in cash shown on the statement of cash flows must agree with the bottom line (net
income or net loss) reported on the income statement
D. The statement of cash flows covers a period of time
26. Which of the following statements would be considered true regarding debits and credits? D
A. In any given transaction, the total dollar amount of the debit and the total dollar amount of the credit must be equal
B. Debits decrease certain accounts and credits decrease certain accounts
C. Liabilities and stockholders equity accounts usually end in credit balances while assets usually end in debit balances
D. All of the above
27. Which of the following statements would be considered true regarding the balance sheet? D
A. One cannot determine the true current value of a company be reviewing just its balance sheet
B. The balance sheet reports assets only if they have been acquired through identifiable transactions
C. A balance sheet shows only the ending balances in a summarized system as of a particular date
D. All of the above
28. Which of the following would not be a goal or external users reading a company's financial statements? B
A. Understanding the current financial state of the company
B. Assessing the company's contribution to social and environmental polices
C. Predicting the company's future financial performance
D. Evaluating the company's ability to generate cash from sales
 Financial Accounting and Reporting
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1. Accounting The art of recording, classifying, 18. Conservatism Avoids overstating assets or income in the
summarizing and interpreting transactions Principle preparation of financial statements
and events which are in part at least of a
19. Consistency Use of the same accounting principles and
financial characyer to provide users with
methods from year to year within a
quantitative information that is intended to
company
be useful in making economic decisions
20. Cost Constraint Benefit should exceed the cost incurred
2. Accounting Assets = Liabilities + Owner's Equity
Equation 21. Cost Constraint Accounting standard-setters weigh the cost
Principle that companies will incur to provide the
3. Accounting Creates a common understanding between
information against the benefit that
Standards preparers and users of Financial Statements
financial statement users will gain from
particularly on how items are treated under
having the information available.
accounting
22. Current Cost current purchase price
4. Annual Principal way of providing financial
Financial information to external users 23. Enhancing Intended to increase the usefulness of the
Statements Qualitative financial information
Characteristics
5. Annually Financial Accounting
24. Enhancing Comparability, verifiability, timeliness, and
6. Any time Managerial Accounting
Qualitative understandability
7. Asset A resource with economic value that an Characteristics
individual, corporation or country owns or
25. Expanded Assets = Liabilities + Owner's Capital -
controls with the expectation that it will
Accounting Owner's Drawings + Revenues - Expenses
provide future benefit.
Equation
8. Asset Probable future flow of future economic
26. Expense A decrease in owner's equity resulting from
Recognition benefit to the entity
the operation of a business
Measurable with reliability
27. Expense Match expenses with revenues in the period
9. Calendar Year Accounting period that begins on January 1
Recognition when the company makes efforts to
and ends on December 31.
Principle generate those revenues
10. Chart of A list of all accounts used by a business
28. External Users Financial Accounting
Accounts
29. External Users investors, creditors, customers,
11. Classifying Sorting or grouping of similar and
of Accounting government
interrelated economic transactions into their
Information
respective class
Aka: Posting 30. Faithful The numbers and descriptions match what
Representation really existed or happened
12. Communicating Preparing and distributing accounting
reports to potential users of accounting 31. Faithful Information that is complete, neutral, and
information Representation free from error

13. Comparability Ability to compare the accounting 32. Financial the branch of accounting that prepares
information of different companies because Accounting financial statements for use by owners,
they use the same accounting principles. creditors, suppliers, and other external
stakeholders
14. Completeness All the information that is necessary for
faithful representation is provided 33. Financial Provision of financial information about an
Reporting entity to external users that is useful to
15. Conceptual Summary of the terms and concepts that
them in making economic decisions
Framework underlie the preparation and presentation of
Financial Statements 34. Fiscal Year A fiscal period consisting of 12 consecutive
months.
16. Conceptual Not a PFRS and hence does not define
Framework standards for any particular measurement 35. free from error View that information that is accurate will
be more representationally faithful.
17. Confirmatory Helps users confirm or correct prior
Value expectations 36. Fundamental Relevance and Faithful representation
Qualitative
Characteristics
37. GAAP Generally Accepted Accounting Principles 52. Manufacturing A type of business that changes basic inputs
Business into products that are sold to individual
38. Going The assumption that the company will
customers.
Concern continue in operation for the foreseeable
Assumption future. 53. Matching Requires matching expenses incurred in an
Principle accounting period with the revenue earned
39. Government encompasses the processes of analyzing,
in the same period
Accounting recording, classifying, summarizing and
communicating all transactions involving the 54. Materiality The maximum amount by which the auditor
receipt and disposition of government funds believes the financial statements could be
and property and interpreting the results misstated and still not affect the decisions
thereof of users.
40. Historical acquisition cost 55. Measuring Determining the monetary amounts at which
Cost the elements of financial statements are to
be recognized
41. Identifying recognition or non-recognition of
"accountable" events or transactions 56. Merchandising Buys finished products and resells them to
Business individuals or other businesses
42. Income Increase in economic benefit during the
accounting period in the form of an inflow or 57. Monetary Unit Principle that assumes transactions and
an increase in asset or decrease in liability Assumption events can be expressed in money units.
43. Income -Cash-method taxpayers recognize income 58. Net Income Revenues - Expenses
Recognition when it is received.
59. Net Loss When expenses are greater than income
-Income is realized regardless of whether
payments are received in money, property, or 60. Neutrality The information contained in a Financial
services. Statement must be free from bias
-Income is taxed in the period in which a 61. Owner's The amount remaining after the value of all
cash-method taxpayer has a right to receive Equity liabilities is subtracted from the value of all
payment without substantial restrictions. assets
44. Internal Managerial Accounting 62. Predictive Helps provide accurate expectations about
Users Value the future
45. Internal marketing managers, production supervisors, 63. Present Value discounted value or future exchange price
Users of finance directors, and company officers
64. Principle of Dictates that financial statements and
Accounting
Full Disclosure related notes are sufficient to allow financial
46. Interpreting ratios statement users a legitimate basis for
47. "LAWS" GAAP making informed judgments about the
company.
48. Liability Present obligations of the entity arising from
past transactions or events the settlement of 65. Private The field of accounting whereby
which is expected to result in an outflow from Accounting accountants are employed by a business
the entity of resources embodying economic firm or a not-for-profit organization.
benefits 66. Prudence The desire to exercise care and caution
49. Liability Probable sacrifice of future economic benefit when dealing with the uncertainties in the
Recognition to the entity as a result of past measurement process
transactions/events 67. Public The field of accounting where accountants
Amounts received but not reported as revenue Accounting and their staff provide services on a fee
in the income statement basis. "independent"
Amounts reported as expenses but which have
68. Qualitative The qualities or attributes that make
not been paid
Characteristics financial accounting information useful to
50. Luca Pacioli, -Father of Accounting and "bookkeeping" the users
1494 -Italian
69. Realizable current selling price
51. Managerial accounting used to provide information and Value
Accounting analyses to managers inside the organization
70. Recognition Process of reporting an asset, liability,
to assist them in decision making
income or expense on the face of the
financial statements of an entity
71. Recording Systematically maintaining a record of all economic business transactions.
Aka: Journalizing
72. Relevance The capacity of information to make a difference in a decision made by users
73. Revenue An increase in owner's equity resulting from the operation of a business
74. Service Business A business that carries out activities that are consumed by its customers
75. Substance Over Transactions should be accounted for in accordance with their economic substance and reality and not
Form merely their legal form
76. Summarizing Includes preparation of whole set of Financial Statement
Aka: FS Preparation
77. Timeliness Having information available to decision-makers before it loses its capacity to influence decisions
78. Time Period Presumes that the life of a company can be divided into time periods, such as months and years.
Assumption
79. Understandability Requires that financial information must be comprehensible
80. Understandability Assumes that a user has a reasonable knowledge of accounting
81. Verifiability Implies consensus among different measurers