Flashcards
FA W1
Cards in this deck (53)
- 1What is the accounting equation?Assets = Liabilities + Owners' Equity
- 2Why is the balance sheet important to businesses? Name 2 reasons1. Fundamental because helps businesses to keep score
2. Records transactions & how they impact the bottomline - 3How is the acctg equation linked to the balance sheet?The balance sheet is an expanded representation of the acct equation
- 4What is an asset? Give 3 examplesAssets are resources.
Exmaples: Cash, equipment, Inventory
(that are owned/controlled by a biz/org) - 5What does a biz/org typically expect from its assets?Expectation: That assets will provide benefits in the future
- 6Liabilities + Owners' Equity --> What do they mean? (Assets = Org's resources)How resources are obtained/funded
- 7Liabilities: What do they represent?Liabilities represent an obligation to pay a 3rd Party
- 8Give examples of liabilitiesLoan from a bank
Wages Payable
Accounts Payable - 9Owners' Equity - Name 2 ways this is different from Liabilities1. Owners control business operations & have decision-making power, 3rd party supplies do not
2. Payments made to owners are discretionary (as opposed to obligatory) - 10Owners’ Equity = Assets – Liabilities. How is this helpful in understanding what owners’ equity is? Define OEEssentially, owners’ equity is the difference between what a business has and what a business owes to others. The amount that would be left over after a business settles all its obligations is owners’ equity, or the amount that belongs to the owners of the business.
- 11What is a transaction (in the acctg world)events that mpact the financial position of a business
- 12Revenue transactions - how does this impact the acctg equation? Suppose Cardullo’s sold a jar of Chuao Spicy Maya Hot Chocolate to a customer for $18. How would the cash receipt and revenue from this sale impact the accounting equation?Assets = +18
OE = +18 - 13what is THE MATCHING PRINCIPLE?The matching principle requires that a company match its expenses to the related revenues in the accounting period to which they relate.
- 14What happens to the acctg equation when the 18$ chocolate is sold? Cost of choc is 4.49Assets go down by 4.49, OE also go down by 4.49
- 15Name the 2 primary methods of accounting1. cash
2. accrual - 16what is cash accounting? what kind of businesses tend to use this?cash exchange hands when transaction is recorded
small businesses - 17What is accrual accounting? What kinds of companies use accrual acctg?Revenue is recognized when merchandise is delivered.
Most companies. - 18Under accrual accounting, when does one recognize revenue? What is this principle called?When they are earned & realizable (i.e high certainty of payment).
The Realization Principle. - 19Define The Realization PrincipleIf the biz has performed the work + can realistically expect $ from customer, revenues can be recognized, even though it hasn't yet received the cash
- 20Let's say Cardullo's sold 500$ worth of goods which cost 100$. Step by step, how to record using acctg eqn?1. Recognize revenue @ time of sale:
+500 Assets, +500 OE
2. Recognize expense (cost) of the sale (to biz):
-100 Assets, -100 OE
3. Once cash is received, make 2 adjustments: a. +500 Assets, -500 Assets - 21Payment in advance - bring step-by-step, how this is recorded (accrual acctg?) Example: Sale of $1200 annual membership feeWill be adjusted evenly across 12 months
1. Point of sale:
+1200 Assets, +1200 liabilities
2. every month, -100 liability, +100 OE - 22Making Prepayments - let's say C just paid 120$ for a newsletter subscription. Walk, step by step thru the AA method and show how this impacts the acctg eqn1. +120 assets, -120 assets
+: 120$ right to receive membership, -120$ cash
2. every month:
OE -10, Assets -10 - 23In the U.S, the financial acctg standards coming from?FASB
Financial Acc Standards Board - 24What is GAAP?The set of acctg standards followed by most U.S companies.
Generally Accepted Acctg Principles - 25Biggest standard setting body o/s of U.S?IASB
International Accounting Stndrds Board - 26What are the acctg standards issued by IASB known as?International Financial Reporting Standards
(IFRS) - 27Why are accounting standards impt? List 2 reasons1. They r crucial to uphold the quality of financial information and
2. assure that financial statements are comparable from one company to another. - 28top 6 advantages or benefits of creating a uniform set of accounting standards?1. Consistency
2. Reliability
3. Trust
4. Transparency
5. Lower Costs
6. Comparability - 29Now suppose your business is the PLAINTIFF in the situation. You have sued one of your suppliers for defective products and your lawyers are reasonably certain that you will win and be awarded $1 million. Should your business record an asset for the expected cash inflow?No.
Businesses should anticipate and record future losses, but not future gains. - 301 core principle of acctg: Conservatism What does this mean?Meant to keep business managers from using their discretion to report overly favourable financial results
- 31Accounting standards encourage businesses to anticipate & record future losses. What is the impact of this on businesses? Name 3.Lower net income
Lower assets
Lower Stockholders' Equity - 32where does info from a/c decisions come from?regular course of doing business
internal transactions - (customers, suppliers, employees)
ext. sources of info (internet, news) - 33what is the relevance of a/c principles & sources of information re acctg?A/c principles provide some guidance as to which info are pertinent & relevant
- 34name 2 main guiding a/c principles1. relevance
2. reliability - 35What is "relevant" information?Info that is useful and capable of influencing the decision(s) of the user(s) of the financial statement
- 36What is the definition of reliable information?information that faithfully represents the underlying economics (the underlying transactions that it intends to represent)
- 37What are the 3 dimensions of Reliability?Info is valid
Info is reliable
Info is unbiased - 38Challenges of verifying reliability? Name 1. How do firms overcome this?1. constraints such as time, money to verify sources of info
2. firms have to rely on robustness of internal control systems to generate reliable info - 39Give 1 example of how accounting standards require that reliable information be used to record transactions.The historical cost principle
- 40Define the historical cost principleThis principle refers to the fact
that transactions are recorded at the actual price
that existed at the time of the transaction. - 41why is the $ recorded AAR of the historical cost principle considered reliable?This number tends to be more reliable
because it tracks back to the actual amount
that changed hands. - 42What would happen if biz were able to adjust the value of their assets based on assumed value rather than actual transacted value? Name 2 implications1. there will be greater risk
of financial statements to overstate assets.
2. This can mislead the users of the financial statements. - 43Name 1 downside of historical costsResults in less relevant information if the values have changed
since the time the transaction took place - 44Define consistency as an acctg principleConsistency refers to the fact
that the managers make consistent accounting choices
and estimates over time. - 45Define MaterialityMateriality states that trivial matters don't have to be recorded or reported in detail
in the financial statements of the business. - 46When something is considered to be material, what is the implication?if it's reasonably likely to impact the decision making
of those who are using the accounting data or financial reports - 47Define the entity concept. What does this mean?Refers to the fact that a business is a separately identifiable entity.
Only the business of the company should be reported in the financial statement - 48Is the entity concept applicable for MNC's with subsidiaries? Name 3 challengesYes.
Transfer pricing, tax planning, consolidation accounting - 49Define the money measurement principleThis principle refers to the fact that only values that can be measured in monetary terms get recorded in the financial statements
- 50What two principles are the money measurement principle related to?Principle of reliability and the principle of historical cost
- 51Events or circumstances that could have a financial impact on your business are not recorded in the accounts unless .... (name 2 conditions)1. they can be reliably measured in monetary terms
2. they relate to an actual historical transaction
that has occurred. - 52Define "going concern" What does this mean for assets & liabilities?This refers to the fact
that the business will continue to operate
in the foreseeable future.
Assets will continue to be used for the purpose
that they were initially acquired
and liabilities will continue to be settled. - 53How does the principle of going concern link with accrual accounting?Unless you have reasonable certainty
that the business will continue to operate,
the assets will not have any future values.
Also, liabilities will not be settled.
So this concept allows accountants
to make estimates and generate financial statements
under the assumption that the business is a going concern.
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- Flashcards on FA W1, created by rleland on 07/06/2015.
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- Created by Georgia Tan · Jun 7, 2015
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