Accy 200 exam pt 2 - Terms PDF

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Revenues are increases in net assets from selling a product Paid-in Capital represents the amount invested in the entity by the stockholders The Statement of Cash Flows shows how cash changed during the period Accrual accounting accomplishes much of the matching of revenues and expenses Stockholders' equity refers to the ownership right of the stockholders of the entity The effect of an adjustment is to increase the accuracy of the financial statements A credit entry will increase a liability account The effect of an adjustment on the financial statement is usually to increase the accuracy of both the balance sheet and income statement Accounting equation: Assets = Liabilities + Paid-in Capital + Beginning Retained Earnings + Revenues - Expenses Dividends When a firm purchases supplies for its business an adjustment will probably be required as suppliers are used The accrual of interest on short-term marketable securities results in an increase in current assets and an increase in net income An organization's system of internal control is designed primarily to provide an operating framework for all employees as they work to achieve the organization's goals When a firm used the LIFO inventory cost flow assumption better matching of revenue and expense is achieved than under FIFO Accounts receivable are reported at net realizable value

The inventory cost flow assumption describes the flow of product cost from the asset (inventory) account and to the expense (cost of goods sold) account One inventory cost flow assumption will result in different cost of goods sold from another inventory cost flow assumption only if the cost of inventory items changes during the year Merchandise inventory is NOT an example of an inventory account a manufacturing firm might use The balance sheet presentation of accounts receivable net of the allowance for doubtful accounts has the effect of stating accounts receivable at net realizable value The effect of an error resulting in an understatement of ending inventory is to overstate cost of goods sold of the current period The accounting concept or principle applied when an allowance is provided for estimated uncollectible accounts receivable is matching revenue and expense Leasehold is an example of an intangible asset The entry to record depreciation expense increases a contra asset and decreases net income When a depreciable asset is sold a gain arises if the sales proceeds exceed the net book value Expenditures capitalized as long-lived assets generally include those expenditures that are material in amount and that have an economic benefit to the entity that exceeds beyond the current year When a firm buys land on which there is a building, and the building is torn down so that an appropriate new building can be constructed on the land the total cost of the land and the old building are capitalized as land cost Goodwill is an asset that arises because the present value of an acquired company's estimated future earnings, discounted at the acquiring firm's ROI is more than the fair value of the net assets of the acquired company The net book value of depreciable asset is the difference between the asset's cost and accumulated depreciation

The process of accounting for depreciation is a process for recognizing the cost of an asset that should be matched against revenue earned as a result of using the asset Many companies use accelerated depreciation for tax purposes because it results in lower taxable income than straight-line depreciation Many current liabilities are affected by accrual accounting entries. This happens because accrual accounting involves recognizing liabilities before they are paid The adjusting entry to accrue Interest Expense results in an increase in Interest Expense An Accounts Payable normally results from purchasing goods and services from suppliers on credit Current maturities of long-term debt permit a more accurate determination of working capital The payment of a current liability will not affect working capital A working capital loan will generally not affect working capital The current liability for Wages Payable (or Accrued Payroll) represents the net pay earned by employees for which they have not been paid A magazine publisher has an account called "Unearned Subscription Revenue." The transaction that causes the balance of this account to decrease is magazines are mailed to subscribers A transaction that is likely to cause an increase in a current liability is accrual of interest expense Interest on a Note Payable is more appropriately accrued as of the end of each accounting period during which the note is a liability When a company issues a bond at a discount the company's interest expense will be more than the interest paid each year The adjusting entry to accrues Interest Expense results in an increase in Interest Expense

When a company issues a bond at a premium the company's interest expense will be less than the interest paid each year Maturity rate is NOT usually associated with bonds The financial leverage characteristic of long-term debt results in a magnification of ROE relative to what it would be without long-term debt Financial leverage refers to the difference between the rate of return earned on assets (ROI) and the rate of return earned on stockholders' equity (ROE) Retained earnings represents cumulative net income of the firm since its beginning that has not been distributed to its stockholders in the form of dividends Factors that usually affect retained earnings directly include new income or loss, and dividends When a firm purchases its own shares as treasury stock total stockholder's equity is decreased...