Chapter 2
What equation includes assets, liabilities, and equity
accounting equation
What is another name for the statement of financial position?
Balance sheet
Does revenues or expenses come first in single-step income statement
Revenues
What does PV stand for on financial calculators
Present Value
Name the definition: Inflows of assets or settlement of liabilities from delivering goods or services to customers as part of normal operations.
Revenue
First step of the acct cycle
obtain source documents
This category includes assets expected to be used or converted within one year.
Current assets
When are revenues recognized under accrual accounting
When revenue is earned
Does N stand for number of years or number of compunding periods?
Periods
This account increases when revenue is earned but not yet billed.
Accounts Receivable
Cash received previously on account; $200
Dr. Cash; Cr. A/R
This equity account represents amounts invested by shareholders.
Paid-in-capital
What does the statement of cash flows show?
Cash inflows and outflows throughout the year
What is it called when payments are paid at the end of each period
ordinary annuity
This term refers to the amount a company expects to be entitled to receive.
Transaction price
Company pays $800 toward accounts payable.
Dr. Cash; Cr. A/P
This measure equals current assets minus current liabilities.
Working capital
Give an example of an financing cash-flow activity
...
What is the concept that money available today is worth more than the same amount in the future because it can be invested to earn a return.
Time Value of Money
A construction project usually recognizes revenue using this method.
Over time
Company sells inventory costing $2,000 for $3,500 cash.
Dr. Cash 3.5k; Cr. Sales Revenue 3.5k; COGS 2k; Inventory 2k
These provide detailed explanations of financial statement items.
Disclosures
What does gross profit represent?
Net sales-COGS
You invest $5,000 today at 10% for 3 years. What is the future value?
6655
When do we recognize revenue at a point in time?
When control passes
What is entry on 12/31/27 for note payable signed on 6/1/27 with principal of 10,000 and rate of 6%
Dr. Interest receivable 350; Interest rev. 350
This equity account represents accumulated earnings not distributed to owners.
Retained earnings
Name the three activities of cash flow
Operating, Investing, Financing
You will receive $10,000 in 5 years. Rate is 9%. What is the present value and type?
6500
This type of warranty provides additional service beyond basic assurance.
Extended warranty
Company earns $10,000 revenue; $7,000 collected, rest later.
Dr. Cash 7k; Dr. A/R 3k; Revenue 10k
These disclosures include environmental, social, and governance information.
ESG disclsures
Are discontinued operations shown before or net of tax?
Net of
You receive $2,000 at the end of each year for 4 years at 8%. What is the present value and type?
6624
Which variable consideration method includes the sum of all possible outcomes × their probabilities
Expected Value
Company records depreciation of $2,000 on equipment.
Dr. Depr. Exp 2k; Acc. Depr. 2k
This audit opinion indicates financial statements are fairly presented.
Unqualified
Why might managers manipulate earnings?
Meet targets/ make company look better to external users
You deposit $1,500 at end of year for 6 years. FV = $10,947. What is the rate?
7.79
This method uses leftover amount after allocating known prices
Residual method
Company buys equipment for $10,000: pays $3,000 cash and signs a note for the rest.
Dr. Equipment 10k; Cr. Cash 3k; Cr. N/P 7k
These events occur after the balance sheet date but before issuance.
Subsequent Events
Difference between operating vs nonoperating income?
Operating relates to core activities; Nonoperating relates to peripheral activities
You deposit $2,000 annually (beginning) at 10%. FV = $8,842. How many years?
3.54
Name an indicator that control has passed
right to payment, assumed risks and rewards of ownership, customer acceptance, transfer of legal title, physical possession
Supplies purchased $2,000; $500 remaining.
Dr. Supplies Exp 1500; Cr. Supplies 1500
This audit opinion indicates the auditor cannot form an opinion.
disclaimer
Give an example of a change in method?
Inventory changes, Depr. method, rev. rec., etc.
You receive $3,000 at beginning of each year for 5 years. PV = $13,394. What is the rate
6.01
Name 2 of 5 criteria to identify a contract
Approval and commitment, idntifiable rights, identifiable payment terms, commercial substance, probable collection