Chapter 1
What is FASB?
Financial Accounting Standards Board.
It oversees the creation and governance of accounting standards.
What is the accounting equation?
Assets = Liabilities + Equity
Where is a debit and a credit found on t-accounts?
a debit is found on the left side and a credit is found on the right side.
What are temporary accounts?
they relate to a particular accounting period and are closed at the end of that period.
Ex: revenues, expenses, income summary, and dividends
ROA
Return On Assets: measures how profitably a company uses its assets
formula:
ROA=Net Income/Average Total Assets
You get your average total assets by:
(Beginning Total Assets+Ending Total Assets)/2
What is SEC?
Securities and Exchange Commission.
It oversees the U.S. financial markets.
What are dividends? How are they different from expenses?
Dividends are distributions of cash or other assets to the stockholders. They are different from expenses because expenses are the cost of selling goods or services.
What is the difference between cash basis and accrual basis accounting?
Cash basis is not allowed under GAAP and expenses are recorded when cash is paid.
Accrual basis is used by most businesses and expenses are recorded when incurred.
What are permanent accounts?
are not closed at the end of the period.
Ex: assets, liabilities, common stock, and retained earnings accounts.
What is the debt ratio formula?
Total Liabilities/Total assets
What is GAAP? What information must it have?
Generally Accepted Accounting Principles.
Information must:
-be relevant, allowing users to make a decision
-have faithful representation by being complete, neutral, and free from error.
What financial statement is dividends found under?
Statement of Retained Earnings.
What is the matching principle?
guides accounting for expenses and ensures that
all expenses are recorded when they are incurred during the period.
think of it as matching your expenses to revenues!!!
What is the closing process?
the process for closing entries is where you need to transfer revenues, expenses, and dividends to retained earnings.
How do you record a journal entry related to depreciation?
You would DEBIT: Depreciation Expense-Land,Equipment
You would CREDIT: Accumulated Depreciation-Land,Equipment
What is the difference between financial accounting and managerial accounting?
Financial accounting provides information for external decision makers, like creditors and managerial accounting provides information to internal decision makers.
Who are internal decision makers?
Name the four financial statements in order.
Income Statement, Statement of Retained Earnings, Balance Sheet, and Statement of Cash Flows.
What accounts are generally involved when adjusting entries?
-Accounts Payable
-Expenses
-Unearned Revenue
-Accounts Receivable
-Service Revenue
-Depreciation
How is the adjusted trial balance different from the unadjusted trial balance?
the unadjusted trial balance lists the revenues and expenses, but those amounts are still incomplete because they omit various revenue and expense transactions, whereas the adjusted trial balance lists the revenues and expenses with their adjusted balances, these are up to date and accurate for the businesses.
What is liquidity?
it measures how quickly and easily an account can be converted into cash.
What is IFRS and IASB?
IFRS stands for International Financial Reporting Standards- are a set of global accounting guidelines.
IASB stands for International Accounting Standards Board.
Name three accounts that fall under each category of the accounting equation.
ASSETS = LIABILITIES + EQUITY
ASSETS: CASH, LAND, EQUIPMENT
LIABILITIES: ACCOUNTS PAYABLE, NOTES PAYABLE, UNEARNED REVENUE
EQUITY: COMMON STOCK, DIVIDENDS, SERVICE REVENUE
What are adjusting entries and when are they entered?
Adjusting entries are made at the END of the accounting period to record revenues to the period in which they are earned and expenses to the period in which they occur.
*they also update assets and liability accounts*
What is the current ratio? & Formula
it measures a company's ability to pay its current liabilities with its current assets.
Formula Total Current Assets/Total Current Liabilities
*a company prefers to have a high current ratio*
Name the accounting cycle in order.
Transaction or Event
Journalize
Post
Unadjusted trial balance A
Adjustments
Adjusted Trial Balance
Financial Statements
Closing Accounts
Post Closing Trial Balance