Financial & Managerial Accounting EXAM 1 Questions and Correct Verified Answers 2024-2025., Exams of Financial Accounting

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Financial & Managerial Accounting EXAM 1

Questions and Correct Verified Answers 2024-

2025. Graded A

Accounting - ANSan information and measurement system that identifies, records and communicates relevant, reliable and comparable information about an organizations activity accounting cycle - ANS1. analyze transactions

2. journalize
3. post
4. prepare unadjusted trial balance
5. adjust 6.prepare adjusted trial balance
6. statements
7. close
8. post closing trial balance 10.reverse (optional) Accounting Equation (full and complicated) - ANSAssets = liabilities + Equity [contributed capital + retained earnings] Assets = liabilities + common stock + retained earnings [- dividends + revenue - expenses] Accounting Equation (simple) - ANSAssets = Liabilities + Equity

accrual basis accounting - ANSuses the adjusting process to recognize revenues when earned and expenses when incurred (matched with revenues) accrued expenses - ANSrefer to costs that are incurred in a period but are both unpaid and unrecorded Accrued interest expense (formula) - ANSprincipal amount owed × annual interest rate× fraction of year since last payment date accrued revenues - ANSrefers to revenues earned in a period that are both unrecorded and not yet received in cash (or other assets) adjusting entry - ANSmade at the end of an accounting period to reflect a transaction or event that is not yet recorded adjusting for accrued expenses - ANSexpense (increased): debit adjustment liability (decreased): credit adjustment adjusting for accrued revenues - ANSasset (increased): debit adjustment revenue (decreased): credit adjustment Adjusting for prepaid expenses - ANSasset (decreased): debit unadjusted balance, credit adjustment. expense (increased): debit adjustment

adjusting for unearned revenues - ANSliability (decreased): debit adjustment, credit unadjusted balance revenue (increased): credit adjustment Adjustments - ANSPaid (or received) cash before expense (or revenue) recognized --> prepaid (deferred) expenses and unearned (deferred) revenues Paid (or received) cash after expense (or revenue) recognized --> accrued expenses and accrued revenues annual financial statements - ANScover a one year period Asset Accounts - ANSCash, Accounts Receivable, Note Receivable, Prepaid, Supplies, Equipment, Buildings, Land Assets - ANSresources a company owns or controls Assets T accounts - ANS+ debit for increases credit for decreases - Balance Sheet - ANSdescribes a company's financial position (types and amounts of assets, liabilities, and equity) at a point in time Before adjusting Accrued Expenses - ANSbalance sheet: liability understated, equity overstated income statement: expense understated

adjusting entry: Dr. expense, Cr. liability Before adjusting Accrued revenues - ANSbalance sheet: asset understated, equity understated income statement: revenue understated adjusting entry: Dr. asset, Cr. revenue Before adjusting Prepaid Expenses - ANSbalance sheet: asset overstated, equity overstated income statement: expense understated adjusting entry: Dr. expense, Cr. Asset Before adjusting Unearned Revenues - ANSbalance sheet: liability overstated, equity understated income statement: revenue understated adjusting entry: Dr. liability, Cr. revenue book value (net amount) - ANSequals the asset's costs less its accumulated depreciation calendar year - ANSjan 1 - dec. 31 Cash basis accounting - ANSrecognizes revenues when cash is received and records expenses when cash is paid closing process - ANS1) close income statement credit balances (debit them)

2. close income statement debit balances (credit them)
3. close income summary account to retained earnings
4. close dividends account to retained earnings contra account - ANSan account linked with another account, it has an opposite normal balance and is it reported as a subtraction from that other account's balance Contributed Capital - ANSamount that stockholders invest in the company included under common stock Cost of goods sold - ANSbeginning inventory + purchases - ending inventory = cost of goods sold goods available for sale - ending inventory = cogs credit memorandum - ANSinforms a buyer of the seller's credit to the buyer's account receivable (on the sellers books) current assets - ANScash and other resources that are expected to be sold, collected, or used within one year of the company's operating cycle current liabilities - ANSobligations due to be paid or settled within one year or the operating cycle, whichever is longer day sales inventory (formula) - ANS(ending inventory / cogs) × 365

debit memorandum - ANSinform the seller of a debit made to the seller's account payable in the buyer's records depreciation - ANSthe process of allocating the costs of these assets over their expected useful lives Difference between sales and COGS - ANSgross profit (gross margin) Dividends - ANSdistribution of assets to stockholders Equity (net assets/residual equity) - ANSthe owner's claim on assets, has two parts: -contributed capital -retained earnings Equity Accounts - ANSCommon stock, Dividends, Revenue accounts, Expense accounts Equity T account - ANS- debit for decreases credit for increases + (contributed capital, common stock and retained earnings) Ethics - ANSbeliefs that distinguish right from wrong

ex. 2/10, n/60 - ANSfull payment due in 60 day credit period, but buyer can deduct 2% of the invoice amount if payment is made within 10 days of the invoice date expense recognition principle - ANSaims to record expenses in the same accounting period as the revenues that are earned as a result of those expenses Expense Recognition Principle (matching principle) - ANSrecord the expenses it incurred to generate the revenue reported Expenses - ANSdecrease retained earnings and are the cost of assets or services used to earn revenues Expenses, Dividends and Revenue T accounts (retained earnings) - ANSExpenses: debit +, credit -, Revenue: debit -, credit +, Dividends: debit +, credit - External Users - ANSnot directly involved in running the organization, need to all coincide with one method fiscal year - ANSone year reporting period FOB destination - ANSownership of goods transfers to the buyer when the goods arrive at the buyer's place of business

FOB shipping point - ANSthe buyer accepts ownership when the goods depart the seller's place of business Full Disclosure - ANSprescribes that a company report the details behind financial statements that would impact users' decisions. Income Statement - ANSdescribes a company's revenues and expenses along with the resulting net income or loss over a period of time due to earnings activities intangible assets - ANSlong-term resources that benefit business operations, usually lack physical form, and have uncertain benefits interim financial statements - ANScovering one, three, or six months of activity Internal Information Users - ANSthose directly involved in managing and operating an organization, not so concerned with others inventory turnover (formula) - ANScogs / avg. inventory Liabilities - ANScreditors' claims on assets (reflect company obligations to provide assets, products or services to others) Liabilities Accounts - ANSAccounts Payable, Note Payable, Unearned Revenue Accounts, Accrued Liabilities Liabilities T accounts - ANS- debit for decreases

credit for increases + long term investment - ANSexpected to be held for more than the longer of one year or the operating cycle long-term liabilities - ANSobligations not due within one year or the operating cycle, whichever is longer. Measurement Principle (cost principle) - ANSaccounting information is based on actual cost Merchandiser net income (formula) - ANSnet sales - COGS = gross profit - expenses = net income merchandisers cost flow (inventory) (formula) - ANSbeginning inventory + net purchases = merchandise available for sale merchandise available for sale = ending inventory + cost of goods sold national business year end - ANSwhen sales activities are at their lowest level for the year Net Income - ANSwhen revenues exceed expenses (increase equity) revenue - expenses Net loss - ANSwhen expenses exceed revenues (decrease equity)

net realizable value - ANSsales price - the cost of making the sale Operating cycle - ANStime span from when cash is used to acquire goods and services until cash is received from the sales of goods and services operating cycle for a merchandiser - ANS1) purchases 2) merchandise inventory 3) credit sales 4) accounts receivable 5) cash collection operating cycle: merchandiser selling products - ANStime span between 1) paying suppliers for merchandise and 2) receiving cash from customers operating cycle: service company - ANStime span between 1) paying employees who perform services and 2) receiving cash from customers periodic inventory system - ANSupdates the accounting records for merchandise only at the end of the period permanent (real) accounts - ANSreport on activities related to one or more future accounting periods perpetual inventory system - ANScontinually updates accounting records for merchandising transactions - specifically, for those records of inventory available for sale and inventory sold plant assets - ANStangible assets both long lived and used to produce or sell products and services

post closing trial balance - ANSis a list of permanent accounts and their balance from the ledger after all closing entries have been journalized and posted prepaid (deferred) expenses - ANSrefer to items paid for in advance of receiving their benefits. recording closing entries - ANSrevenue, expense and dividend accounts must begin each period with zero balances retained earnings must reflect prior periods' revenues, expenses and dividends Recordkeeping/Bookkeeping - ANSthe recording of transactions and events, either manually or electronically Retained Earnings - ANSrefer to income (revenues less expenses) that has not been distributed to its stockholders net income - cash dividends = retained earnings Return on Assets - ANSNet income / Avg. total assets Revenue (sales) Recognition - ANSprovides guidance on when a company must recognize revenue Revenues - ANSIncrease retained earnings and are resources generated from a company's earnings activities Service Company net income (formula) - ANSrevenues - expenses = net income

Statement of cash flows - ANSidentifies cash inflows (receipts) and cash outflows (payments) over a period of time Statement of Retained Earnings - ANSexplains changes in equity from net income (or loss) and from any dividends over a period of time Steps to prepare financial statement - ANS1) prepare income statement using rev. and exp. accounts from trial balance

2. prepare statement retained earnings using ret. earn. and dividends from trial balance and net income (1)
3. prepare balance sheet sing asset and liability accounts and common stock from trial balance and retained earnings (2)
4. prepare statement of cash flows from changes in cash flows for the period straight-line depreciation (definition and formula) - ANSallocates equal amounts of the asset's net cost to depreciation during its useful life asset cost - salvage residual value / useful life T account for cost of goods sold (expense) - ANSdebit +, credit - T account for sales (revenue) - ANSdebit -, credit + T account for Sales R & A - ANSdebit +, credit - T account merchandise inventory (asset) - ANSdebit +, credit -

T account Sales disc. - ANSdebit +, credit - temporary (nominal) accounts - ANSaccumulate data related to one accounting period Trial Balance - ANSa list of accounts and their balances at a point in time Unearned revenues (deferred revenues) - ANSrefers to cash received in advance of providing products and services --> liabilities