Chapter 1 Specific Terms to Master

By Jerome Stephens,2014-06-27 22:55
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Chapter 1 Specific Terms to Master ...

    Chapter 1 Specific Terms to Master:

    Accounting Balance Sheet Assets Income Statement Liabilities Statement of Cash Flows Stockholders’ Equity Statement of Stockholders’ Equity

    Revenues Annual report Expenses Creditor

    Basic Accounting Equation Investor

    Securities and Exchange Commission Audit & Auditor Sole proprietorship Corporation Footnote disclosures Net income GAAP SEC

    Relevance Reliability Materiality Conservatism FASB Comparability Periodicity assumption Common stock

    Chapter 1 Concepts to Master:

    The student should be able to:

    1) Identify primary users of the financial statements.

    2) Identify similarities and differences between creditors and investors.

    3) Describe the content and purpose of each of the financial statements (balance sheet, income

    statement, statement of cash flows, and statement of stockholders’ equity).

    4) Correctly determine which items appear on which financial statements.

    5) Explain how the various financial statements are interrelated.

    6) Explain and apply the following accounting equations: balance sheet equation, income

    statement equation, and retained earnings equation.

    7) Identify who is responsible for a company’s financial statements (management or auditors) and

    explain the role of the external auditors.

    8) Describe the types of information found in Footnote disclosures.

    9) Prepare a simple income statement including proper heading.

    10) Explain the difference between common stock and retained earnings (components of

    stockholders’ equity) and identify the financial statement that reports changes in these accounts.

    11) Describe the basic objective of financial reporting, and explain how the following

    characteristics of accounting information support that objective: relevance, reliability,

    comparability, and consistency.

Acct 2010-Fall 2009 1

    Chapter 2 Specific Terms to Master:

    Accounting transaction Account T-account General ledger Journal entry (journalize) Double-entry system (duality)

    Chart of accounts Debit Credit Dividends Posting Trial balance Unearned Revenue Prepaid Assets

    Chapter 2 Concepts to Master:

    The student should be able to:

    1) Evaluate an economic transaction or event and determine whether or not it meets the test for

    recording in the financial statements of a business entity.

    2) Identify accounts by type (asset, liability, stockholders' equity, revenue, or expense), and

    determine whether these accounts have normal debit or credit balances.

    3) Record accounting transactions and explain the effect of recording the transaction on the

    balance sheet (basic accounting) equation of the entity. This includes applying basic

    transaction analysis, preparing journal entries, and posting to T-accounts.

    4) Properly determine account balances and prepare a trial balance in proper format (order of

    accounts and amounts in proper debit or credit column).

    5) Be able to analyze journal entries or account activity (in T-account format) and develop a

    plausible explanation for the underlying transaction or event.

    6) Explain why and how revenues and expenses affect stockholders' equity. This includes

    understanding and application of the retained earnings equation.

    7) Explain why cash payments made in advance for expenses are initially treated as Prepaid

    Assets. Give examples of expenses typically paid for in advance.

    8) Explain why cash received in advance for undelivered products or services is initially treated as

    Unearned Revenue (liability).

    Acct 2010-Fall 2009 2

    Chapter 3 Specific Terms to Master: Accrual-basis accounting Cash-basis accounting Adjusting entries Revenues Revenue recognition principle Matching principle Expenses Accrued expenses Accrued revenues Closing entries Prepaid expenses Unearned revenue Contra account Adjusted trial balance Depreciation (Net) Book value Post-closing trial balance Time period assumption Current asset Current liabilities Classified balance sheet Ratio analysis Liquidity Property, plant, & equipment Current ratio Debt-to-Equity ratio Accumulated depreciation Solvency Long-Term Liability Long-Term Asset Operating cycle

    Chapter 3 Concepts to Master:

    The student should be able to:

    1) Explain the benefits of accrual basis accounting over cash basis accounting. This includes the

    explanation of trade-offs between relevance and reliability.

    2) Apply the revenue recognition principle to determine when revenue should be recognized.

    3) Apply the matching principle to determine when expenses should be recognized.

    4) Record appropriate adjusting entries for prepaid expenses, unearned revenue, accrued revenue,

    and accrued expenses.

    5) Make proper adjusting entries for recording depreciation and explain the difference between

    depreciation expense and accumulated depreciation.

    6) Make the proper accrual basis accounting entries that relate to the receipt of cash before or after

    the revenue is recognized. (Record unearned revenue (liability) and collection of accrued

    revenue (asset).)

    7) Make accrual basis journal entries that relate to the payment of cash before or after the expense

    is recognized. (Record prepaid expenses (as assets) and payment of payables (liabilities)).

    8) Explain the purpose of adjusting entries, including how the revenue principle and the matching

    principle relate to adjusting entries.

    9) Explain how the various adjusting entries affect the income statement and balance sheet.

    10) Review accrual and prepaid (unearned) accounts (T-account activity) and describe the types of

    transactions that are reflected by the values reported in the accounts.

    11) Prepare any type of trial balance.

    12) Explain the differences between an unadjusted trial balance, an adjusted trial balance, and a

    post-closing trial balance.

    13) Prepare a set of financial statements from an adjusted trial balance (after the adjusting entries

    have been recorded and processed).

    14) Explain why the retained earnings account balance on an adjusted trial balance is not the

    retained earnings balance reported on the ending balance sheet.

    15) Make the appropriate closing entries and prepare a post-closing trial balance.

    16) Explain the purpose of closing entries and identify which accounts are closed.

    17) Evaluate assets and liabilities to determine whether they are current or non-current.

    18) Explain why it is important to classify assets and liabilities as current and non-current.

    19) Prepare a classified balance sheet in good form including proper heading.

    20) Explain the importance of liquidity and solvency, and calculate current ratio and debt-to-total

    assets ratio for analyzing liquidity and solvency.

    Acct 2010-Fall 2009 3

    Chapter 4 (Part B: pp. 162-171)

    Specific Terms to Master: Bank reconciliation Deposits outstanding Checks outstanding

    NSF checks Canceled checks

    Chapter 4 (Part B: pp. 162-171)

    Concepts to Master:

    The student should be able to:

    1) Prepare a bank reconciliation in good form and prepare the journal entries that would be

    required as part of this process.

    2) Explain the reason bank reconciliation is important.

     Acct 2010-Fall 2009 4

    Chapter 5

    Specific Terms to Master: Accounts receivable Allowance for uncollectible Bad debt expense


    Aging schedule Net realizable value Aging method Write-offs Notes receivable Interest revenue Receivables turnover ratio Average collection period Net sales Sales discounts Sales returns and allowances

    Chapter 5

    Concepts to Master:

    The student should be able to:

    1) Distinguish between accounts receivable and notes receivable.

    2) Determine net realizable value of accounts receivables, and explain what this term means.

    3) Make the proper entry to record the effect of an accounts receivable write-off using the

    allowance method. This includes identifying the effect of write-offs on net realizable value, the

    balance sheet and the income statement.

    4) Determine the ending balance in the Allowance account and the amount of bad-debt expense

    that would be recorded using the aging method and make the proper journal entry to reflect

    these amounts.

    5) Calculate and interpret the receivables turnover ratio and average collection period.

    6) Interpret the terms of a note receivable, and use these terms to calculate interest revenue on a

    note receivable for a specific period of time, and record any adjusting entries necessary to

    accrue interest revenue.

    7) Analyze and record transaction information related to

    sales discounts and sales returns and allowances using contra-revenue accounts to determine

    net sales.

    Acct 2010-Fall 2009 5

    Chapter 6

    Specific Terms to Master: Cost of goods available for sale Specific identification method Cost flow assumptions Average-cost method First-in first-out method Last-in, first-out method Net Sales Inventory

    Average days in inventory Inventory turnover ratio Merchandising company Periodic inventory system Perpetual inventory system Cost of goods sold Purchase discounts Operating income Purchase returns Non-operating revenues and expenses Multiple-step income statement Income tax expense Gross profit ratio Gross profit

    Income before income taxes

    Chapter 6

    Concepts to Master:

    The student should be able to:

    1) Explain why most companies use a “cost flow assumption” to allocate cost of goods available

    for sale (beginning inventory plus purchases) to either cost of goods sold or ending inventory.

    2) Determine the dollar amount of cost of goods available for sale (periodic inventory system). 3) Use each of the inventory costing methods (FIFO, LIFO, weighted average, and specific

    identification) to allocate cost of goods available for sale to ending inventory and cost of goods

    sold (periodic inventory system).

    4) Explain how the choice of inventory costing methods when costs are rising or declining will

    affect cost of goods sold, ending inventory valuation, and gross profit.

    5) Explain the relationship between inventory and cost of goods sold and use this to determine any

    missing values (beginning inventory, purchases, cost of goods sold, or ending inventory).

    6) Compute the inventory turnover ratio and average days in inventory measure.

    7) Record inventory purchases, purchase discounts, and purchase returns using the perpetual

    inventory system. This includes determining the purchase discount amount that the purchaser

    can take (if any) when paying purchase invoices.

    8) Determine what costs can be (and should be) included when determining inventory purchase


    9) Explain the key differences between a multiple-step and a single-step income statement and

    prepare a multiple-step income statement in good form.

    10) Calculate the gross profit ratio.

    Acct 2010-Fall 2009 6

    Chapter 7

    Specific Terms to Master:

    Long-lived assets Plant assets Intangible assets (Net) Book value Depreciation expense Amortization expense Accumulated depreciation Acquisition cost Useful life Residual (salvage) value Straight-line depreciation Activity Based depreciation

    method method Gain on sale Double-declining-balance Capital expenditures

    depreciation method

    Loss on sale Accelerated depreciation Goodwill

    Chapter 7

    Concepts to Master:

    The student should be able to:

    1) Properly evaluate a set of facts to determine the acquisition cost of a long-lived asset (plant or


    2) Explain the concepts of depreciation and amortization, including the distinction between net

    book value and market value for long-lived assets. In other words, why do we depreciate or

    amortize long-lived assets in accounting?

    3) Use any of the three depreciation methods (straight-line, units of activity, and double declining

    balance) to determine the proper amount of depreciation expense that should be recorded for

    long-lived assets and to determine end-of-period accumulated depreciation and net book value.

    4) Discuss the effects of depreciation method choice on net income over a fixed asset’s useful life.

    5) Analyze information about the disposal of a long-lived asset and properly measure the gain or

    loss that must be recorded upon disposal. Be able to prepare the appropriate journal entry to

    record the disposal.

    6) Identify types of intangible assets.

    7) Determine amortization expense and book value for intangible assets.

    8) Be able to infer transaction amounts or account balances given a set of information about

    related property transactions or given certain T-account information.

    Acct 2010-Fall 2009 7

    Chapter 8 (pp. 349-351)

    Chapter 9 & Appendix C

    (Present value pp. C-5 C-11)

    Specific Terms to Master:

    Notes payable Interest payable Interest expense Bonds Discount (on a bond) Premium (on a bond) Carrying (book) value Stated (contractual, coupon, or Market (effective)

    nominal) interest rate interest rate Bond prices Principal Effective interest method

    Face (par or maturity) value Cash interest (coupon) payment Compound interest Present value of an annuity Present value of a single amount Annuity

    Chapter 8 (pp. 349-351)

    Chapter 9 & Appendix C

    (Present value pp. C-5 C-11)

    Concepts to Master:

    The student should be able to:

    1) Explain why some companies issue bonds and state the primary difference between bonds and

    notes payable.

    2) Identify the key contractual borrowing terms of bonds payable and explain how these terms

    define the contractual cash payments (periodic and at maturity) the borrower will make to the

    lender. These contractual terms are face value, maturity date, stated interest rate, and cash

    interest (coupon) payment due dates.

    3) Determine the dollar amount of cash interest (coupon) payments required by a bond.

    4) Determine the cash proceeds at issuance for bonds payable using bond price information.

    5) Determine the cash proceeds at issuance for bonds payable using present value measurement


    6) Explain how the contractual interest rate and market interest rate are each used in bond

    valuation and how the relationship between these two rates determines whether the bond is

    issued at par, a discount, or a premium.

    7) Record (using journal entries) the issuance of bonds payable in the financial statements of the

    issuer. This includes bonds issued at par, a discount, or a premium.

    8) Record cash interest (coupon) payments in the financial statements of an issuer using the

    effective interest method to amortize bond discounts or premiums. This includes determining

    the amount of interest expense to be recorded each period.

    9) Explain how the amortization of a premium or a discount affects the carrying (book) value of

    bonds payable over the life of the bond.

    10) Determine the carrying (book) value of a bond payable on any cash interest (coupon) payment


    Acct 2010-Fall 2009 8

    Chapter 10

    Specific Terms to Master: Common stock Preferred stock Additional paid-in-capital Authorized stock Issued shares Outstanding stock Treasury stock Dividends Declaration date Payment date Unissued shares Par value

    Chapter 10

    Concepts to Master:

    The student should be able to:

    1) Explain the major advantages of the corporation form of business.

    2) Explain the typical rights of stockholders, both common and preferred stockholders.

    3) Determine number of shares authorized, issued, or outstanding if given adequate information.

    4) Record the issuance of common stock having par value.

    5) Explain what treasury stock is and record the purchase of treasury stock.

    6) Explain how treasury stock affects outstanding stock and issued shares.

    7) Properly record cash dividend transactions at declaration date and payment date.

    8) Calculate the total dollar amount of dividends using the amount of dividends per share declared

    and the outstanding number of shares.

    Acct 2010-Fall 2009 9

    Chapter 11

    Specific Terms to Master: Statement of Cash Flows Direct Method Indirect Method Operating Activities Investing Activities Financing Activities Adjustments to reconcile net income to net cash provided

    by operating activities

    Chapter 11

    Concepts to Master:

    The student should be able to:

    1) Explain the purpose of the Statement of Cash Flows.

    2) Classify cash flows as operating, investing, or financing for the Statement of Cash Flows.

    3) Distinguish between the indirect and direct methods of reporting Cash Flows from Operating


    4) Report and interpret (explain) specific adjustments to reconcile net income to net cash

    provided by operating activities.

    5) Determine Net Cash Provided by Operating Activities using the Indirect Method.

    Acct 2010-Fall 2009 10

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