Title: Portable / Without sound / Accounting / Piper - Accounting made simple
Tags: chapter6 chapter8 chapter1 chapter10 chapter11 chapter13 chapter5 chapter3 chapter4 chapter2 chapter12 chapter7 chapter9

Q: What do a  company's assets consist of?
A: A company's assets consist of all the property that the company owns.

Q: What do a company's liabilities consist of?
A: A company's liabilities consist of everything the company owes to lenders.

Q: What does a company's owners' equity consist of?
A: A company's owner's equity consist of the owners' interest in the company's assets, after paying back all the companies debts.

Q: What is the Accounting Equation?
A: Assets = Liabilities + Owners' Equity

Q: What is an alternative formulation of the Accounting Equation?
A: Assets - Liabilities = Owners' Equity

Q: What is a company's balance sheet?
A: A company's balance sheet shows its financial position at a given point in time.

Q: What are current assets?
A: Current assets are those expected to be converted into cash in 12 months or less.

Q: What are current liabilities?
A: Current liabilities are that that will need to be paid off within the following 12 months.

Q: What is an income statement?
A: An income statement shows a company's financial performance over a period of time.

Q: What is a company's Gross?
A: A company's Gross is equal to its revenues minus its Cost of Goods Sold.

Q: What is a company's Operating Income?
A: A companys Operating Income is equal to its Gross Profit minus its Operating Expenses--the expenses that have to do with the normal operation of the business.

Q: What is a company's Net Income?
A: A company's Net Income is equal to its Operating Income, minus any Non-Operating Expenses.

Q: What is a  statement of retained earnings?
A: A statement of retained earnings details a company's retained earnings over a period of time.

Q: The statement of retaining earnings acts as a bridge between what two other accounting documents?
A: The statement of retained earnings acts as a bridge between the income statement and the balance sheet: it takes information from the income statement, and it provides information to the balance sheet.

Q: Are dividend payments an expense?
A: Dividend payments are not an expense; they are a distribution of profits.

Q: Do retained earnings necessarily exist as cash in some of the company's checking or savings accounts?
A: No: retained earnings are not the same as cash.  Often, a significant portion of a company's retained earnings is spent on attempts to grow the company.

Q: How do the cash flow and income statements differ?
A: The cash flow statement and the income statement differ in that they report transactions at different times.

Q: In addition to differing in the time at which they record transactions, in what other respect does the cash flow statement differ from the income statement?
A: The cash flow statement differs from the income statement in that it shows many transactions that would not appear on the income statement.

Q: What does cash flow from operating activities include?
A: Cash flow from operating activities includes cash transactions that occur as a result of normal business operations.

Q: What does cash flow from investing activities include?
A: Cash flow from investing activities includes cash transactions relating to a company's investments in financial securities and cash transactions relating to long-term assets such as property, plant, and equipment.

Q: What does cash flow from financing activities include?
A: Cash flow form financing activities includes cash transactions between the company and its owners or creditors.

Q: What do liquidity ratios show?
A: Liquidity ratios show how easily a company will be able to meet its short-term financial obligations.

Q: What are the two most frequently used liquidity ratios?
A: The two most frequently used liquidity ratios are current ratio and quick ratio.

Q: What are profitability ratios?
A: Profitability ratios seek to analyze how profitable a company is in relation to its size.

Q: What are the two most important profitability ratios?
A: Return on assets and return on equity are the most important profitability ratios.

Q: What are financial leverage ratios?
A: Financial leverage ratios express to what extent a company is using debt (instead of shareholder investment) to finance its operations.

Q: What are the advantages and disadvantages of leverage?
A: The more leveraged a company is, the higher return on equity it will be able to provide its shareholders.  However, increasing debt financing can dramatically increase the business's risk level.

Q: What are asset turnover ratios?
A: Asset turnover ratios seek to show how efficiently a company uses its assets.

Q: What are the most important turnover ratios?
A: Inventory turnover and receivables turnover are the most important turnover ratios.

Q: What is Generally Accepted Accounting Principles (GAAP)?
A: GAAP is the framework of accounting rules and guidelines used in the preparation of financial statements.

Q: What does the Securities and Exchange Commmission require?
A: The Securities and Exchange Commission requires that all publicly traded companies adhere by GAAP when preparing their financial statement.

Q: What is the difference between single-entry and double-entry accounting?
A: With double-entry accounting, each transaction results in two entries being made: a debit and a credit.  These two entries collectively  make up what is known as a "journal entry".)

Q: What is the effect of debits on assets, liabilities and equity?
A: Debits increase assets accounts and decrease equity and liability accounts.

Q: What is the effect of credits on assets, liabilities and equity?
A: Credits decrase asset accounts and increase equity and liability accounts.

Q: What is the effect of debits and credits on expense and revenue accounts?
A: Debits increase expense accounts, while credits increase revenue accounts.

Q: What is the general ledger?
A: The general ledger is the document in which a company's journal entries are recorded.

Q: What is a T-account?
A: A T-account shows the activity in a particular account over a given period.

Q: What is a trial balance?
A: A trial balance shows the balance in each account at a given point in time.  The purpose of a trial balance is to check that total debits equal total credits.

Q: Is the cash method in accordance with GAAP?
A: No, in order to be in accordance with GAAP, businesses must use the accrual method of accounting.

Q: What is the goal of the accrual method?
A: The goal of the accrual method is to recognize revenue or expense in the period in which the service is provided, regardless of when it is paid for.

Q: When reporting the value of assets under GAAP, is historical cost or  market value used?
A: Due to its objective nature, historical cost is generally used when reporting the value of assets under GAAP, despite the fact that an asset's historical cost is often quite different from its current market value.

Q: When is a transaction said to be immaterial?
A: A transaction is said to be immaterial if a mistake in recording the transaction would not result in a significant misstatement of the company's financial statements.

Q: What is the monetary unit assumption?
A: Under GAAP, in order to simplify accounting, currency is generaly assumed to have a stable value.

Q: What is the entity assumption?
A: For GAAP accounting, a business is assumed to be an entirely separate entity from its owners.

Q: What is the matching principle?
A: According to GAAP's matching principle, expenses must be reported in the same period as the revenues which they help to produce.

Q: What is straight-life depreciation?
A: Straight-line depreciation is the simplest depreciation method.  Using striahgt-life, an asset's cost is depreciated over its expected useful life, with an equal amount of depreciation being recorded each month.

Q: What is accumulated depreciation?
A: Accumulated depreciation is a contra-asset account used to keep track of how much depreciation has been recorded against an asset so far.

Q: What is an asset's net book value equal to?
A: An assets net book value is equal to its original cost, less the amount of accumulated depreciation that has been recorded against the asset.

Q: What happens when an asset is sold for more or less than its net book value?
A: If an asset is sold for more than its net book value, a gain must be recorded.  If it's sold for less than the net book value, a loss is recorded.

Q: How are immaterial asset purchases expensed?
A: Immaterial asset purchases tend to be expensed immediately rather than being depreciated.

Q: What is amortization?
A: Amortization is the process in which an intangible asset's cost is spread out over the asset's life.

Q: What time period is used for amortizing an intangible asset?
A: The time period used for amortizing an intangible asset is generally the shorter of the assets legal life or expected useful life.

Q: What is the periodic method of inventory?
A: The periodic method of inventory involves doing an inventory count at the end of each period, then mathematically calculating Cost of Goods Sold.

Q: What is the perpetual method of inventory?
A: The perpetual method of inventory involves tracking each individual item of inventory on a minute-to-minute basis.  It can be expensive to implement, but it improves and simplifies counting.

Q: What is FIFO?
A: FIFO (first-in, first-out) is the assumption that the oldest units of inventory are sold before the newest units.

Q: What is LIFO?
A: LIFO (last-in, first-out) is the assumption that the newest units of inventory are sold before older units are sold.

Q: What is the average cost method?
A: The average cost method is a formula for calculating Cost of Goods Sold and ending inventory based upon the average cost per unit of inventory available for sale over a given period.