Introduction to Basic Accounting

Account is an account that stores all transactions that involve cash receipts and cash payments.

• True
• False

It may be real or fictional, but will usually represent a complex situation with no ready solutions.

• CASE

It is a legal document that states the number of shares of ownership that the investor holds in the company, as well as the class of stock owned

• STOCK CERTIFICATE

It is important to remember that there is no one correct answer to any case analysis.

• True
• False

This is Statement deals with flow of cash which includes cash equivalents as well as cash

• CASH FLOW

An alternative definition of stock is the finished goods inventory that a company has on hand and available for sale.

• True
• False

This statement is an additional information to the users of Financial Statements.

• CASH FLOW STATEMENT

A stockholder can have the restriction removed under Rule 144, which has a mandatory holding period.

• True
• False

Banks and financial institutions mostly prefer cash flow statement to analyse liquidity of the borrowing firm.

• True
• False

Each share represents a __ of the total ownership of a company

• FRACTION

It plays a very important role in the economic life of a business.

• CASH

Cash is the centre of all financial decisions.

• True
• False

It is any medium of exchange that a bank will accept for deposit at face value. It includes coins, currency, checks, money orders, bank deposits and drafts

• Prepaid Expenses.
• Cash.
• Accounts Receivable.
• Notes Receivable.

It uses the adjusting process to recognize revenues when earned and expenses when incurred (matched with revenues).

• ACCRUAL BASIS ACCOUNTING

Equity consists of all the investments made into a company over the years - usually in the form of capital or shareholder's investments and retained earnings.

• True
• False

An accounting event is an economic occurrence that causes changes in an enterprise’s assets, liabilities, and/or equity.

• True
• False

Company must have a registration statement approved by the Securities and Exchange Commission before the restriction can be removed from the stock certificate, which enables the stockholder to sell his shares.

• True
• False

It is the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information.

• Financial Accounting
• Managerial Accounting
• Accounting
• Financial Statement

It happens when a company mails additional shares to owners based upon some ratio.

• STOCK DIVIDEND

A debit side entry must have a corresponding credit side entry

• True
• False

It tell us how a business is performing.

• Financial Accounting
• Accounting
• Managerial Accounting
• Financial Statement

A share may have a face value, which is known as its par value

• True
• False

It is the type of costing system where in the Materials, labor and overhead costs are compiled in aggregate for an entire production process, and are thenallocated to individual production units.

• PROCESS COSTING SYSTEM

Cash flow statement helps to ascertain the liquid position of the firm in a better manner. Banks and financial institutions mostly prefer cash flow statement to analyse liquidity of the borrowing firm.

• True
• False

The reports of a costing system are intended for internal use, and so are not subject to the reporting requirements of any of the accounting frameworks, such as GAAP or IFRS

• True
• False

It is an organization’s activities can be divided into specific time periods.

• Time Period Assumption

It is the amount of capital paid into a business by its investors.

• STOCK

During times of __, the dividend might create a sort of floor underneath a stock that keeps it from falling as far as non-dividend paying companies.

• ECONOMIC STRESS

The __ is the date on which the dividend is actually sent to the owners.

• PAYABLE DATE

The common stockholders are paid their share of any remaining assets after all credit or claims have been fulfilled. If a company declares bankruptcy, this usually means that the holdings of all investors are either severely reduced or completely eliminated.

• True
• False

The term "account" is used often in this tutorial

• True
• False

__ has special rights, which can vary by class of preferred stock.

• PREFERRED STOCK

__ is the baseline form of stock, and includes the right to vote on certain corporate decisions, such as the election of a board of directors.

• COMMON STOCK

It is a service activity, its function is to provide quantitative information primarily financial in nature, about economic entities that is intended to be useful in making economic decisions

• Financial Statement
• Accounting
• Financial Accounting
• Managerial Accounting

Assets are carried at the present discounted value of the future net cash inflows that the item is expected to generate in the normal course of business.

• Historical Cost
• Realizable
• Current Cost
• Present Value

A costing system is designed to monitor the costs incurred by a business

• True
• False

The Equity depicts the name of the company, the name of the statement and the date at which the account balances apply

• True
• False

It is very useful in the evaluation of cash position of a firm.

• True
• False

A good case analysis: clearly identifies the whole problem(s)

• True
• False

Case analyses also enable you to improve your critical thinking and analytical abilities, your ability to evaluate sources of information and your written communication skills

• True
• False

Assets refer to resources owned and controlled by the entity as a result of past transactions and events, from which future economic benefits are expected to flow to the entity.

• True
• False

An account is debited when an amount is entered on the right side of the account and credited when an amount is entered on the left side.

• True
• False

It traces the various sources which bring in cash such as cash from operating activities, sale of current and fixed assets, issue of share capital and debentures etc. and applications which cause outflow of cash such as loss from operations, purchase of current and fixed assets, redemption of debentures, preference shares and other long-term debt for cash.

• CASH FLOW STATEMENT

The firms should use the same accounting method from period to period to achieve comparability over time within a single enterprise.?

• Consistency Principle.
• Adequate Disclosure
• Historical Cost
• Materiality.

The __ is usually quite small, with $0.01 per share being a common amount

• PAR VALUE

It means covering one, three, or six months of activity.

• Interim financial statements

Fine-tuning operations to generate higher profitability

• True
• False

__ have histories of maintaining and increasing their dividend even during times of economic collapse, allowing owners to enjoy food, shelter, and clothing even in the midst of fiscal storms

• GOOD COMPANIES

An increase in an item of current assets causes a decrease in cash inflow because cash is blocked in current assets

• True
• False

It is recorded to bring an asset or liability account balance to its proper amount; it also updates a related expense or revenue account.

• ADJUSTMENTS

It is the type of costing system where in the Materials, labor, and overhead costs are compiled for an individual unit or job. This approach works best for unique products, such as custom-designed machines or consulting projects. The cost accumulation process is highly detailed and labor-intensive.

• JOB COSTING SYSTEM

Cash flow Statement helps in efficient and effective management of cash.

• True
• False

It is used as the basis for the projection of future investing and financing plans of the enterprise.

• True
• False

Asset plays a very important role in the economic life of a business.

• True
• False

Assets are items that have an economic burden on the company - usually items a business owes to other businesses.

• True
• False

It is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character, and interpreting the results thereof

• Financial Accounting
• Financial Statement
• Managerial Accounting
• Accounting

Accounting records and statements are based on the most reliable data available so that they will be as accurate and as useful as possible.

• Materiality
• Objectivity Principle.
• Historical Cost.
• Adequate Disclosure

It is designed to monitor the costs incurred by a business.

• COSTING SYSTEM

It is the finished goods inventory that a company has on hand and available for sale.

• STOCK

It consists of bank overdraft, cash credit, short term deposits and marketable securities.

• CASH EQUIVALENT

It might create a sort of floor underneath a stock that keeps it from falling as far as non-dividend paying companies

• DIVIDEND

The __ is the date at which the books of the corporation will be examined and anyone who owns shares on that day will receive the dividend based upon their total holdings.

• EX-DATE

Equity consists of all the investments made into a company over the years - usually in the form of capital or shareholder's investments and retained earnings

• True
• False

Revenue is to recognized in the accounting period when goods are delivered or services are rendered or performed.

• Consistency Principle.
• Revenue Recognition Principle.
• Adequate Disclosure
• Historical Cost

Cash Flow Statement based on AS-3 (revised) presents separately cash generated and used in operating, investing and financing activities.

• True
• False

A costing system option is activity based costing (ABC). ABC was developed in response to concerns that overhead costs are rarely allocated in an appropriate manner, and involves a finer degree of differentiation in determining how overhead costs are assigned to different cost pools, and then how the costs in those pools are allocated to cost objects

• True
• False

Prepaid expenses are expenses paid in advance, such as, Prepaid Rent, Prepaid Insurance, Prepaid Advertising, and Office Supplies

• True
• False

It is a written pledge that the customer will pay the business a fixed amount of money on a certain date.

• Cash
• Accounts Receivable.
• Prepaid Expenses.
• Notes Receivable.

It portray the financial effects of transactions and other events by groupings them into broad classes according to their economic characteristics

• Equity
• Financial Statement
• Liabilities
• Expenses

Requires that all relevant information that would affect the user’s understanding and assessment of the accounting entity be disclosed in the financial statements.

• Historical Cost
• Revenue Recognition Principle.
• Consistency Principle.
• Adequate Disclosure

A transaction is a particular kind that involves the transfer of something of value between two entities.

• True
• False

It is the centre of all financial decisions.

• CASH

If you buy the stock the day after the payable-date, you won't get the upcoming dividend payment; you'll have to wait for any future ones.

• True
• False

For the sake of tax efficiency, many shareholder distributions take the form of __ dividends executed as part of share repurchase programs.

• BACK DOOR

Accounting is based on a single entry system which means that the dual effect of a business transaction is recorded.

• True
• False

Cash Flow Statement deals with flow of cash which includes cash equivalents as well as cash

• True
• False

These are important because basic financial theory states that firms exist solely for the purpose of paying dividends, either now or at some point in the future.

• DIVIDENDS

An analyst is a scenario that gives you the opportunity to identify problems, apply theory and recommend a course of action in a business situation

• True
• False

An increase in an item of current liability causes a decrease in cash outflow because cash is saved

• True
• False

Cash flows are cash inflows and outflows

• True
• False

It is the reports covering a one -year period.

• Annual financial statements

A stock is a legal document that states the number of shares of ownership that the investor holds in the company, as well as the class of stock owned

• True
• False

A company may issue either common stock or preferred stock.

• True
• False

Common stock is the baseline form of stock, and includes the right to vote on certain corporate decisions, such as the election of a board of directors

• True
• False

Stock is the amount of capital paid into a business by its investors. Stock is divided into shares, which are held by investors in the form of stock certificates

• True
• False (THIS IS CORRECT IN MEXAM)

Choose the 7 areas that can be part of the report by using costing system.

• Operations
• Facilities
• budgeted cost
• Processes
• Departments
• Research and development
• Customers
• Products and services
• tactical plans
• Sales regions

It is the process of determining the monetary amounts at which the elements of the financial statements are to be recognized and carried in the balance sheet and income statement.

• Expenses
• Measurement
• Liabilities
• Recognition

Accumulated Depreciation is a valuation account which represents the decrease in value of a fixed asset due to continued use, wear & tear, passage of time, and obsolescence.

• True
• False

Stock is divided into __, which are held by investors in the form of stock certificates.

• SHARES

It is a scenario that gives you the opportunity to identify problems, apply theory and recommend a course of action in a business situation.

• CASE

This account represents the reverse relationship of the account receivable. By accepting the goods or services, the buyer agrees to pay for them in the near future.

• Accounts Payable
• Accounts Receivable.
• Prepaid Expenses.
• Notes Receivable.

A __ is designed to monitor the costs incurred by a business. It consists of bank overdraft, cash credit, short term deposits and marketable securities.

• COSTING SYSTEM

Dividend income is tax-advantaged

• True
• False

This principle states that acquired assets should be recorded at their actual cost and not what management thinks they are worth as at reporting date.

• Materiality.
• Consistency Principle.
• Historical Cost
• Adequate Disclosure

A transaction is a particular kind that involves the transfer of something of value between two entities,

• True
• False

It is the length of time covered by financial statements.

• ACCOUNTING PERIOD

A __ focuses on buying stocks with a high growth rate in the absolute dividend per share.

• DIVIDEND GROWTH INVESTOR

The management generally looks into cash flow statements to understand the internally generated cash which is best utilised for payment of dividends.

• True
• False

A company must have a registration statement approved by the Securities and Exchange Commission before the restriction can be removed from the stock certificate, which enables the stockholder to sell his shares.

• True
• False

It is the date on which the dividend is actually sent to the owners

• PAYABLE DATE

A company must have a registration statement approved by __ before the restriction can be removed from the stock certificate, which enables the stockholder to sell his shares.

• THE SECURITIES AND EXCHANGE COMMISSION

Assets refer to resources owned and controlled by the entity as a result of past transactions and events, from which future economic benefits are expected to flow to the entity..

• True
• False

Accounting is based on a single entry system which means that the dual effect of a business transaction is recorded

• True
• False

In the event of a corporate liquidation, the common stockholders are paid their share of any remaining assets after all credit or claims have been fulfilled

• True
• False

It aims to record expenses in the same accounting period as the revenues that are earned as a result of those expenses.

• MATCHING PRINCIPLE

The costing system is comprised of a set of forms, processes, controls, and reports that are designed to aggregate and report to management about revenues, costs, and profitability.

• True
• False

It requires that revenue be recorded WHEN EARNED, not before and not after.

• REVENUE RECOGNITION PRINCIPLE

Recognition is the process of incorporating in the balance sheet or income statement an item that meets the definition of an element and satisfies the criteria for recognition.

• Measurement
• Recognition
• Expenses
• Liabilities

Assets are items that have economic value to a company.

• True
• False

A share may have a face value, which is known as its

• PAR VALUE

Assets are recorded at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire them at the time of their acquisition.

• Realizable
• Historical Cost
• Present Value
• Current Cost

It is the baseline form of stock, and includes the right to vote on certain corporate decisions, such as the election of a board of directors

• COMMON STOCK

The financial statement is a statement used to determine the financial strength and weakness of a business.

• True
• False

These are necessary for transactions and events that extend over more than one period.

• PLANT ASSETS

It is tax-advantaged.

• DIVIDEND INCOME

Dividend income is __.

• TAX-ADVANTAGED

If a company declares bankruptcy, this usually means that the holdings of all investors are either severely reduced or completely eliminated.

• True
• False

The ex-date is the date at which the books of the corporation will be examined and anyone who owns shares on that day will receive the dividend based upon their total holdings.

• True
• False

An analysing a case your task is to identify the problem(s) in the situation presented in the scenario analyse the key issues within the context of theory/ies presented in your course develop and compare alternative solutions to the problems consider the advantages and disadvantages of various possible solutions select the best solution and make recommendations for action write up your case analysis in appropriate case analysis report format.

• True
• False

A __ is a legal document that states the number of shares of ownership that the investor holds in the company, as well as the class of stock owned.

• STOCK CERTIFICATE

It is the amount of capital paid into a business by its investors. Stock is divided into shares, which are held by investors in the form of stock certificates

• STOCKS

Amounts owed to others to others for unpaid expenses.

• Accounts Payable
• Accounts Receivable.
• Notes Receivable.
• Accrued Liabilities

Cash flow statement helps in planning the repayment of loan schedule and replacement of fixed assets, etc.

• True
• False

Generations of academic research have proven time and time again that the so called __ for dividend-paying firms is higher than those that don't pay dividends.

• QUALITY OF EARNINGS

It recognizes revenues when cash is received and records expenses when cash is paid.

• CASH BASIS ACCOUNTING

It yield investor, or high dividend yield investor as they are called more frequently, focus on buying stocks with the highest dividend yields they deem to be "safe," which usually means covered by some minimum ratio of payout-to-earnings or cash flow

• DIVIDEND

It is the date at which the books of the corporation will be examined and anyone who owns shares on that day will receive the dividend based upon their total holdings

• EX-DATE

Stocks are important because basic financial theory states that firms exist solely for the purpose of paying dividends, either now or at some point in the future

• True
• False

Cash flow statement aims at highlighting the cash generated from operating activities.

• True
• False

These are claims against customer arising from sale of services or goods on credit. This type of receivable offers less security than a promissory note.

• Prepaid Expenses.
• Cash
• Accounts Receivable.
• Notes Receivable.

Materials, labor and overhead costs are compiled in aggregate for an entire production process, and are thenallocated to individual production units.

• True
• False

What is an accounting equation?

• A = L - OE
• L = A + OE
• A = L + OE
• OE + A = L

Preferred dividends has special rights, which can vary by class of preferred stock

• True
• False

These are cash inflows and outflows.

• CASH FLOWS

A stockholder can have the restriction removed under __, which has a mandatory holding period.

• RULE 144

It deals with flow of cash which includes cash equivalents as well as cash.

• CASH FLOW STATEMENT

This approach works well for large production runs of identical items, such as a production run of 100,000 cell phones.

• True
• False