1-3

Question 1

What is accounting?

Answer 1

1. Investment
2. Lending
3. Regulatory
4. Employment
5. Management
6. Tax authority

Question 2

Proprietorship

Answer 2

Single owner, owner personally liable for business debts

Question 3

Partnership

Answer 3

Two or more people, unlimited liability

Question 4

Limited liability corporations

Answer 4

Owners are not personally liable, popular due to the combo of tax status and limited liability

Question 5

Corporation

Answer 5

Formed under state law
Advantage: large sums of capital from issuance of stock to the public
Disadvantage: double taxation (corporate, dividend)

Question 6

Financing activities

Answer 6

External sources of funding:
Owners
Lenders

Question 7

Owners

Answer 7

Stockholders equity and dividends

Question 8

Lenders

Answer 8

Liabilities

Question 9

Investing

Answer 9

Purchase and sale of long term resources or other resources

Question 10

Operating

Answer 10

Primary operations of the company

-expenses and revenues

Question 11

Revenues

Answer 11

Providing products and services to customers

Sales of goods and services

Question 12

Expenses

Answer 12

Associated costs of producing revenue

Cost of earning revenues

Question 13

Accounting equation (balance sheet)

Answer 13

Assets= liabilities + stockholders equity

Question 14

4 basic financial statements

Answer 14

Income statement
Statement of stockholders equity
Balance sheet
Statement of cash flows

Question 15

Net income is aka

Answer 15

Profit and earnings

Question 16

Assets

Answer 16

Resources owned by the company

Question 17

Liabilities

Answer 17

Creditors claims to those resources

Question 18

Stockholders equity

Answer 18

Any resources not claimed by creditors

Question 19

Statement of cash flows

Answer 19

Operating + investing + financing = total cash flows

Question 20

Look at why financial accounting is important on slides for chapter 1

Answer 20

…

Question 21

GAAP(what does this stand for?)

Answer 21

generally accepted accounting principles

Question 22

Financial accounting standards board

Answer 22

Rules for US companies

Question 23

International accounting standards board

Answer 23

Rules for most other countries

Question 24

Securities and Exchange Commission

Answer 24

Enforce rules in US

Question 25

Auditor

Answer 25

Verified rules are followed, independent of company

Question 26

Financial accounting should provide info that:

Answer 26

Useful to investors and creditors Helps predict cash flow Tells about economic resources and claims

Question 27

Constraints of financial accounting

Answer 27

Materiality | Cost

Question 28

What does the balance sheet report?

Answer 28

Financial position of the company

Question 29

What does the income statement report?

Answer 29

Probability of the company

Question 30

Retained earnings

Answer 30

All earnings over life of the company less payments to owners

Question 31

Common stock & retained earnings Internal or external

Answer 31

Common stock = external retained earnings = internal

Question 32

Stock holders equity statement

Answer 32

Common stock + retained earnings (beg. RE + net income - dividends)

Question 33

Transactions

Answer 33

An event that has a financial impact on the business and can be measured reliably

Question 34

The 6 accounts

Answer 34

``` Dividends Expenses Assets Liabilities Owners equity Revenues ```

Question 35

Debit and credit left or right

Answer 35

``` Debit = left Credit = right ```

Question 36

Cash basis

Answer 36

record revenues when cash is received | Record expenses when cash is paid

Question 37

Accrual basis

Answer 37

Record revenues when earned Record expenses in period the benefit is received Most used

Question 38

Revenue recognition principle

Answer 38

Record revenue when earned

Question 39

Matching principle

Answer 39

All costs that are used to generate revenue are recorded as expenses in the period the revenue is recognized

Question 40

Adjusting entries

Answer 40

- Internal transactions - record events that have occurred but that we have not yet recorded - needed bc we are accrual based - necessary to make sure all revenues and expenses are recorded in the current period - recorded on the last day of the period

Question 41

Deferrals

Answer 41

Paid or received cash in advance - prepaid expenses - unearned revenues

Question 42

Prepaid expenses

Answer 42

Paid cash for the purchase of an asset before incurring the expense

Question 43

Unearned revenues

Answer 43

Received cash and recorded a liability before earning the revenue

Question 44

Accruals

Answer 44

The opposite of deferrals | -accused expenses and revenues

Question 45

Accured expenses

Answer 45

Paid cash after incurring the expense and recording a liability

Question 46

Acured revenues

Answer 46

Received cash after earnings the revenue and recording an asset

Question 47

Depreciation

Answer 47

Allocate the cost of a plant asset to expense over the assets useful life -common type of long term deferral