Accounting 201Chapter 01 Key Words

Question 2

Consistency

Answer 2

The use of similar accounting procedures either over time for the same company, or across companies at the same point in time.

Question 3

Corporation

Answer 3

An entity that is legally separate from its owners.

Question 4

Cost effectiveness

Answer 4

Financial accounting information is provided only when the benefits of doing so exceed the costs.

Question 5

Decision usefulness

Answer 5

The ability of the information to be useful in decision making.

Question 6

Dividends

Answer 6

Cash payments to stockholders. Distributions by a corporation to its stockholders.

Question 7

Economic entity assumption

Answer 7

All economic events with a particular economic entity can be identified.

Question 8

Ethics

Answer 8

A code or moral system that provides criteria for evaluating right and wrong behavior.

Question 9

Expenses

Answer 9

Costs of providing products and services.

Question 10

Faithful representation

Answer 10

Accounting information that is complete, neutral, and free from material error.

Question 11

Financial accounting

Answer 11

Measurement of business activities of a company and communication of those measurements to external parties for decision-making purposes.

Question 12

Financial Accounting Standards Board (FASB)

Answer 12

An independent, private body that has primary responsibility for the establishment of GAAP in the United States.

Question 13

Financial statements

Answer 13

Periodic reports published by the company for the purpose of providing information to external users.

Question 14

Financing activities

Answer 14

Transactions involving external sources of funding.Includes cash transactions resulting from the external financing of a business.

Question 15

Generally accepted accounting principles (GAAP)

Answer 15

The rules of financial accounting.

Question 16

Going concern assumption

Answer 16

In the absence of information to the contrary, a business entity will continue to operate indefinitely.

Question 17

Income statement

Answer 17

A financial statement that reports the company’s revenues and expenses over an interval of time.

Question 18

International Accounting Standards Board (IASB)

Answer 18

An international accounting standard-setting body responsible for the convergence of accounting standards worldwide.

Question 19

International Financial Reporting Standards (IFRS)

Answer 19

The standards being developed and promoted by the International Accounting Standards Board.

Question 20

Investing activities

Answer 20

Transactions involving the purchase and sale of (1) long-term resources such as land, buildings, equipment, and machinery and (2) any resources not directly related to a company’s normal operations. Includes cash transactions involving the purchase and sale of long-term assets and current investments.

Question 21

Liabilities

Answer 21

Amounts owed to creditors.

Question 22

Materiality

Answer 22

The impact of financial accounting information on investors’ and creditors’ decisions.

Question 23

Monetary unit assumption

Answer 23

A unit or scale of measurement can be used to measure financial statement elements.

Question 24

Net income

Answer 24

Difference between revenues and expenses. Difference between all revenues and all expenses for the period.

Question 25

Operating activities

Answer 25

Transactions involving the primary operations of the company, such as providing products and services to customers and the associated costs of doing so, like utilities, taxes, advertising, wages, rent, and maintenance. Includes cash receipts and cash payments for transactions relating to revenue and expense activities.

Question 26

Partnership

Answer 26

Business owned by two or more persons.

Question 27

Periodicity assumption

Answer 27

The economic life of an enterprise (presumed to be indefinite) can be divided into artificial time periods for financial reporting.

Question 28

Relevance

Answer 28

Accounting information that possesses confirmatory value and/or predictive value.

Question 29

Retained earnings

Answer 29

Cumulative amount of net income earned over the life of the company that has not been distributed to stockholders as dividends. Represents all net income, less all dividends, since the company began.

Question 30

Revenues

Answer 30

Amounts earned from selling products or services to customers.

Question 31

Sarbanes-Oxley Act

Answer 31

Known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly referred to as SOX ; the act established a variety of new guidelines related to auditor-client relations and internal control procedures.

Question 32

Sole proprietorship

Answer 32

A business owned by one person.

Question 33

Statement of cash flows

Answer 33

A financial statement that measures activities involving cash receipts and cash payments over an interval of time. A summary of cash inflows and cash outflows during the reporting period sorted by operating, investing, and financing activities.

Question 34

Statement of stockholders’ equity

Answer 34

A financial statement that summarizes the changes in stockholders’ equity over an interval of time. Summarizes the changes in the balance in each stockholders’ equity account over a period of time.

Question 35

Stockholder’s equity

Answer 35

Stockholders’, or owners’, claims to resources, which equal the difference between total assets and total liabilities.

Question 36

Timeliness

Answer 36

Information being available to users early enough to allow them to use it in the decision process.

Question 37

Understandability

Answer 37

Users must understand the information within the context of the decision they are making.

Question 38

Verifiability

Answer 38

A consensus among different measurers.

Question 39

Accounting

Answer 39

A system of maintaining records of a company’s operations and communicating that information to decision makers.

Question 40

Accounting equation

Answer 40

Equation that shows a company’s resources (assets) equal creditors’ and owners’ claims to those resources (liabilities and stockholders’ equity).

Question 41

Assets

Answer 41

Resources owned by a company.

Question 42

Auditors

Answer 42

Trained individuals hired by a company as an independent party to express a professional opinion of the accuracy of that company’s financial statements.

Question 43

Balance sheet

Answer 43

A financial statement that presents the financial position of the company on a particular date.

Question 44

Comparability

Answer 44

The ability of users to see similarities and differences between two different business activities.