Accounting Chapter 1

Question 1

Accounting

Answer 1

an information system that reports on the economic activities and financial condition of a business or other organization

Question 2

Purpose of Accounting

Answer 2

identify, measure, record and communicate financial information

Question 3

GAAP

Answer 3

Generally Accepted Accounting Principles

Question 4

FASB

Answer 4

Financial Accounting Standard Board

Question 5

SEC

Answer 5

Securities and Exchange Commission

Question 6

Business Entity Concept

Answer 6

A business is separate from its owner(s) (transactions must be recorded separately to accurately reflect the business’ financial status

Question 7

Reporting Entities (Different things you can report for)

Answer 7

businesses, individuals, organizations

Question 8

Reliability Concept

Answer 8

Accounting records must be based on verifiable data

Question 9

Historical Cost Concept

Answer 9

Accounting records show assets at their original cost

Question 10

Time periods

Answer 10

span of time that covers certain accounting functions (calendar or fiscal year)

Question 11

Fiscal year

Answer 11

12 month accounting year (generally Jan 1st to Dec. 31st but can be anything as long as it stays consistant)

Question 12

The Accounting Equation

Answer 12

composed of three elements: assets, liabilities and stockholders’ equity. (Assets=Liabilities + Stockholders’ Equity)

Question 13

Assets

Answer 13

Claims

Question 14

Liabilities

Answer 14

things you owe back (need to find actual definition)

Question 15

Stockholders’ Equity

Answer 15

Subdivided into two additional elements called common stock and retained earnings.

Question 16

Claims

Answer 16

Claims come from three sources, creditors (liabilities), investors(stockholders’ equity), and operations (profits increase assets)

Question 17

Common Stock

Answer 17

commitments made to investors described in certificates (money contributed to the company)

Question 18

Retained Earnings

Answer 18

increases to stockholders’ equity from earnings (earning still in the company that will have to be paid back)

Question 19

Accounting Transaction

Answer 19

a transaction is an economic event that can affect items in the financial statements

Question 20

Accounting Event

Answer 20

an economic occurrence that changes an entity’s assets, liabilities, or stockholders’ equity

Question 21

Transaction

Answer 21

a particular kind of event that involves transferring something of value between two entities

Question 22

What to record?

Answer 22

In order to be recorded, a transaction must have an impact on the financial statements AND be measurable

Question 23

Double-Entry Accounting

Answer 23

the system used to record the effects of transactions on the accounting equation (each transaction affects at least two accounts)

Question 24

Financial Statements

Answer 24

reports for a specific period in time (Income Statement, Statement of Changes in Stockholders’ Equity, Balance Sheet, Statement of Cash Flows)

Question 25

Income Statement Elements

Answer 25

Two major elements: revenues and expenses

Question 26

Revenues

Answer 26

increase in assets that result from sales

Question 27

Expenses

Answer 27

cost of resources used to earn revenues during the period

Question 28

Net Income *

Answer 28

revenues - expenses = net income

Question 29

Matching Concept

Answer 29

Revenues are matched to expenses

Question 30

Net Gain

Answer 30

Revenues exceed expenses

Question 31

Net loss

Answer 31

Expenses exceed revenues

Question 32

Statements of Stockholders’ Equity

Answer 32

Owners contribute capitol in two ways: directly, through purchases of common stock OR indirectly, by the company retaining net income

Question 33

Retained Earnings

Answer 33

Net income earned but not paid out in the form of dividends (so money earned that is kept in the company)

Question 34

Ending SE

Answer 34

Beginning SE +/- Stock Changes +/- Net Income(Loss) - Dividends = Ending SE

Question 35

Balance Sheet

Answer 35

reports what resources a company has and how it obtained those recourses (Assets = Liabilities + Stockholders’ Equity)

Question 36

Statement of Cash Flows

Answer 36

shows where a business gets its cash and spends its cash (Three categories: Operating Activities, Investing Activities, Financing Activities)

Question 37

Operating Activities

Answer 37

generating revenue and incurring expenses (things like paying employees and bills)

Question 38

Investing Activities

Answer 38

Acquiring assets to operate (things you buy not to sell but to build the company

Question 39

Financing Activities

Answer 39

issuing stock, borrowing money, paying dividends, repaying loan (how you generate the money in order to use it for the business)

Question 40

Annual Report

Answer 40

Consists of: Financial Statements, Notes, Auditors’ Report, Management’s Discussion and Analysis (MD&A)