Ch 1 - A Framework for Financial Accounting

Question 1

Accounting is the “________ of business”
-System of maintaining records of a companies operations and communicating that information to decision makers
-Tells the financial story of the company

Answer 1

Language

Question 2

__________ applies to ALL business professionals
- Ex: consulting, product management, marketing, supply chain, Human Resources, or finance

Answer 2

Accounting

Question 3

_________ - Decide whether to invest in stock

Answer 3

Investors

Question 4

_________ - decide whether to lend money

Answer 4

Creditors

Question 5

_________ - decide whether to purchase products

Answer 5

Customers

Question 6

_________ - decide the customer’s ability to pay for supplies

Answer 6

Suppliers

Question 7

________ - decide production and expansion

Answer 7

Managers

Question 8

_________ - decide employment opportunities

Answer 8

Employees

Question 9

___________ - decide market share and profitability

Answer 9

Competitors

Question 10

__________ - decide on social welfare

Answer 10

Regulators

Question 11

___ ___________ - decide on taxation policies

Answer 11

Tax authorities

Question 12

_____ ___________ - decide on environmental issues

Answer 12

Local communities

Question 13

_________ accounting : provides accounting information to external users

Answer 13

Financial

Question 14

__________ accounting: provides accounting information to internal users

Answer 14

Managerial

Question 15

Accounting equation

Answer 15

Assets = Liabilities + Stockholders’ Equity

Question 16

(Company Resources & Claims to Resources) Assets

Answer 16

Resources

Question 17

(Company Resources & Claims to Resources) Liabilities & Stockholders’ Equity

Answer 17

Claim to Resources

Question 18

Total resources of a company

Answer 18

Assets

Question 19

Amounts owed to creditors

Answer 19

Liabilities

Question 20

Owners’ claims to resources

Answer 20

Stockholders’ Equity

Question 21

*Cash
*Equipment
*Supplies
*Inventory
*Buildings
*Land
*Investments

Answer 21

Assets

Question 22

Amounts owed to
*Suppliers
*Employees
*Utility Companies
*Governments
*Banks

Answer 22

Liabilities

Question 23

*Owner Contributions
*Net resources generated by company operations

Answer 23

Equity

Question 24

Exercise (Account & Classification): Equipment used for operations

Answer 24

Account: Equipment
Classification: Asset

Question 25

Exercise (Account & Classification): Amounts owed to employees

Answer 25

Account: Salaries Payable Classification: Liability

Question 26

Exercise (Account & Classification): Purchase of Office Supplies

Answer 26

Account: Supplies Classification: Asset

Question 27

Exercise (Account & Classification): Sale of Common stock to investors

Answer 27

Account: common stock Classification: Stock. Equity

Question 28

Exercise (Account & Classification): Property used for operations

Answer 28

Account: Land Classification: Asset

Question 29

Exercise (Account & Classification): Amounts owed to the IRS for Taxes

Answer 29

Account: Income Tax Payable Classification: Liability

Question 30

Exercise (Account & Classification): Amount of interest owed on loan

Answer 30

Account: Interest payable Classification: Liability

Question 31

Amount recognized when the company sells products or provides services to customers

Answer 31

Revenues

Question 32

Costs of providing products and services and other business activities during the current period

Answer 32

Expenses

Question 33

Difference between revenues and expenses -Aka earnings or profits

Answer 33

Net Income

Question 34

Revenues > Expenses =

Answer 34

Net Income

Question 35

Expenses > Revenues =

Answer 35

Net Loss

Question 36

Cash payments to stockholders -not expenses!

Answer 36

Dividends

Question 37

Financial __________: periodic reports published by the company for the purpose of providing information to external users

Answer 37

Financial Statements

Question 38

- income statements -Statement of Stockholders’ Equity -Balance sheet - Statement of cash flows All as classified under…

Answer 38

Financial Statements

Question 39

Reports the company’s revenue and expenses over an interval of time (ex: a month, quarter, or year)

Answer 39

Income statement

Question 40

(Layout) Company name Financial Statement Time period

Answer 40

👍🏽

Question 41

Prepare an income statements for DEFT Corporation using the following balances at the end of December Accounts | Balances Liabilities | $20,000 Expenses | 35,000 Assets | 32,000 Cash | 6,800 Revenues | 42,000 Dividends | 4,000

Answer 41

Deft Corporation Income Statement For the Year ended Dec. 31, 202X Revenues | $42,000 Expenses | 35,000 Net Income | $7,000

Question 42

Summarizes changes in stockholders’ equity over an interval of time -Primary sources: Common Stock and Retained Earnings

Answer 42

Statement of Stockholders’ Equity

Question 43

Amounts invested by stockholders when they purchase shares of stock -External sources -Beginning Common Stock + New Issuances = Ending Common Stock

Answer 43

Common Stock

Question 44

All net income minus all dividends over the life of the company -Internal Source -Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings

Answer 44

Retained Earnings

Question 45

Presents the financial position of the company on a particular date *Shows events at a point in time, like a photograph

Answer 45

Balance Sheet

Question 46

Assets | Liabilities Total Assets | SE & TL (TA & SE must be equal in balance)

Answer 46

Balance sheet layout

Question 47

Which of the following accounts would appear in a company’s income statement? A. Accounts Payable B. Cash C. Dividends D. Rent expense

Answer 47

D

Question 48

Measures activities involving cash receipts and cash payments over an interval of time.

Answer 48

Statement of cash flows

Question 49

(Statement of cash flows cont. : types of cash transactions) Cash transactions involving revenue and expenses activities (income statement items)

Answer 49

Operating cash flows

Question 50

(Statement of cash flows cont. : types of cash transactions) Cash transactions for the purchase and sale of investments & long-term assets (long-term = more than 1 year)

Answer 50

Investing cash flows

Question 51

(Statement of cash flows cont. : types of cash transactions) cash transactions with lenders (borrowing money and repaying debt) and stockholders (issuing stock and paying dividends)

Answer 51

Financing cash flows

Question 52

Header: -Company Name, Title of financial statement, & time period Statement: -Net Income Reconciling Items Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net increase in cash Cash at the beginning of the period Cash at the end of the period

Answer 52

Statement of Cash Flows

Question 53

(Link Among Financial Statements) Notice that the amount of net income in the income statement reappears in the _________ __ _____________ ______.

Answer 53

statement of stockholders' equity

Question 54

(Link Among Financial Statements) Notice that the amount of cash in the balance sheet reappears as the ending cash balance in the _________ of ____ _____.

Answer 54

statement of cash flows

Question 55

(Exercise: State the financial statement that matches each description) Chang in owners' claims in resources

Answer 55

Statement of stockholders' equity

Question 56

(Exercise: State the financial statement that matches each description) Profitability of the company

Answer 56

Income statement

Question 57

(Exercise: State the financial statement that matches each description) Change in cash as a result of operating, investing, and financing activities.

Answer 57

Statement of Cash Flows

Question 58

(Exercise: State the financial statement that matches each description) Resources equal creditors' and owners' claim to those resources

Answer 58

Balance Sheet

Question 59

(FASB) -> (GAAP)

Answer 59

Financial Accounting Standards Board -> Generally Accepted Accounting Principles

Question 60

(IASB) -> (IFRS)

Answer 60

International Accounting Standards Board -> International Financial Reporting Standards

Question 61

Public companies are required to provide shareholders with an annual report in a Form 10-k Private companies are often required to provide annual reports to _______ Includes: -Income Statement -Statement of stockholders' equity -Balance Sheet -Statement of cash flows -Statement of comprehensive income -Additional disclosures

Answer 61

lenders

Question 62

Natural separation between those who own or finance the business and those who run the business stockholders "principals" -(provide capital and hiring)-> Managers "agents"

Answer 62

Demand for Credible Accounting Information

Question 63

Managers may purposely provide misleading financial accounting information -Creates the need to ensure honest financial reporting Managers "Agents" -(Provides Financial Reports)-> Stockholders "Principals"

Answer 63

Demand for Credible Accounting Information

Question 64

Trained individuals hired by a company as an independent party to express a professional opinion of the extent to which financial statements are prepared in compliance with GAAP and are free of material misstatement

Answer 64

Auditors

Question 65

(Auditors) -Help ensure that management has in fact appropriately applied GAAP in preparing the company's financial statements. -Play a major role in investors' and creditors' decisions by adding credibility to the financial statements.

Answer 65

Role of Auditors