Ch. 1 - Definitions

Question 0

Capital Markets

Answer 0

Provide a mechanism to help our economy allocate resources efficiently.

Question 1

Faithful Representation

Answer 1

The agreement between a measure and a real-world phenomenon that the measure is supposed to represent.

Question 2

Corporations

Answer 2

Acquire capital from investors in exchange for ownership interest and from creditors by borrowing.

Question 3

Initial market

Answer 3

Transactions involve issuance of stock and bond by the corporation.

Question 4

Secondary market

Answer 4

Transactions involvedthe transfer of stocks and bonds between individuals and institutions.

Question 5

Net Income

Answer 5

The difference between revenues and expenses.

Question 6

Ethics

Answer 6

Deals with the ability to distinguish right from wrong.

Question 7

Assets

Answer 7

Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.

Question 8

Liabilities

Answer 8

Probable future sacrifices of economic benefits arising from present obligations of a particular and entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.

Question 9

Equity

Answer 9

The residual interest in the assets of an entity that remains after deducting its liabilities.

Question 10

Investments by owners

Answer 10

Increases in equity of a particular business enterprise resulting from transfers to it from other entities of something of value to obtain or increase ownership interests in it.

Question 11

Distributions to owners

Answer 11

Decreases in equity of a particular enterprise resulting from transfers to owners.

Question 12

Comprehensive income

Answer 12

The change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner services. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.

Question 13

Revenues

Answer 13

Inflows or other enhancements of assets of an entity or settlements of its liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute the entiy’s ongoing major or central operations.

Question 14

Expenses

Answer 14

Outflows or other using up of assets or incurrence of liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations.

Question 15

Gains

Answer 15

Increases in equity from peripheral or incidental transactions of an entity.

Question 16

Losses

Answer 16

Represent decreases in equity arising from peripheral or incidental transactions of an entity.

Question 17

Revenue recognition principle

Answer 17

Revenue should be recognized when the earnings process is virtually complete and the collection is reasonably assured.

Question 18

Matching principle

Answer 18

Expenses should be recognized in the period in which they produce revenues.