CH 6: Investing and Financing Decisions

Question 1

what are the 3 balance sheet assumptions and 1 measurement concept

Answer 1

Assumptions:
-separate entity ass
-going concern ass
-monetary unit ass

Concept:
-historical cost concept

Question 2

separate entity assumption

Answer 2

each business activity is accounted for separately from personal activities of the owners, ppl, and etc

Question 3

going concern assumption

Answer 3

assumes the bus will continue operating in the foreseeable future long enough to meet its commitments

Question 4

monetary unit assumptions

Answer 4

fnan statements are reported using the national unit

Question 5

historical cost concept

Answer 5

balance sheet elements are recorded at their initial cost

Question 6

acct equation

Answer 6

A= L + SE

Question 7

assets

Answer 7

economic resources owned/ controlled by a company

Have measurable value/ expected to benefit the company by producing inflowing or reducing cash outflows in the future

Question 8

current assets

Answer 8

resources the company will use/turn into cash within a year

Accts rec, inventory, supplies, prepaid exp, cash

Question 9

Long term assets

Answer 9

assets to be used/turned into cash after a year

property/equipment, operating leisure right of use assets, intangibles, stocks and bonds

Question 10

assets listed by…

Answer 10

liquidity

Question 11

liabilities

Answer 11

Obligations from past transactions that are expected to be settled in the future by transferring assets/providing services

Question 12

current liabilities

Answer 12

will be paid or settled within a year

accts pay, unearned rev, accrued exp, current lease libs

Question 13

noncurrent liabilities

Answer 13

have due dates beyond a year

Notes payable, long term lease liabilities

Question 14

liabilities listed by…

Answer 14

maturity

Question 15

stockholders equity

Answer 15

represents the residual interest in the assets of the entity after subtracting liabilities

Combination of the financing provided by the owners (capital contributed) and by business operations

Question 16

Financing provided by owner

Answer 16

-contributed capital
-the norm of ppl purchasing stock in the company and gaining common stock

Question 17

Financing provided by operations

Answer 17

(capital or retained earnings)
Portion of profits reinvested in the businesses (not distributed to owners) is called retained earnings
losses/dividends decrease retained earnings

Question 18

what are some things that are not reported in the balance sheet and where can they be found

Answer 18

-trademarks, patents, other intangible assets
-can be found in the footnotes

Question 19

external event

Answer 19

Exchange of assets, good, or services by on party for assets,s services, or promises to pay from another parties

Ex- purchase of lipgloss

Question 20

Internal event

Answer 20

Events that are not exchanges between the business and other parties but nevertheless have a direct and measurable effect on the entity

Ex- use of prepaid insurance

Question 21

The chart of accounts

Answer 21

List of account titles and their uniquely identifying numbers

Question 22

assets usually start with…

Answer 22

1
100-199
Cash usually 101
Decimals used for more specific

Question 23

liabilities usually start with …

Answer 23

2
200–299
Decimals for more specifics

Question 24

transaction analysis

Answer 24

the process of studying a transaction to determine its economic effect on the entity in terms of acct equation

Question 25

every transaction has…

Answer 25

dual effects

meaning it affects more than 2 accounts

Question 26

accounting cycle

Answer 26

1- analyze each transaction
2-record entries in the journal
3-post effects to the ledger
4-prepare trial balance
5-adjust revenues and expenses
6-prepare and disseminate financial statements
7-close income statement accounts

Question 27

assets debit and credits

Answer 27

Have debit balances
Increase with debits
Decrease with credits

Question 28

liabilities debit and credits

Answer 28

Have credit balances
Increase with credit
Decrease with debits

Question 29

stockholders equity debits and credits

Answer 29

Have credit balance
Increase with credit
Decrease with debits

Question 30

journal

Answer 30

contains original entries for transactions in sequential order

Question 31

T accounts

Answer 31

Tool for summarizing transition effects and determining the balances for individual accounts

Strats with beginning balance
D on left C on right
Ending is written on correct side

Question 32

trial balance

Answer 32

Lists all ledger acct in fnan statement order
with their ending D/C balance

Order ( assets. Lias, SE, revenues, expenses)

Debit and credits in trial balance should equal

Question 33

general ledger

Answer 33

formal accounting record that tracks every business transaction for each specific account

Question 34

fnan statement order

Answer 34

( assets. Lias, SE, revenues, expenses)

Question 35

classified balance sheet

Answer 35

Balance sheet is prepared from trial balance
Has name of company, title, date, and dollars
Group assets into current and noncurrent groups

Question 36

current ratio

Answer 36

Current assets/ current liabilities

Shows if a company has the ST resources to pay its ST debt

High ratio is good