chap 1

Question 1

What is accounting?

Answer 1

The information system that identifies, records, and communicates the economic events of an organization to users interested in that information.

Question 2

What is the accounting equation?

Answer 2

Assets = Liabilities + Shareholders’ Equity.

Question 3

What are assets?

Answer 3

The resources owned or controlled by a business that are expected to provide future economic benefits.

Question 4

What is a corporation?

Answer 4

A company organized as a separate legal entity, with most of the rights and privileges of a person. Shares are evidence of ownership.

Question 5

Who are creditors?

Answer 5

Users of accounting information, including suppliers, that grant credit (sell on account) to a customer.

Question 6

What is data analytics?

Answer 6

The process of analyzing data to find patterns and correlations, trends, and other valuable insights to enhance decision-making.

Question 7

What is a deficit?

Answer 7

A negative balance in retained earnings resulting from cumulative net losses exceeding cumulative net income.

Question 8

What are dividends?

Answer 8

The distribution of retained earnings from a corporation to its shareholders, normally in the form of cash.

Question 9

What are expenses?

Answer 9

The decreases in economic benefits that result from the costs of assets consumed or services used in ongoing operations to generate revenue.

Question 10

Who are external users?

Answer 10

Users of accounting information that are not involved in managing the organization and do not have access to accounting information other than that which is publicly available, including investors, lenders, and other creditors.

Question 11

What are financing activities?

Answer 11

Activities that report the cash effects of debt or equity financing. These include borrowing or repaying cash from (to) lenders, and issuing or reacquiring shares or paying dividends to investors.

Question 12

What is a fiscal year?

Answer 12

An accounting period that is one year long.

Question 13

What are generally accepted accounting principles (GAAP)?

Answer 13

A general guide, having substantial authoritative support, that describes how economic events should be recorded and reported for financial reporting purposes.

Question 14

What is income?

Answer 14

The increase in economic benefits that result from the activities of a business, rather than from transactions with shareholders. Income includes revenues and gains.

Question 15

Who are internal users?

Answer 15

Users of accounting information, including company officers, managers, and directors, who have access to an organization’s internal accounting information.

Question 16

What are investing activities?

Answer 16

Activities that report the cash effects of purchasing and disposing of long-lived assets such as property, plant, and equipment and investments not held for trading.

Question 17

Who are investors?

Answer 17

Users of accounting information that have an ownership interest (own debt or equity securities) in the organization.

Question 18

Who are lenders?

Answer 18

Users of accounting information, including bankers, that extend credit to borrowers.

Question 19

What are liabilities?

Answer 19

The debts and obligations of a business. Liabilities are claims of lenders and other creditors on the assets of a business.

Question 20

What is net income?

Answer 20

The amount by which revenues exceed expenses.

Question 21

What is net loss?

Answer 21

The amount by which expenses exceed revenues.

Question 22

What are operating activities?

Answer 22

Activities that result from day-to-day operations. They report the cash effects of transactions that create revenues and expenses.

Question 23

What is a partnership?

Answer 23

A business owned by more than one person that is not incorporated.

Question 24

What is a private corporation?

Answer 24

A corporation whose shares are not traded on a public stock exchange.

Question 25

What is a proprietorship?

Answer 25

A business owned by one person.

Question 26

What is a public corporation?

Answer 26

A corporation whose shares are publicly traded on a stock exchange.

Question 27

What is the reporting entity concept?

Answer 27

The concept that economic activity that can be identified with a particular company must be kept separate and distinct from the activities of the owner(s) and of all other economic entities.

Question 28

What are retained earnings?

Answer 28

The amount of accumulated net income (less net losses, if any) from the prior and current periods that has been retained and reinvested in the corporation for future use and not distributed to shareholders as dividends.

Question 29

What is revenue?

Answer 29

The increase in economic benefits that result from the normal operating activities of a business, such as the sale of a product or provision of a service.

Question 30

What is share capital?

Answer 30

Shares representing the ownership interest in a corporation. If only one class of shares exists, it is known as common shares.

Question 31

What is shareholders’ equity? (made of)

Answer 31

The shareholders’ claim on total assets, represented by the investments of the shareholders (share capital) and undistributed earnings (retained earnings) generated by the company.

Question 32

What is the statement of cash flows?

Answer 32

A financial statement that provides information about the cash inflows (receipts) and cash outflows (payments) for a specific period of time.

Question 33

What is the statement of changes in equity?

Answer 33

A financial statement that summarizes the changes in total shareholders’ equity, as well as each component of shareholders’ equity, for a specific period of time.

Question 34

What is the statement of financial position?

Answer 34

A financial statement that reports the assets, liabilities, and shareholders’ equity at a specific date.

Question 35

What is the statement of income?

Answer 35

A financial statement that reports a company’s financial performance during the period.

Question 36

Who are the users of accounting information?

Answer 36

Internal users (managers) and external users (investors, creditors, regulators, and others).

Question 37

What are the primary forms of business organization?

Answer 37

Proprietorships, partnerships, and corporations (public and private).

Question 38

What are the three main types of business activity?

Answer 38

Financing activities, investing activities, and operating activities.

Question 39

What is the purpose of financial statements?

Answer 39

To present the revenues, expenses, equity changes, financial position, and cash flows of a company over specific periods.

Question 40

What is the purpose of generally accepted accounting principles (GAAP)?

Answer 40

To provide guidelines for recording and reporting economic events to ensure consistency and comparability.