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Accounting 2301 > Chapter 1 > Flashcards

Chapter 1 Flashcards

1
Q

Accounting

A

Accounting is the process of recognizing, measuring, recording, and reporting information about a business’s transactions.

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2
Q

Business

A

A business is a legal organization which attempts to create value by exchanging products with customers for money.

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3
Q

Goods

A

A good is a physical item that can be touched and felt. Goods are tangible

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4
Q

Services

A

A service is an activity that exists but cannot be touched and felt. Services are intangible.

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5
Q

Customer

A

A person or organization that purchases a product from a business.

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6
Q

Sale

A

The exchange between a business and customer where the business provides a customer a product and the business receives money or money substitutes.

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7
Q

Value

A

The price someone is willing to pay for an item.

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8
Q

Cost

A

The amount of money or money substitutes that a business pays to receive an item used in operating a business.

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9
Q

Revenue

A

The amount of money or money substitutes that a business receives from the sale of a product.

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10
Q

Profit

A

The revenue from a sale less the cost of the sale.

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11
Q

Risk

A

Risk is the uncertainty that could result in an outcome not desired.

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12
Q

Loss

A

A loss is a negative profit, which occurs when the cost of a sale is greater than the revenue from the sale.

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13
Q

Stakeholder

A

A stakeholder is a person or organization that is affected by a business.

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14
Q

Liability

A

A liability is an amount owed to a lender or other creditor.

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15
Q

Stockholders’ Equity

A

Money provided to the business by owners either through an initial investment or the retention of profits, also know as owner’s equity

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16
Q

Asset

A

An economic resource that a business owns and can use to operate the business

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17
Q

Employees

A

People, hired by a business, for a period of time to operate the business

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18
Q

Expense

A

Money or other value surrendered due to the sale of goods or services, or the operating of the business.

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19
Q

Interest

A

The expense of using borrowed money for a period of time.

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20
Q

Net Income

A

Operating profit less interest expense, computed as revenue, less operating expenses, less interest expense.

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21
Q

For-Profit Business

A

A business that attempts to create an exchange, or sale, where revenue exceeds expenses, creating a profit.

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22
Q

Not-for-Profit Business

A

A business that attempts to create an exchange or sale where revenue equals cost.

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23
Q

Service Business

A

A business that sells a service to its customers.

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24
Q

Merchandise Business

A

A business that sells physical goods or products to its customers.

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25
Q

Manufacturing Business

A

A business that produces the physical goods that they sell to their customers.

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26
Q

Wholesale Business

A

A business that sells products to other businesses for resale.

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27
Q

Retail Business

A

A business that sells products to the final consumer of the product.

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28
Q

Sole Proprietorship

A

A business entity that has one owner, where for legal and tax purposes, the business and the owner are considered the same.

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29
Q

Partnership

A

A business that has more than one owner, where for legal and tax purposes, the business and the owners are considered the same.

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30
Q

Corporation

A

A legal entity, chartered under state law, that is empowered to conduct business. The corporation and owners are considered as separate for legal and tax purposes.

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31
Q

Stockholder

A

An owner of part of a corporation.

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32
Q

Dividend

A

The payment of past and current profits, less losses, previously retained in the business.

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33
Q

S-Corporation

A

A small corporation that has met the legal requirements to act as a corporation but elected to be taxed at individual rates.

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34
Q

Limited Liability Corporation

A

A hybrid business entity having characteristics of both a corporation and a partnership.

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35
Q

Financial Accounting

A

The process of recognizing, measuring, recording, and reporting information about a business’s transactions to stakeholders outside the business, including the stockholders (owners) and lenders.

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36
Q

Generally Accepting Accounting Principles (GAAP)

A

The rules, principles, and concepts established by the accounting profession that govern financial accounting.

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37
Q

Financial Accounting Standards Board (FASB)

A

A seven-person group primarily responsible for the establishment of standards of financial accounting and reporting called GAAP.

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38
Q

International Financial Reporting Standards (IFRS)

A

Accounting standards developed by the International Accounting Standards Board for use throughout the world.

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39
Q

Business Entity Principle

A

The business entity principle dictates that the financial affairs of a business organization must be kept separate from the personal financial affairs of the business owners.

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40
Q

Reliability Principle

A

Information should be verifiable, confirmable by an independent observer; also called objectivity principle.

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41
Q

Cost Principle

A

The cost principle states that when a business acquires assets or services, they should be recorded at their actual cost, also called historical cost.

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42
Q

Actual Cost

A

Actual Cost of assets and services acquired, also referred to as historical cost.

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43
Q

Cash Accounting

A

Accounting that only recognizes business transactions when cash is received or disbursed.

44
Q

Accural Accounting

A

Accounting that recognizes a business transaction when it occurs, whether or not cash is received or disbursed.

45
Q

Fundamental Accounting Equation

A

The equation that states that total assets equal the sum of total liabilities and total stockholders’ equity.

Assets = Liabilities + Stockholders’ Equity

46
Q

Common Stock

A

The stockholders’ equity which is the result of the owners of the business investing money (or other assets) into the business.

47
Q

Retained Earnings

A

The stockholders’ equity which is the result of the business having net income, or earnings, that have been retained in the business.

48
Q

Prepaid Expenses

A

Amounts that are assets of a business because they represent items that have been purchased but will be used later.

49
Q

Accounts Payable

A

A liability incurred by a business when purchasing goods and services.

50
Q

Note Payable

A

A liability that is represented by a written promise that requires future payment.

51
Q

On Account

A

Buying or selling on credit.

52
Q

Accounts Receivable

A

An asset that represents amounts owed to the business by customers.

53
Q

Financial Statements

A

Historical, objective reports, prepared according to GAAP, that communicate financial information about a business.

54
Q

Income Statement

A

A financial statement that reports the revenue and expenses of a business during a given period of time.

55
Q

Statement of Retained Earnings

A

A financial statement that reports the amount of accumulated net profits that a business has retained and not paid in dividends since inception. The statement reports the beginning balance of retained earnings, plus net income or minus net loss in the given period, less the dividends during the given period, equalling ending retained earnings.

56
Q

Balance Sheet
or
Statement of Financial Position

A

A financial statement that reports the assets, liabilities, and stockholders’ equity of a business at a specific point in time.

57
Q

Statement of Cash Flows

A

A financial statement that reports the sources and uses of cash for a given period of time.

58
Q

Operating Activities

A

Activities that create revenue and/or expense in the entity’s major line of business.

59
Q

Investing Activities

A

Decisions made by management to buy and sell long-term assets.

60
Q

Financing Activities

A

Actions that generate the receipt or payment of cash to pay long-term liabilities or to raise capital.

61
Q

Which type of business organization is owned by its stockholders?

A

Corporation

62
Q

Liabilities

A

debt owed to outsiders

63
Q

Assets

A

Economic resources of the business

64
Q

Corporation

A

Organization form that can have an indefinite life

65
Q

Dividends

A

Payment of cash to the owners of a corporation

66
Q

Sole Proprietorship

A

Organization form with a single owner

67
Q

Partnership

A

Organization form with two or more owners

68
Q

Transaction

A

Any event that affects a firm’s financial position

69
Q

Which accounting principle specifically states that we should record transactions at amounts that can be verified?

A

Reliability Principle

70
Q

Cost Principle

A

Acquired assets and services should be recorded at their actual cost.

71
Q

Business Entity Principle

A

An organization that stands as a separate economic unit must not have its financial affairs confused with that of other entities.

72
Q

Generally Accepted Accounting Principles

A

Standards developed by FASB

73
Q

Reliability Principle

A

Data must be verifiable

74
Q

Jill Riggins owns and operates Jill’s Java Coffee Shop. She proposes to account for the shop’s assets at their current market value in order to have current amounts on the balance sheet. Which accounting concept or principle does Jill violate?

A

Cost Principle

75
Q

Assume that Wave Rider sold skateboards to a department store for $28,000 cash. How would this transaction affect Wave Rider’s accounting equation?

A

Increase both assets and stockholders’ equity by $28,000.

76
Q

Assume that Wave Rider sold skateboards to another department store for $18,000 on account. Which parts of the accounting equation does a sale on account affect?

A

Accounts receivable and retained earnings.

77
Q

Assume that Wave Rider paid expenses totaling $32,000. How does this transaction affect Wave Rider’s accounting equation?

A

Decreases both assets and stockholders’ equity.

78
Q

Pool Rider sold skateboards to one department store for $25,000 cash, sold skateboards to another department store for $15,000 on account, and paid expenses totaling $34,000. What is Pool Rider’s net income or net loss?

A

Net income of $6,000.

25,000+15,000-34,000=6,000

79
Q 
Utilities Expense 
Supplies Expense
Salaries Expense
Property Tax Expense
Rent Expense
A

Expenses

80
Q 
Accounts Receivable
Office Furniture
Office Supplies
Cash
Equipment
Land
A

Assets

81
Q

Common Stock

A

Stockholders’ Equity

82
Q

Accounts Payable
Note Payable
Salaries Payable

A

Liabilities

83
Q

Service Revenue

A

Revenues

84
Q

Increase an asset and increase stockholders’ equity.

A

sold stock to stockholders.

85
Q

Increase an asset and increase a liability

A

Received cash from the bank in exchange for a note payable

86
Q

Increase one asset and decrease another asset

A

Paid cash to purchase land for building site.

87
Q

Decrease an asset and decrease stockholders’ equity

A

Paid cash to the stockholders as a distribution of earnings

88
Q

Decrease an asset and decrease a liability

A

Paid cash on an account payable

89
Q

PWC Motorsports, Inc., sold additional stock to stockholders.

A 
Effect on total assets: Increased total assets.
Asset account(s) affected: cash
90
Q

Paid cash to purchase land as a building site.

A 
Effect on total assets: No effect on total assets
Asset account(s) affected: The increase in land offset the decrease in cash.
91
Q

Paid cash on accounts payable.

A 
Effect on total assets:Decreased total assets
Asset account(s) affected: cash
92
Q

Purchased machinery and equipment; signed a promissory note in payment.

A 
Effect on total assets: Increased total assets
Asset account(s) affected: machinery and equipment
93
Q

Performed service for a customer on account.

A 
Effect on total assets:increased total assets
Asset account(s) affected: Accounts receivable
94
Q

Paid cash to the stockholders as a distribution of earnings.

A 
Effect on total assets: decreased total assets
Asset account(s) affected: cash
95
Q

Received cash from a customer on account.

A 
Effect on total assets: no effect on total assets
Asset account(s) affected: The increase in cash offset the decrease in accounts receivable
96
Q

Sold land for a price equal to the cost of the land; received cash.

A 
Effect on total assets: no effect on total assets
Asset account(s) affected: the increase in cash offset the decrease in land
97
Q

Borrowed money from the bank

A 
Effect on total assets: increased total assets
Asset account(s) affected: cash
98
Q

The balance sheet reports

A

financial position on a specific date

99
Q

The income statement reports

A

results of operations for a specific period.

100
Q

Accounts receivable

A

Balance Sheet

101
Q

Notes payable

A

Balance Sheet

102
Q

Advertising Expense

A

Income Statement

103
Q

Service Revenue

A

Income Statement

104
Q

Retained Earnings

A

Balance Sheet and Statement of Retained Earnings

105
Q

Office Supplies

A

Balance Sheet

Accounting 2301 (3 decks)

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