Chapter 1

Question 1

Company or individual who gives assets or services in exchange for security certificates representing ownership interests.

Answer 1

investor

Question 2

Group of people or entities organized to buy and sell resources.

Answer 2

market

Question 3

A service-based profession that provides reliable and relevant financial information useful in making decisions.

Answer 3

accounting

Question 4

Money or credit supplied to a business by investors (owners) and creditors

Answer 4

financial resources

Question 5

Individual or organization that has loaned goods or services to a business

Answer 5

creditor

Question 6

Fee paid for using funds; represents an expense to the borrower and revenue to the lender.

Answer 6

interest

Question 7

Natural resources businesses transform to create more valuable resources.

Answer 7

physical resources

Question 8

The intellectual and physical efforts of individuals used in the process of providing goods and services to customers.

Answer 8

labor resources

Question 9

Parties interested in the operations of a business, including owners, lenders, employees, suppliers, customers, and government agencies.

Answer 9

stakeholders

Question 10

The branch of accounting focused on the business information needs of external users (creditors, investors

Answer 10

financial accounting

Question 11

Branch of accounting focused on the information needs of managers and others working within the business

Answer 11

managerial accounting

Question 12

Organizations (also called nonprofit or nonbusiness organizations) are established primarily for motives other than making a profit, such as providing goods and services for the social good.

Answer 12

not-for-profit entities

Question 13

Private, independent standard-setting body established by the accounting profession that has been delegated the authority by the SEC to establish most of the accounting rules and regulations for public financial reporting.

Answer 13

Financial Accounting Standards Board (FASB)

Question 14

Rules and practices that accountants agree to follow in financial reports prepared for public distribution.

Answer 14

generally accepted accounting principles (GAAP)

Question 15

Businesses or other organizations for which financial statements are prepared.

Answer 15

reporting entities

Question 16

Key components of financials statements including assets, liabilities, stockholders’ equity, common stock, retained earnings, revenue, expense, and net income.

Answer 16

elements

Question 17

Economic resource used to produce revenue that is expected to provide future benefit to the business.

Answer 17

asset

Question 18

Obligations of a business to relinquish assets, provide services, or accept other obligations.

Answer 18

liabilities

Question 19

Basic class of corporate stock that carries no preferences as to claims on assets or dividends; certificates that evidence ownership in a company.

Answer 19

common stock

Question 20

represents the portion of the assets that is owned by the stockholders.

Answer 20

stockholders’ equity

Question 21

Portion of stockholders’ equity that includes all earnings retained in the business since inception (revenues minus expenses and distributions for all accounting periods).

Answer 21

retained earnings

Question 22

equation of the relationship between the assets and the claims on those assets.

Answer 22

accounting equation

Question 23

Record of classified and summarized transaction data; component of financial statement elements.

Answer 23

account

Question 24

Span of time covered by the financial statements, normally one year, but may be a quarter, a month, or some other time span.

Answer 24

accounting period

Question 25

Business event that involves transferring something of value between two entities.

Answer 25

transaction

Question 26

Transaction that increases an asset and a claim on assets; three types of asset source transactions are acquisitions from owners (equity), borrowings from creditors (liabilities), or earnings from operations (revenues).

Answer 26

asset source transaction

Question 27

Recordkeeping system that provides checks and balances by recording two sides for every transaction.

Answer 27

double-entry accounting (double-entry bookkeeping)

Question 28

Transaction that decreases one asset while increasing another asset so that total assets do not change; for example, the purchase of land with cash.

Answer 28

asset exchange transaction

Question 29

The economic benefit (increase in assets or decrease in liabilities) gained by providing goods or services to customers.

Answer 29

revenue

Question 30

Accounting practice of reporting assets at the actual price paid for them when purchased regardless of estimated changes in market value.

Answer 30

historical cost concept

Question 31

Process of dividing up an organization’s assets and returning them to the resource providers. In business ____, creditors normally have first priority; after creditor claims have been satisfied, any remaining assets are distributed to the company’s owners (investors).

Answer 31

liquidation

Question 32

Accounting presumption that a company will continue to operate indefinitely, benefiting from its assets and paying its obligations in full; justifies reporting assets and liabilities in the financial statements.

Answer 32

going concern (assumption)

Question 33

Refers to a business’s duty to protect and use the assets of the company for the benefit of the owners (the firm’s stockholders).

Answer 33

stewardship