Chapter 1

Question 1

Accounting

Answer 1

The information system that measures business activities, processes that turn data into reports and financial statements, and communicates results to decision makers.

the language of business

Question 2

Accounting cycle

Answer 2

the process by which financial statements are prepared

Question 3

Accounting equation

Answer 3

Basic tool of accounting: Assets = Liabilities + Equity

Question 4

Asset

Answer 4

an economic resource that is expected to be of benefit in the future

Question 5

Balance sheet

Answer 5

A list of an entity’s assets, liabilities, and equity as of a specific date. Also called the statement of financial position.

assets = liabilities + stockholders equity

Question 6

Board of directors

Answer 6

A group elected by a company’s stock holders to set the policy of the corporation and to appoints it’s officiers

Question 7

Capital

Answer 7

Another name for the equity of a business

Question 8

Common stock

Answer 8

The most basic form of capital stock

Question 9

Continuity assumption / Going concern assumption

Answer 9

The assumption that an entity will remain in operation for the foreseeable future

Question 10

Corporation

Answer 10

a business owned by stockholders. A corporation is a legal entity, an artificial person in the eyes of the law

Stockholders are not personally liable

Question 11

Current assets

Answer 11

An asset that is expected to be converted to cash, sold or consumed during the next 12 months, or within the business’s normal operating cycle if it’s longer than a year

Cash and cash equivalents
Receivables
Inventories
Other current assets

Question 12

Current liabilities

Answer 12

a debt due to be paid within one year or within the entity’s operating cycle if the cycle is longer than a year

Question 13

Deficit

Answer 13

A negative balance in retained earnings caused by net stockholders

Question 14

Dividends

Answer 14

Distribution (usually cash) by a corporation to it’s stockholders

Question 15

Entity

Answer 15

An organization or a section of an organization that for accounting purposes, stands apart from other organizations and individuals as a separate economic unit

Question 16

Equity method

Answer 16

Method of accounting used to account for investments that are at least 20% but not more than 50% owned

Question 17

Equity

Answer 17

The claim of the owners of a business to the assets of the business. Also called capital, owner’s equity, stockholders equity or net assets

assets - liabilities

Question 18

Ethics

Answer 18

Standards of wright and wrong that transcend economic and legal boundaries

Question 19

Expenses

Answer 19

Decreases in retained earnings that result from operations; the cost of doing business; the opposite of revenue

Question 20

Fair value

Answer 20

The amount that a business could sell as asset for or the amount that a business could pay to settle a liability

Question 21

Financial accounting

Answer 21

Branch of accounting that provides relevant and accurate information to people outside the firm

Question 22

Financial Accounting Standards Board (FASB)

Answer 22

The regulatory body in the US that formulates generally accepted accounting principles (GAAP)

Question 23

Financing activities

Answer 23

Activities that obtain from investors and creditors the crash needed to launch and sustain the business; a section of the statement of cash flows

Question 24

Generally Accepted Accounting Principles (GAAP)

Answer 24

Accounting guidelines formulated by the FASB that govern how accounting is practiced

Question 25

Gross profit

Answer 25

Revenue from a particular activity minus the direct costs associated with earning that revenue

Question 26

Historical cost principle

Answer 26

a principle that states that assets should be recorded at their actual costs on date of purchase

Question 27

income statement

Answer 27

Measures a company's operating performance A financial statement listing an entity's revenue, expenses, and net income or net loss for a specific period. Also called the statement of operations. revenues - expenses = net income (net loss)

Question 28

Intangible assets

Answer 28

Assets with no tangible form that represent resources that have a value and future benefit

Question 29

International Financial Reporting Standards (IFRS)

Answer 29

Accounting guidelines, formulated by the IASB

Question 30

Investing activities

Answer 30

Activities that increase or decrease the long-term assets available to the business; a section of the statement of cash flows

Question 31

Liability

Answer 31

An economic obligation (a debt) payable to an individual or an organization outside the business

Question 32

Limited Liability Company (LLC)

Answer 32

A business organization in which the business (not the owner) is liable for the company's debts Members are not personally liable

Question 33

Long-term assets

Answer 33

Assets that are expected to benefit the entity for long periods of time, beyond the end of the next fiscal year. These usually include investments, property and equipment (plant assets), and intangible assets

Question 34

Long term debt

Answer 34

A liability that falls due beyond one year from the date of the financial statements, or after the business's operating cycle if the cycle is longer than a year

Question 35

Managerial accounting

Answer 35

The branch of accounting that generates information for the internal decision makers of a business, such as top executives

Question 36

Net earnings

Answer 36

another name for net income

Question 37

net income

Answer 37

the excess of total revenue over total expenses

Question 38

Net loss

Answer 38

The excess of total expenses over total revenues

Question 39

Net profit

Answer 39

Another name for net income

Question 40

Operating activities

Answer 40

Activities that create revenue or expenses in the statement of cash flows. Operating activities affect the income statement

Question 41

Paid in capital

Answer 41

The amount of stockholders' equity that stockholders have contributed to the corporation. Also called contributed capital common stock

Question 42

Partnership

Answer 42

An association of two or more persons who co-own a business for profit general partners are personally liable; limited partners are not

Question 43

Proprietorship

Answer 43

a business with a single owner; proprietor is personally liable

Question 44

Retained earnings

Answer 44

The amount of stockholder's equity a corporation has earned through profitable operations and has not given back to stockholders

Question 45

Revenues

Answer 45

Increases in retained earnings from delivering goods or services to customers or clients

Question 46

Segment

Answer 46

a division or subset of a business's operations

Question 47

Shareholder

Answer 47

another name for stockholder

Question 48

Stable monetary unit assumption

Answer 48

the assumption that because the purchasing power of the dollar has been relatively stable, inflation's effect in accounting records can be ignored

Question 49

statement of cash flows

Answer 49

a statement that reports cash receipts and cash payments classified according to the entity's major activities: operating, investing and financing net operating cash flow +- net investing cash flows +- net financing cash flows

Question 50

Statement of financial position

Answer 50

another name for the balance sheet

Question 51

Statement of operations

Answer 51

another name for the income statement

Question 52

Statement of retained earnings

Answer 52

A summary of the changes in the retained earnings of a corporation during a specific period Beginning balance of retained earnings +/- net income (or net loss) for the period - dividends for the period = ending balance of retained earnings

Question 53

Stock

Answer 53

shares into which the owners equity of a corporation is divided

Question 54

stockholder

Answer 54

a person who owns stock in a corporation. also called a shareholder

Question 55

Stockholder's equity

Answer 55

the stockholders' ownership interest in the assets of a corporation paid-in capital + retained earnings

Question 56

Accounting objectives

Answer 56

provide useful information for making financial decisions

Question 57

Fundamental qualitative characteristics

Answer 57

Relevance (includes materiality) - must be useful to decision makers and important enough that, if it were omitted or incorrect Faithful representation - information must be complete, neutral and free from error

Question 58

Enhancing Qualitative Characteristics

Answer 58

Comparability - prepared in a way that allows it to be compared Verifiability - must be possible to check the information Timeliness - made available early enough to help users make decisions Understandability - be transparent, clear, enough so that it makes sense to reasonably informed users of the info

Question 59

Constraint

Answer 59

Cost - cost of disclosing it should not exceed its expected benefits