Chapter 1

Question 1

who does accounting provide information to

Answer 1

managers, owners, investors, government agencies

Question 2

what does accounting do

Answer 2

provide financial information for decision makers

Question 3

what does the accounting process do

Answer 3

analyze, record, classify, summarize, report, interpret, communicate

Question 4

what is sole proprietorship

Answer 4

one owner makes all the decisions for the business

Question 5

what’s a disadvantage of sole proprietorship

Answer 5

if sued, they can take personal stuff

Question 6

what is a partnership

Answer 6

at least 2 owners share the decision making & risk of business

Question 7

what is a corporation

Answer 7

owned by stockholders

Question 8

what is a liability corporation (LLC)

Answer 8

owned by a few stockholders, liable only to the extent of their investment

Question 9

what is merchandising

Answer 9

make their own products/sell products made by another supplier

Question 10

what is manufacturing

Answer 10

companies that make their own products

Question 11

what is GAAP (generally accepted accounting principles)

Answer 11

procedures & guidelines that must be followed during the accounting process

Question 12

what is bookkeeping

Answer 12

recording function of the accounting process

Question 13

what is the accounting equation

Answer 13

assets = liabilities + owner’s equity

Question 14

what are assets

Answer 14

properties of value OWNED by a business (cash, supplies, office equipment)

Question 15

what is a liability

Answer 15

future obligation (rights of creditors)

Question 16

what is accounts payable

Answer 16

promise to pay the creditor (liability)

Question 17

what are equities

Answer 17

total claims (of creditors & owners) against the assets

Question 18

what are creditors

Answer 18

companies that are owed money & have a claim to assets

Question 19

what is capital

Answer 19

owner’s investment in a company

Question 20

what is a shift in assets

Answer 20

make-up of the assets has changed, but the total remains the same

Question 21

what is revenue

Answer 21

amounts earned by performing services, increases owner’s equity (will always be cash/accounts receivable)

Question 22

when do assets increase

Answer 22

cash (if client pays right away) or accounts receivable

Question 23

what is accounts receivable

Answer 23

client promises to pay in the future (assets)

Question 24

what are expenses

Answer 24

cost incurred in efforts to create revenue, decreases owners equity, paid in cash/can be charged

Question 25

what is net income/net loss

Answer 25

revenues-expenses

Question 26

what is net income (increases equity)

Answer 26

revenues>expenses

Question 27

what is net loss (decreases equity)

Answer 27

revenues<expenses

Question 28

what are withdrawals

Answer 28

cash/other assets removed from the business to pay personal expenses, decreases owner’s equity, not an expense/related to business

Question 29

what does owner’s equity equal

Answer 29

beginning capital & additional investment + net income (revenue-expenses) - withdrawals

Question 30

what is the order of preparation

Answer 30

1. income statement
2. statement of owner’s equity (uses net income/loss from income statement)
3. balance sheet (uses balance in capital from owner’s equity)

Question 31

what is the heading of an income statement

Answer 31

company name, income statement, for month ended…

Question 32

what is included in an income statement

Answer 32

revenue:
consulting fees
operating expenses:
expenses
total operating expenses
net income (revenue-expenses)

Question 33

what is the heading of a statement of owner’s equity

Answer 33

company name, statement of owner’s equity, for month ended…

Question 34

what is included in a statement of owner’s equity

Answer 34

capital (beginning of month)
net income for month (from income statement)
less: withdrawals for month
increase in capital (net income-withdrawals)
capital at end of month (capital+increase)

Question 35

what is the heading of a balance sheet

Answer 35

company name, balance sheet, month & year

Question 36

what is included on the left side of a balance sheet

Answer 36

(assets)
cash, accounts receivable, equipment, supplies, total assets

Question 37

what is included on the right side of a balance sheet

Answer 37

liabilities:
accounts payable
owner’s equity:
capital
total liabilities & owner’s equity (should equal total assets)