Chapter 1

Question 1

Identifying (Accounting Functions)

Answer 1

Select transactions and events

Question 2

Recording (Accounting Functions)

Answer 2

Input, measure, log

Question 3

Communicating (Accounting Functions)

Answer 3

Prepare, analyze, and interpret

Question 4

Accounting Principles

Answer 4

Measurement
Full Disclosure
Revenue Recognition
Expense Recognition

Question 5

Accounting Assumptions

Answer 5

Going Concern
Monetary Unit
Time Period
Business Entity

Question 6

Accounting Constraint

Answer 6

Cost-benefit

Question 7

Measurement Principle (Cost Principle)

Answer 7

Accounting information is based on actual cost. Cost is measured on a cash or equal-to-cash basis.

Question 8

Revenue Recognition Principle

Answer 8

Revenue is recognized:
1. when goods or services are provided to customers
2. at the amount expected to be received from the customer

Question 9

Expense Recognition Principle (Matching Principle)

Answer 9

A company records the expenses it incurred to generate the revenue reported.

Question 10

Full Disclosure Principle

Answer 10

A company reports the details behind financial statements that would impact users’ decisions. Disclosures are found in footnotes on statements.

Question 11

Going Concern Assumption

Answer 11

Accounting information presumes that the business will continue operating instead of being closed or sold.

Question 12

Monetary Unit Assumption

Answer 12

Transactions and events are expressed in monetary units.

Question 13

Time Period Assumption

Answer 13

The life of a company can be divided into time periods (ex. months or years).

Question 14

Business Entity Assumption

Answer 14

A business is accounted for separately from other business entities and its owner.

Question 15

Sole Prop

Answer 15

• 1 Owner
• No additional business income tax
• Unlimited liability
• NOT a separate legal entity
• Business ends with owner death or choice

Question 16

Partnership

Answer 16

• 2 or more partners
• No additional business income tax
• Unlimited liability
• NOT a separate legal entity
• Business ends with partner death or choice

Question 17

Corporation

Answer 17

• 1 or more shareholders
• Additional corporate income tax
• Limited liability
• Separate legal entity
• Indefinite

Question 18

LLC

Answer 18

• 1 or more members
• No additional business income tax
• Limited liability
• Separate legal entity
• Indefinite

Question 19

Assets

Answer 19

Resources a company owns or controls, which are expected to yield future benefits.
Ex: cash, supplies, equipment, land, and accounts receivable

Question 20

Liabilities

Answer 20

Represent creditors’ claims on assets. These claims are obligations to provide assets, products, or services to others.
EX: wages, accounts payable, notes, taxes payables

Question 21

Equity

Answer 21

The owner’s claim on assets. Equals assets minus liabilities.
Includes Owner Capital, Owner Withdrawals, Revenues, and Expenses

Question 22

Accounting Equation

Answer 22

Question 23

Income Statement

Answer 23

Describes a company’s revenues and expenses and computes net income or loss over a period of time.

Question 24

Statement of Owner’s Equity

Answer 24

Explains changes in owner’s equity from owner investments, net income/loss, and any withdrawals over a period of time.

Question 25

Balance Sheet

Answer 25

Describes a company’s financial position (types and amounts of assets, liabilities, and equity) at a point in time.

Question 26

Statement of Cash Flows

Answer 26

Identifies cash inflows (receipts) and cash outflows (payments) over a period of time.

Question 27

Return on Assets

Answer 27