Chapter 1

Question 1

Sources of Financial Resources

Answer 1

Stockholders & Creditors

Question 2

Potential Return for
Stockholders

Answer 2

Dividends
Higher future stock prices

Question 3

Potential Return for
Creditors

Answer 3

Interest

Question 4

Business Activities

Answer 4

Financing
Investing
Operating

Question 5

BALANCE SHEET

Answer 5

reports the financial position (amount of assets,
liabilities, and stockholders’ equity) of an accounting entity at a point in time

Question 6

INCOME STATEMENT

Answer 6

reports the revenues less the expenses during
the accounting period

Question 7

STATEMENT OF STOCKHOLDERS’ EQUITY

Answer 7

reports the changes in each of the company’s stockholders’ equity accounts, including the change in the retained earnings balance caused by net income and dividends, during the reporting period

Question 8

STATEMENT OF CASH FLOWS

Answer 8

reports inflows and outflows of cash
during the accounting period in the categories of operating, investing,
and financing

Question 9

Elements of the
Balance Sheet

Answer 9

Assets
Liabilities
Stockholders’ Equity

Question 10

Assets

Answer 10

Economic Resources (cash, inventory, buildings)

Question 11

Liabilities

Answer 11

Financing from creditors (amounts owed to suppliers, employees, banks)

Question 12

Stockholder’s Equity

Answer 12

Financing from stockholders (common stock, retained earnings)

Question 13

Elements of the
Income Statement

Answer 13

Revenues
Expenses

Question 14

Revenues

Answer 14

Resources earned from delivery of goods and services

Question 15

Expenses

Answer 15

Resources used (incurred) to earn period’s revenue

Question 16

Net Income

Answer 16

Revenues earned minus expenses incurred

Question 17

Elements of the Statement of
Stockholders’ Equity

Answer 17

Common Stock
Retained Earnings

Question 18

Common Stock

Answer 18

Amounts invested in the
business by stockholders.

Question 19

Retained Earnings

Answer 19

Past earnings not distributed to stockholders.

Question 20

Cash Flows from Operating Activities

Answer 20

directly related to earning income, such as cash collected from customers less cash paid for operating expenses, such as cash paid to suppliers and employees.

Question 21

Cash Flows from Investing Activities

Answer 21

related to acquisition or sale of the
company’s plant and equipment and
investments.

Question 22

Cash Flows from Financing Activities

Answer 22

Cash flows directly related to the financing of the
enterprise, such as the receipt or payment of money to
investors and creditors (except suppliers

Question 23

Generally Accepted Accounting Principles (GAAP)

Answer 23

The rules that determine
the content and measurement rules of the
statements

Question 24

Sole Proprietorship

Answer 24

unincorporated business owned by a single individual

Question 25

Partnership

Answer 25

unincorporated business owned by two or more individuals

Question 26

Corporation

Answer 26

business incorporated under the laws of a particular state.