Chapter 1&2

Question 1

Net income

Answer 1

Revenue-expenses, the amount by which revenues exceed expenses in a given period of time. Or vice versa.

Question 2

Ending retained earnings

Answer 2

Beginning retained earnings+net income-dividends

Question 3

Assets

Answer 3

Liabilities +stockholders equity

Question 4

Stockholders Equity

Answer 4

The owners claim to assets. Assets-liability
Equity=stock+refined earnings.
Stock:
Preferred stock
Common stock 
Additional paid in capital 
Retained earnings
Treasury stock

Question 5

Liability

Answer 5

Assets-Stockholders Equity

Question 6

Revenue

Answer 6

The increase in assets or decrease in liabilities resulting from the sale of goods or the performance of services in the normal course of business. (Nothing to do with money).

Question 7

Expense

Answer 7

The cost of assets consumed or services used in the process of generating revenues.

Question 8

Dividends

Answer 8

Payments of cash or additional shares of stock from a corporation to its stockholders.

Question 9

Corporation

Answer 9

A business organized as a separate legal entity that issues shares of stock. An entity owned by stockholders.

Question 10

Financial statements

Answer 10

How entities communicate financial position with external users. (Also used by internal user Service).
Income statement, retained earnings statement, balance sheet, statement of cash flow.

Question 11

Income statement

Answer 11

A financial statement that reports the revenues, expenses,gains, and losses in resulting net income or loss. This shows have successfully your business performance during a specific period of time.

Question 12

Retained Earnings Statement
Or
Statement of stockholders Equity

Answer 12

Summarizes the amount and causes of changes in retained earnings for a specific period of time.
Shows amount of net income retained in the entity.

Question 13

Balance sheet

Answer 13

Reports assets and claims of those assets at a specific point in time.
Assets=liabilities + Equity(stockholders/owner)

Question 14

Statement of cash flow

Answer 14

Provides financial info about the cash receipts and cash payment of a business for a specific period of time.

Question 15

Solvency

Answer 15

Measure the ability of a company to meet its long term debts.
The ability of the enterprise to survive over a long period of time

Question 16

Liquidity

Answer 16

The ratio between the liquid assets and liabilities of a bank or other institution
The ability to pay short term obligations as they come do

Question 17

Profitability

Answer 17

Measure the income or operating success of an enterprise for a given period of time. Creditors and investors are interested in evaluating profitability.Profitability is frequently used as a test of management effectiveness.

Question 18

Operating activities

Answer 18

Cash inflows and cash outflows associated with the primary operations of the business. Intended to indicate the cash generating capability of a company

Question 19

Free cash flow

Answer 19

Cash provided by operating activities. Provides additional insight, competed by subtracting capital expenditures in cash dividends from cash provided by operations

Question 20

Statement of stockholders equity

Answer 20

reports all changes in stockholders equity accounts including issuance of common stock retirement of common stock changes in retained earnings.

Question 21

Ending retained earnings

Answer 21

Beginning retained earnings+net income-dividends

Question 22

Earnings per share

Answer 22

Net income(current year)- preferred dividends/weighted-average common shares outstanding(current+previous year)/2

Question 23

Monetary unit assumption

Answer 23

Assumes that the dollar is the “measuring stick” used to report on financial performance.

Question 24

Going concern assumption

Answer 24

The business will remain in operation for the foreseeable future

Question 25

Entity assumption

Answer 25

Indicates that personal and business record keeping should be separately maintained

Question 26

Periodicity Assumption

Answer 26

Separates financial information into time periods for reporting purposes.

Question 27

Historical cost principle

Answer 27

Dictates the companies record assets Heather Cox. Measurement bases used one of reliable estimate a fair value is not available.

Question 28

Full disclosure principle

Answer 28

Dictates that companies should disclose all circumstances and events that make a difference to financial statement users

Question 29

Working capital

Answer 29

Current assets-current liabilities

Question 30

Current ratio

Answer 30

Current assets/current liabilities

Question 31

Debt to assets ratio

Answer 31

Total liabilities/total assets

Question 32

Free cash flow

Answer 32

Net cash provided by operating activities- capital expenditures-cash dividends.

Question 33

Accounting equations

Answer 33

Assets=liabilities+stockholders equity

Assets-liabilities=stockholders Equity

Assets-stockholders Equity=liabilities

Question 34

Equity

Answer 34

Equity=stock+retained earnings
Stock or paid in capital: the total amount paid in by stockholders for the shares they purchase

Retain earnings is the amount of net income retained in the business/entity.

Question 35

Notes to financial statement

Answer 35

Notes clarifying information presented in the financial statements and provided a national detail. Unlike financial statements information in Notes there’s not have to be quantifiable.
Can include, description of significant accounting policies, explanations of uncertainties, statistics and additional detail a specific numbers in the financial statements

Question 36

Current assets

Answer 36

Assets the companies expect to convert cash or use up within one year of the operating cycle whichever is longer.

Cash, short term investments, accounts receivable, notes receivable, inventory, supplies, and prepaid’s.

Question 37

Stockholders equity

Answer 37

Current liabilities, obligations that companies expect to pay within one year or the operating cycle whichever is longer.
short term notes, current portion of long-term debt, accounts payable, unearned revenue, salaries and wages payable and interest payable

Question 38

Liabilities and stockholders equity

Answer 38

Long term liabilities: Mortgage payable, long-term debt, bonds payable, premium or discount on bonds

Question 39

Sole proprietorship

Answer 39

Simple to establish
Owner controls the business
Tax advantages: taxed at the owners personal tax rate
Personal liability of the owner

Question 40

Partnership

Answer 40

Simple to establish
Shared owner control of the business
Tax advantages: taxed at the owners personal tax rate
Harder to transfer ownership and raise funds
Personal liability of the owner

Question 41

Corporation

Answer 41

Harder to establish
Somewhat owner control of the business through voting for Board of Directors
Double taxation: corporation is taxed at a relatively higher rate and any dividends of the owners are included on personal tax returns
Easier to transfer ownership and raise funds
Limits liability of the owners

Question 42

Accounting

Answer 42

The information system that identifies, records and communicates the economic events of an organization to interested users
Users can be divided into two general groups internal and external
Internal users: managers, finance, marketing, human resources, President
External users: investors, creditors, stockholders, Taxing have 40, unions, regulatory agencies

Question 43

Financial accounting

Answer 43

Focused on the external users the company and primarily investors/stockholders
Macro level information. Financial statements include information about the entire entity.
Must follow generally excepted accounting principles (GAAP)

Question 44

Managerial accounting

Answer 44

Focused on the internal users of the company
Micro level information. Reports typically include information about segments of the company. Can be very specific
Guided by the cost-benefit principle

Question 45

Operating activities

Answer 45

Items that affect the income statement and typically affect current assets or current liabilities
Revenues and gains: these create an increase in net income
Expenses and losses: these create a decrease in net income

Question 46

Investing activities

Answer 46

Long-term assets/investments. These items never directly affect the income statement
Purchase or sell stocks/bonds of other activities
Purchase or sell fixed/capital assets (PP&E)( land, buildings, equipment,land improvements)
Purchase or sale in tangible assets (patents, copyrights, franchises).

Question 47

Financing activities

Answer 47

Long-term liabilities and stock items. These items never directly affect the income statement
Borrow money (notes payable)
Sell/issue stock (common stock, preferred stock, pay dividends)
Sell/issue bonds (bonds payable)