Chapter 1

Question 0

On the balance sheet, Assets =

Answer 0

Liabilities + Owner’s Equity

Question 1

The balance sheet is also called?

Answer 1

the statement of financial position

Question 2

For each transaction, the accountant determines three things. They are?

Answer 2

1. which specific accounts the transaction effects
2. whether it increases or decreases each account balance
3. the amount of the change in each account balance

Question 3

The process of identifying, recording, and summarizing economic information and reporting it to decision makers

Answer 3

accounting

Question 4

The field of accounting that serves external decision makers, such as stockholders, suppliers, banks, and government agencies

Answer 4

financial accounting

Question 5

The field of accounting that serves internal decision makers, such as top executives, department heads, college deans, hospital administrators, and people at other management levels within an organization

Answer 5

management accounting

Question 6

A document prepared by management and distributed to current and potential investors to inform them about the company’s past performance and future prospects

Answer 6

annual report

Question 7

A document that U.S. companies file annually with the SEC. It contains the company’s financial statements

Answer 7

Form 10-K

Question 8

A financial statement that shows the financial status of a business entity at a particular instant in time

Answer 8

balance sheet (statement of financial position)

Question 9

Assets = Liabilities + Owner’s Equity

Answer 9

balance sheet equation

Question 10

Economic resources that a company expects to help generate future cash inflows or help reduce future cash outflows

Answer 10

assets

Question 11

Economic obligations of the organization to outsiders, or claims against its assets by outsiders

Answer 11

liabilities

Question 12

Promissory notes that are evidence of a debt and state the terms of payment

Answer 12

notes payable

Question 13

The owner’s claims on an organization’s assets, or total assets less total liabilities

Answer 13

owner’s equity

Question 14

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

Answer 14

entity

Question 15

Any event that both affects the financial position of an entity and that an accountant can reliably record in money terms

Answer 15

transaction

Question 16

An asset that a company expects to provide services for more than 1 year

Answer 16

long-lived asset

Question 17

A summary record of the changes in a particular asset, liability, or owner’s equity

Answer 17

account

Question 18

Goods held by a company for the purpose of sale to customers

Answer 18

inventory

Question 19

Buying or selling on credit, usually by just an “authorized signature” of the buyer

Answer 19

open account

Question 20

A liability that results from a purchase of goods or services on open account

Answer 20

account payable

Question 21

A transaction that affects more than two accounts

Answer 21

compound entry

Question 22

A person or entity to whom a company owes money

Answer 22

creditor

Question 23

A business with a single owner

Answer 23

sole proprietorship

Question 24

A form of organization that joins two or more individuals together as co-owners

Answer 24

partnership

Question 25

A business organization that is created by individual state laws

Answer 25

corporation

Question 26

A feature of the corporate form of organization whereby corporate creditors (such as banks or suppliers) ordinarily have claims against the corporate assets only, not against the personal assets of the owners

Answer 26

limited liability

Question 27

A corporation that sells shares in its ownership to the public

Answer 27

publicly owned

Question 28

A corporation owned by a family a small group of shareholders, or a single individual, in which shares of ownership are not publicly sold

Answer 28

privately owned

Question 29

Formal evidence of ownership shares in a corporation

Answer 29

capital stock certificate (stock certificate)

Question 30

Owners’ equity of a corporation. The excess of assets over liabilities of a corporation

Answer 30

stockholders’ equity (shareholder’s equity)

Question 31

The total capital investment in a corporation by its owners both at and subsequent to the inception of business

Answer 31

paid-in capital

Question 32

How is owner’s equity for proprietorships and partnerships listed on the balance sheet?

Answer 32

as Capital

Question 33

How is owner’s equity listed for corporations on the balance sheet?

Answer 33

as stockholder’s equity or shareholder’s equity

Question 34

Who decides which accounting principles are generally accepted in the United States?

Answer 34

the Financial Accounting Standards Board (FASB)

Question 35

The FASB calls its ruling on GAAP ________?

Answer 35

FASB Statements

Question 36

The minimum steps that an auditor must take in examining the transactions and financial statements before he/she can issue an opinion are called?

Answer 36

GAAS

Question 37

What is the main measure of profitability for a company?

Answer 37

its net income, or sales less its expenses

Question 38

What are the two most popular methods to measure income?

Answer 38

accrual basis and cash basis

Question 39

What is the current standard for income measurement and the best basis for measuring economic performance?

Answer 39

the accrual basis

Question 40

Recognition of revenues is a test for determining whether to record revenues in the financial statements of a given period. To be recognized, revenues must meet two criteria. They are:

Answer 40

1. They must be earned

2. They must be realized

Question 41

What are the two types of expenses in every accounting period?

Answer 41

1. expenses linked with revenues earned during that period

2. expenses linked with the time period itself

Question 42

What types of expenses are naturally linked with revenues?

Answer 42

Product costs, cost of goods sold and sales commissions

Question 43

When are product costs recognized?

Answer 43

they are realized or matched to the revenues they help produce

Question 44

When are period costs recognized?

Answer 44

In the period in which the company incurs them

Question 45

What are some examples of period costs?

Answer 45

rent and administrative expenses