Chapter 1

Question 1

Accounting

Answer 1

The process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated to owners, managers, and other interested parties.

Question 2

Accounting system

Answer 2

A process designed to accumulate, classify, and summarize financial data.

Question 3

Financial statements

Answer 3

Periodic reports of a firm’s financial position or operating results.

Question 4

Public accountants

Answer 4

Members of firms that perform accounting services for another company.

Audits
Tax accounting
Management advisory services

Question 5

Certified Public Accountants (CPA’s)

Answer 5

An independent accountant who provides accounting services to the public for a fee.

To become a CPA one must pass Uniform CPA Examination

Question 6

Auditing

Answer 6

The review of financial statements to assess their fairness and adhere to generally accepted accounting principles.

Question 7

Tax Accounting

Answer 7

A service that involves tax compliance and tax planning.

Question 8

Management advisory services

Answer 8

Services designed to help clients improve their information systems or their business performance.

Also referred to as private accounting

Question 9

Managerial accounting

Answer 9

Accounting work carried on by an accountant employed by a single business in industry.

Question 10

Governmental accounting

Answer 10

Accounting work performed for a federal state or local governmental unit.

The SEC, IRS, FBI and Homeland Security employ a large # of accountants.

Question 11

Concept not vocabulary:

Users of financial information

Answer 11

Inside business: owners, managers, employees.

Outside business: tax authorities, suppliers, regulatory agencies, unions, banks, customers, investors and potential investors.

Question 12

Entity

Answer 12

Anything having its own separate identity such as an individual, a town, a university or a business.

Question 13

Economic entity

Answer 13

A business or organization whose major purpose is to produce a profit for its owners.

Question 14

Social Entities

Answer 14

A non profit organization such as a city, a school or a public hospital.

Question 15

Sole proprietorship

Answer 15

A business entity owned by one person who is legally responsible for the debts and taxes of the business.

Question 16

Creditors

Answer 16

One to whom money is owed.

Can be people, companies or government agencies.

Question 17

Separate entity assumption

Answer 17

The concept of keeping a firm’s financial records separate from the owner’s personal records.

“Important! For accounting purposes all forms of business are considered separate entities from their owners. However, the corporation is the only form of business that is a separate legal entity.”

Question 18

Partnership

Answer 18

A business entity owned by two or more people who are legally responsible for the debts and taxes of the business.

Limited Liability Partnerships LLP’s generally have same characteristics as partnerships.

Question 19

Corporation

Answer 19

A publicly or privately owned business entity that is separate from its owners and has a legal right to own property and do business in its own name; stockbrokers are not responsible for the debts or taxes of the business.

Question 20

Stocks

Answer 20

Certificates that represent ownership of a company.

Question 21

Stockholders or Shareholders

Answer 21

The owners of a corporation; not responsible for the debts or taxes of a corporation.

Question 22

Generally Accepted Accounting Principles GAAP

Answer 22

Accounting standards developed and applied by professional accountants.

“Important! The SEC requires all publicly owned companies to follow GAAP and adapt to new standard GAAP practices as they develop.

Question 23

Statements of Financial Accounting Standards.

Answer 23

Accounting principles established by the FASB (financial accounting standards board).

Question 24

Discussion memorandum

Answer 24

An explanation of a topic under consideration by the FASB (financial accounting standards board).

Question 25

Exposure Draft

Answer 25

A proposed solution to a problem being considered by the FASB (financial accounting standards board).

Question 26

International Accounting

Answer 26

The study of accounting principles used by different countries. 1973 International Accounting Standards Committee was formed, addresses issues caused by lack of uniform accounting principles and recommends ways to improve compatibility and reporting practices.

Question 27

Auditors report

Answer 27

An independent accountant’s review of a firm’s financial statements.