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Basic Financial Accounting > Chapter 1 > Flashcards

Chapter 1 Flashcards

1
Q

difference between the assets received for goods and services and the amounts used to provide the goods and services

A

Profit

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2
Q

Most businesses in the United States are

A

sole proprietorships

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3
Q

List the types of Business Entities

A

proprietorship
partnership
corporation
limited liability company (LLC)

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4
Q

An entity that is organized according to state or federal statutes and in which ownership is divided into shares of stock

A

corporation

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5
Q

Financial reports are used by

A

management, creditors, & investors

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6
Q

is an information system that provides reports to users

A

description of accounting

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7
Q

Which of the following is not a step in providing accounting information to users?

a. design the accounting information system
b. prepare accounting surveys
c. identify users
d. record economic data

A

prepare accounting surveys

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8
Q

Two common areas of accounting that respectively provide information to internal and external users are:

A

managerial accounting and financial accounting

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9
Q

Public accountants are normally

A

Certified Public Accountants

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10
Q

name 3 specialized fields of accounting?

A

social accounting
tax accounting
environmental accounting

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11
Q

Which of the following is not true about a manufacturing business?

a. Change inputs to products which are sold to their customers.
b. Their primary goal is to maximize profits.
c. Only large business can be considered a manufacturing business.
d. All are true.

A

Only large business can be considered a manufacturing business.

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12
Q

Merchandising Business

A

sell products they purchase from other businesses to customers
(Wal-Mart or Amazon.com)

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13
Q

manufacturing business

A

convert basic inputs into products that are sold to customers
(ford motor co, dell)

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14
Q

a type of business that is most likely to obtain large amounts of resources by issuing stock

A

Corporation

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15
Q

Limited Liability Company

A
  • It is organized as a corporation.
  • It can elect to be taxed as a partnership.
  • Provides tax and liability advantages to the owners.
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16
Q

why do shareholders have interest in a company?

A

they provide major financing for the business.

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17
Q

What group is considered to be internal users of accounting information

A

Employees and managers

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18
Q

list external users of accounting

A

investors, creditors, customers, and the government

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19
Q

Due to various fraudulent business practices and accounting coverups in the early 2000’s, Congress enacted the Sarbanes-Oxley Act of 2002. The Act was responsible for establishing a new oversight board for public accountants called the

A

Public Company Accounting Oversight Board. PCOAB

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20
Q

describe accounting’s role in business

A

Accounting provides information to managers to operate the business and to other users to make decisions regarding the economic condition of the company.

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21
Q

Managerial accountants would be responsible for providing what information?

A

Expansion of a product line report to management.

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22
Q

List the Certifications for private accountants and define

A

Cert. Payroll Professional (CPP)
Cert. Management Accountant (CMA)
Cert. International Auditor (CIA)
Cert. Information Systems Auditor (CISA)

Accountants employed by companies, government, and not-for-profit entities.

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23
Q

List the Certifications for public accountants and define

A

Certified Public Accountant (CPA)

Accountants employed individually or within a public accounting firm in audit, tax, or management advisory services.

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24
Q

which business entity are these characteristics of?
1. organized as a separate legal taxable entity
2 .Ownership is divided into shares of stock.
3. obtains large amounts of resources by issuing stock.
4. generates 90 % of business revenues
5. 20% of the business organizations in the US
6. Used by large busnesses

A

corporation

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25
Q

Which of the following is not a role of accounting in business?

a. To provide reports to users about the economic activities and conditions of a business.
b. To personally guarantee loans of the business.
c. To provide information to other users to determine the economic performance and condition of the business.
d. To assess the various informational needs of users and design its accounting system to meet those needs.

A

b. To personally guarantee loans of the business.

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26
Q

guidelines for behaving ethically

A

1 . Identify the consequences of a decision and its effect on others.
2 . Consider your obligations and responsibilities to those affected by the decision.
3 . Identify your decision based on personal standards of honesty and fairness.

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27
Q

The initials GAAP stand for

A

Generally Accepted Accounting Principles

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28
Q

Presently, the dominant body in the development of accounting principles is the…

A

Financial Accounting Standards Board (FASB)

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29
Q
  1. Which of the following not a requirement for obtaining a CPA certificate?
    a. Passing an examination prepared by the AICPA.
    b. Having experience in wordprocessing, electronic spreadsheets and databases.
    c. Acquiring college education in accounting.
    d. All of these are requirements for obtaining a CPA certificate.
A

b. Having experience in wordprocessing, electronic spreadsheets and databases.

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30
Q

business entity concept means that

A

the entity is an individual economic unit for which data are recorded, analyzed, and reported

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31
Q

For accounting purposes, the business entity should be considered separate from its owners if the entity is

A

a corporation, a proprietorship, or a partnership

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32
Q

Darnell Company purchased $88,000 of computer equipment from Joseph Company. Darnell Company paid for the equipment using cash that had been obtained from the initial investment by Donnie Darnell. The transaction involving the computer equipment should be recorded on the accounting records of which entities

A

Darnell Company and Joseph Company

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33
Q

The objectivity principle requires that

A

amounts recorded in the financial statements must be based on independently verifiable evidence

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34
Q

Denzel Jones owns and operates Crystal Cleaning Company. Recently, Denzel withdrew $18,000 from Crystal Cleaning, and he contributed $14,000, in his name, to Habitat for Humanity. The contribution of the $14,000 should be recorded on the accounting records of which entity?

A

Denzel Jones’ personal records and Habitat for Humanity

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35
Q

Equipment with an estimated market value of $55,000 is offered for sale at $75,000. The equipment is acquired for $20,000 in cash and a note payable of $40,000 due in 30 days. The amount used in the buyer’s accounting records to record this acquisition is

A

60,000

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36
Q

the authoritative body having the primary responsibility for developing accounting principles

A

FASB

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37
Q

this concept relates to separating the reporting of business and personal economic transactions

A

Business Entity Concept

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38
Q

Donner Company is selling a piece of land adjacent to their business. An appraisal reported the market value of the land to be $120,000. The Focus Company initially offered to buy the land for $107,000. The companies settled on a purchase price of $115,000. On the same day, another piece of land on the same block sold for $122,000. Under the cost concept, what is the amount that will be used to record this transaction in the accounting records

A

$115,000

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39
Q

Which of the following is not true of accounting principles?

a. Financial accountants follow generally accepted accounting principles (GAAP).
b. Following GAAP allows accounting information users to compare one company to another.
c. A new accounting principle can be adopted with stockholders approval.
d. The Financial Accounting Standards Board (FASB) has primary responsibility for developing accounting principles.
e. Accounting principles develop from research, accepted accounting practices, and pronouncements of authoritative bodies.

A

c. A new accounting principle can be adopted with stockholders approval.

40
Q

Owned resources of a business are referred to as

A

assets

41
Q

Debts owed by a business are referred to as

A

liabilities

42
Q

The accounting equation may be expressed as

A

Assets - Liabilities = Owner’s Equity

43
Q

Which of the following is not an asset?

a. Investments
b. Cash
c. Inventory
d. Owner’s Equity

A

d. Owner’s Equity

44
Q

The assets and liabilities of the company are $175,000 and $40,000, respectively. Owner’s equity should equal

A

$135,000

45
Q

If total liabilities decreased by $55,000 during a period of time and owner’s equity increased by $60,000 during the same period, the amount and direction (increase or decrease) of the period’s change in total assets is

A

$5,000 increase

46
Q

Which of the following is not a true statement about the accounting equation and its elements?

a. The accounting equation is Assets = Liabilities - Owners’ Equity.
b. Assets are the resources a business possesses.
c. Liabilities represent debts of a business.
d. Examples of assets are cash, land, buildings, and equipment.
e. Owners’ equity are the rights of the owners.

A

The accounting equation is Assets = Liabilities - Owners’ Equity.

47
Q

Which of the following is not a business transaction?

a. make a sales offer
b. sell goods for cash
c. receive cash for services to be rendered later
d. pay for supplies

A

a. make a sales offer

48
Q

A business paid $7,000 to a creditor in payment of an amount owed. The effect of the transaction on the accounting equation was to

A

decrease an asset, decrease a liability

49
Q

Earning revenue _____ assests, ____ owners equity

A

increases assets, increases owner’s equity.

50
Q

The monetary value charged to customers for the performance of services sold is called a(n

A

revenue

51
Q

Revenues are reported when

A

work is completed on the job

52
Q

Expenses are recorded when

A

services are rendered

53
Q

Goods purchased on account for future use in the business, such as supplies, are called

A

prepaid expenses

54
Q

The asset created by a business when it makes a sale on account is termed

A

accounts receivable

55
Q

The debt created by a business when it makes a purchase on account is referred to as an

A

account payable

56
Q

If total assets decreased by $88,000 during a period of time and owner’s equity increased by $65,000 during the same period, then the amount and direction (increase or decrease) of the period’s change in total liabilities is

A

$153,000 decrease

57
Q

Owner’s withdrawals decrease …

A

decrease owner’s equity

58
Q

Owner’s equity is increased by

A

revenue

59
Q

How does the purchase of supplies on account affect the accounting equation _____ increase, _____ increase

A

assets increase; liabilities increase

60
Q

How does the rendering of services on account affect the accounting equation ____ increase , ____increases

A

assets increase; owner’s equity increases

61
Q

How does paying a liability in cash affect the accounting equation? assests _____ ; _______ ________

A

assets decrease; liabilities decrease

62
Q

How does the owner withdrawing cash from the business affect the accounting equation

A

assets decrease; owner’s equity decreases

63
Q

How does receiving a bill to be paid next month for services rendered affect the accounting equation

A

liabilities increase; owner’s equity decreases

64
Q

How does the collection of cash from a customer who was previously put on account affect the accounting equation?

A

assets increase; assets decrease

65
Q

How does the purchase of equipment by signing a note affect the accounting equation

A

assets increase; liabilities increase

66
Q

Land, originally purchased for $20,000, is sold for $75,000 in cash. What is the effect of the sale on the accounting equation?

A

assets increase $55,000; owner’s equity increases $55,000

67
Q

The Austin Land Company sold land for $85,000 in cash. The land was originally purchased for $65,000, and at the time of the sale, $40,000 was still owed to Regions Bank on that purchase. After the sale, The Austin Land Company paid off the loan to Regions Bank. What is the effect of the sale and the payoff of the loan on the accounting equation?

A

assets decrease $20,000; liabilities decrease $40,000; owner’s equity increases $20,000

68
Q

On July 1 of the current year, the assets and liabilities of John Wong, DVM, are as follows: Cash, $15,000; Accounts Receivable, $12,300; Supplies, $3,100; Land, $35,000; Accounts Payable, $8,700. What is the amount of owner’s equity (John Wong’s capital) as of July 1 of the current year?

A

$56,700

69
Q

Allen Marks is the sole owner and operator of Great Marks Company. As of the end of its accounting period, December 31, 2009, Great Marks Company has assets of $940,000 and liabilities of $300,000. During 2010, Allen Marks invested an additional $65,000 and withdrew $45,000 from the business. What is the amount of net income during 2010, assuming that as of December 31, 2010, assets were $995,000, and liabilities were $270,000?

A

$ 65,000

70
Q

The total assets and the total liabilities of a business at the beginning and at the end of the year appear below. During the year, the owner had withdrawn $60,000 for personal use and had made an additional investment of $45,000 in the business.

Beginning of year: Assets $305,000, Liabilities $200,000
End of year: Assets 365,000, Liabilities 230,000

The amount of net income for the year was

A

45,000

71
Q

If beginning capital was $70,000, ending capital is $48,000, and the owner’s withdrawals were $21,000, the amount of net income or net loss was

A

net loss of $1,000

72
Q

Transactions affecting owner’s equity include

A

owner’s investments and owner’s withdrawals, revenues, and expenses

73
Q

Clifford Moore is starting his computer programming business and has deposited in initial investment of $15,000 into the business cash account. Identify how the accounting equation will be affected.

A

Increase Assets (Cash) and increase Owner’s Equity (Clifford Moore, Capital)

74
Q

Simpson Auto Body Repair purchased $20,000 of Machinery. The company paid $8,000 in cash at the time of the purchase and signed a promissory note for the remainder to be paid in four monthly installments. How will this transaction affect the accounting equation?

A

Increase Total Assets by a net amount of $12,000 (increase Machinery $20,000 and decrease Cash $8,000) and increase Liabilities (Notes Payable $12,000)

75
Q

Collins Landscape Company purchased various landscaping supplies on account to be used for landscape designs for their customers. How will this business transaction affect the accounting equation?

A

Increase Assets (Supplies) and increase Liabilities (Accounts Payable)

76
Q

There are four transactions that affect Owner’s equity. Which are the two transactions that increase Owner’s equity?

A

Revenues and Owner’s investments

77
Q

There are four transactions that directly affect Owner’s Equity. Which are the two transactions that decrease Owner’s Equity?

A

Owner’s withdrawals and expenses

78
Q

Gomez Service Company has received $7,500 in cash for services rendered. What affect does this transaction have on the accounting equation?

A

Increase Assets (Cash) and increase Owner’s equity (Fees Earned)

79
Q

Gomez Service Company paid their first installment on their Notes Payable in the amount of $2,000. How will this transaction affect the accounting equation?

A

Decrease Assets (Cash) and decrease Liabilities (Notes Payable)

80
Q

Ramierez Company received their first electric bill in the amount of $60 which will be paid next month. How will this transaction affect the accounting equation?

A

Increase Liabilities (Accounts Payable) and decrease Owner’s Equity (Utilities Expense)

81
Q

Ramon Ramos has withdrawn $750 from Ramos Repair Company’s cash account to deposit in his personal account. How does this transaction affect Ramos Repair Company’s accounting equation?

A

Decrease Assets (Cash) and decrease Owner’s Equity (Owner’s Withdrawal)

82
Q

Which of the following is not a business transaction?

a. Erin deposits $15,000 in a bank account in the name of Erin’s Lawn Service.
b. Erin provided services to customers earning fees of $600.
c. Erin purchased hedge trimmers for her lawn service agreeing to pay the supplier next month.
d. Erin pays her monthly personal credit card bill.

A

d. Erin pays her monthly personal credit card bill.

83
Q

The financial statement that presents a summary of the revenues and expenses of a business for a specific period of time, such as a month or year, is called a(n)

A

income statement

84
Q

financial statement(s) of a proprietorship

A

the statement of owner’s equity
the income statement
the statement of cash flows

85
Q

financial statements reports information as of a specific date

A

balance sheet

86
Q

Four financial statements are usually prepared for a business. The statement of cash flows is usually prepared last. The statement of owner’s equity (OE), the balance sheet (B), and the income statement (I) are prepared in a certain order to obtain information needed for the next statement. In what order are these three statements prepared?

A

I,OE, B

87
Q

Liabilities are reported on the

A

balance sheet

88
Q

Cash investments made by the owner to the business are reported on the statement of cash flows in the

A

financing activities section

89
Q

The year-end balance of the owner’s capital account appears in

A

both the statement of owner’s equity and the balance sheet

90
Q

A financial statement user would determine if a company was profitable or not during a specific period of time by reviewing

A

the Income Statement.

91
Q

If the owner wanted to know how money flowed into and out of the company, what financial statement would she use?

A

Statement of Cash Flows

92
Q

The asset section of the Balance Sheet normally presents assets in

A

in the order what will be converted into cash.

93
Q

The statement of cash flows is separately in three major sections. They are as follows

A

Operating, Investing, and Financing

94
Q

Which of the following is not a principle financial statement?

a. Income Statement
b. Statement of Resources Owned
c. Statement of Owner’s Equity
d. Statement of Cash Flows
e. Balance Sheet

A

b. Statement of Resources Owned

95
Q

Countries outside the U.S. use financial accounting standards issued by the:

A

IASB

96
Q

All of the following statements regarding the ratio of liabilities to owner’s equity are true except:

a. A ratio of 1 indicates that liabilities equal owner’s equity.
b. Corporations can use this ratio but substitute total stockholders’ equity for total owner’s equity.
c. The higher this ratio is, the better able a business is to withstand poor business conditions and pay creditors.
d. The lower this ratio is, the better able a business is to withstand poor business conditions and pay creditors.

A

The higher this ratio is, the better able a business is to withstand poor business conditions and pay creditors

97
Q

The unit of measure concept:

A

requires that economic data be reported in yen in Japan or dollars in the U.S

Basic Financial Accounting (1 decks)

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