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Principles of Accounting - Financial > Chapter 1 > Flashcards

Chapter 1 Flashcards

1
Q

What is a system of maintaining records of a company’s operations and communicating that information to decision makers?

A

Accounting

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2
Q

Which type of accounting provides information for internal users?

A

Managerial Accounting

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3
Q

Which type of accounting provides information for external users?

A

Financial Accounting

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4
Q

What are the two primary functionals of financial accounting?

A

Measure and Communicate

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5
Q

What is the Accounting Equation?

A

Assets = Liabilities + Stockholders’ Equity

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6
Q

What is the equation to find net income?

A

Revenue - Expenses

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7
Q

What is another name for net income?

A

Profit

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8
Q

What is the distribution of profit to stockholders?

A

Dividends

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9
Q

The resources of a company are referred to as:

a. Liabilities
b. Revenues
c. Assets
d. Expenses

A

c. Assets

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10
Q

The amounts recorded when the company sells products or provides services to customers are referred to as:

a. Liabilities
b. Revenues
c. Assets
d. Expenses

A

b. Revenues

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11
Q

What is a business owned by one person called?

A

A Sole Proprietorship

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12
Q

What is a business is owned by two or more people called?

A

A Partnership

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13
Q

What is a business that is legally separate from its owners called?

A

A Corporation

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14
Q

What are transactions the company has with investors and creditors called?

A

Financial activities

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15
Q

What are transactions involving the purchase and sale of resources that provide benefit for several years?

A

Investing activities

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16
Q

What are transactions that relate to the primary operations of the company called?

A

Operating activities

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17
Q

Give an example of a financial activity

A

Borrowing money from the bank

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18
Q

Give and example of a investing activity

A

Buying a building

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19
Q

Fill in the Blank:

________ activities are anything that deals with revenue and expenses

A

Operating activities

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20
Q

Classify the type of activity as financing, investing, or operating.

  1. Borrow from the bank
  2. Provide services to customers
  3. Issue common stock to investors
  4. Purchase land
  5. Pay rent for the current period
  6. Purchase building
A
  1. Financing
  2. Operating
  3. Financing
  4. Investing
  5. Operating
  6. Investing
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21
Q

What accounts do you find on an Income Statement?

A

Revenues and Expenses

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22
Q

What is the equation to find Stockholders’ Equity?

A

Common Stock + Retained Earnings

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23
Q

What is the equation to find Retained Earnings?

A

Revenue - Expenses - Dividends

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24
Q

What is the money that is retained in the company called?

A

Retained Earnings

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25
Q

What accounts do you find on a Statement of Stockholders’ Equity?

A

Common Stock, Retained Earnings, Total Stockholders’ Equity, Dividends, and Net Income

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26
Q

What are the rows in the Statement of Stockholders’ Equity

A
  1. Beginning Balance
  2. Issuance of Common Stock
  3. Add: Net Income
  4. Less: Dividends
  5. Ending Balance
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27
Q

What accounts do you find on a Balance Sheet?

A

Assets, Liabilities, and Stockholders’ Equity

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28
Q

What are written loans that you actually sign?

A

Notes Payable

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29
Q

Which of the following accounts would appear in a company’s income statement?

a. Accounts Payable
b. Cash
c. Dividends
d. Rent Expense

A

d. Rent Expense

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30
Q

Which relationship is reflected in the balance sheet?

a. Revenues − Expenses = Net income
b. Assets = Liabilities + Stockholders’ Equity
c. Assets − Liabilities = Net Income
d. Assets = Revenues + Dividends

A

b. Assets = Liabilities + Stockholders’ Equity

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31
Q

What are cash transactions involving revenues and expenses called?

A

Operating cash flows

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32
Q

What are cash transactions involving purchase and sale of long-term assets called?

A

Investing cash flows

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33
Q

What are cash transactions involving lenders and stockholders called?

A

Financing cash flows

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34
Q

The cash collected from a customer would be recorded as which type of activity in the Statement of Cash Flows?

a. Operating Activity
b. Business Activity
c. Investing Activity
d. Financing Activities

A

a. Operating Activity

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35
Q

What is the tool to remember the order of cash flow and what does it stand for?

A

Oh IF only

  1. Operating activity
  2. Investing activity
  3. Financing activity
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36
Q

List the order of the financial statements

A
  1. Income Statement
  2. Statement of Stockholders’ Equity
  3. Balance Sheet
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37
Q

What are the rules of financial accounting called?

A

The GAAP standards

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38
Q

What does GAAP stand for?

A

Generally Accepted Accounting Principles

39
Q

Who established GAAP?

A

The FASB

40
Q

What does the FASB stand for?

A

The Financial Accounting Standards Board

41
Q

Who is the FASB governed by?

A

The SEC

42
Q

What does the SEC stand for?

A

The Security and Exchange Commission

43
Q

Who are trained individuals hired by a company as an independent party to express a professional opinion of the extent to which financial statements are prepared in accordance with GAAP?

A

Auditors

44
Q

Economic resources are:

a. Assets
b. Liabilities
c. Stockholders’ Equity
d. Both B and C

A

a. Assets

45
Q

Claims to resources are:

a. Assets
b. Liabilities
c. Stockholders’ Equity
d. Both B and C

A

d. Both B and C

46
Q

Auditors are independent parties that help:

a. To establish accounting rules in the U.S.
b. To ensure management has appropriately prepared the company’s financial statements
c. Investors and creditors in their decisions by adding credibility to the financial statements.
d. Both B and C

A

d. Both B and C

47
Q

Financial accounting should provide information that:

a. Is useful to investors and creditors in making decisions.
b. Helps to predict cash flows.
c. Tells about economic resources, claims to resources, and changes in resources and claims
d. All of the above

A

d. All of the above

48
Q

Fill in the Blank:

To be useful for decision making, accounting information should have _______ and ___________

A

Relevance and faithful representation

49
Q

Which of the following assumptions indicates that the life of a company can be divided into artificial time periods for periodic reporting?

a. Economic Entity
b. Periodicity
c. Going Concern
d. Monetary Unit

A

b. Periodicity

50
Q

Which assumption identifies all economic events with a particular economic activity?

a. Economic Entity Assumption
b. Monetary Unit Assumption
c. Periodicity Assumption
d. Going Concern Assumption

A

a. Economic Entity Assumption

51
Q

Which assumption needs a unit or scale of measurement?

a. Economic Entity Assumption
b. Monetary Unit Assumption
c. Periodicity Assumption
d. Going Concern Assumption

A

b. Monetary Unit Assumption

52
Q

Which assumption provides information of an enterprise at regular time periods?

a. Economic Entity Assumption
b. Monetary Unit Assumption
c. Periodicity Assumption
d. Going Concern Assumption

A

c. Periodicity Assumption

53
Q

Which assumption will business entities continue to operate indefinitely?

a. Economic Entity Assumption
b. Monetary Unit Assumption
c. Periodicity Assumption
d. Going Concern Assumption

A

d. Going Concern Assumption

54
Q

Match the accountant type with its description: Assets

a. Sales of products or services
b. Owners’ claims to resources
c. Distributions to stockholders
d. Costs of selling products or services
e. Resources of a company
f. Amounts owed

A

e. Resources of a company

55
Q

Match the accountant type with its description: Liabilities

a. Sales of products or services
b. Owners’ claims to resources
c. Distributions to stockholders
d. Costs of selling products or services
e. Resources of a company
f. Amounts owed

A

f. Amounts owed

56
Q

Match the accountant type with its description: Stockholders’ Equity

a. Sales of products or services
b. Owners’ claims to resources
c. Distributions to stockholders
d. Costs of selling products or services
e. Resources of a company
f. Amounts owed

A

b. Owners’ claims to resources

57
Q

Match the accountant type with its description: Dividends

a. Sales of products or services
b. Owners’ claims to resources
c. Distributions to stockholders
d. Costs of selling products or services
e. Resources of a company
f. Amounts owed

A

c. Distributions to stockholders

58
Q

Match the accountant type with its description: Revenues

a. Sales of products or services
b. Owners’ claims to resources
c. Distributions to stockholders
d. Costs of selling products or services
e. Resources of a company
f. Amounts owed

A

a. Sales of products or services

59
Q

Match the accountant type with its description: Expenses

a. Sales of products or services
b. Owners’ claims to resources
c. Distributions to stockholders
d. Costs of selling products or services
e. Resources of a company
f. Amounts owed

A

d. Costs of selling products or services

60
Q

Match the financial statement with its description: Income Statement

a. Change in owners’ claims to resources
b. Profitability of the company
c. Change in cash as a result of operating, investing, and financing activities
d. Resources equal creditors’ and owners’ claims to those resources

A

b. Profitability of the company

61
Q

Match the financial statement with its description: Statement of Stockholders’ Equity

a. Change in owners’ claims to resources
b. Profitability of the company
c. Change in cash as a result of operating, investing, and financing activities
d. Resources equal creditors’ and owners’ claims to those resources

A

a. Change in owners’ claims to resources

62
Q

Match the financial statement with its description: Balance Sheet

a. Change in owners’ claims to resources
b. Profitability of the company
c. Change in cash as a result of operating, investing, and financing activities
d. Resources equal creditors’ and owners’ claims to those resources

A

d. Resources equal creditors’ and owners’ claims to those resources

63
Q

Match the financial statement with its description: Statement of Cash Flow

a. Change in owners’ claims to resources
b. Profitability of the company
c. Change in cash as a result of operating, investing, and financing activities
d. Resources equal creditors’ and owners’ claims to those resources

A

c. Change in cash as a result of operating, investing, and financing activities

64
Q

Match the concepts associated with the role of auditor in financial reporting with its description: Securities and Exchange Commission

a. Phrase meaning to present the accounting records in an altered format
b. Auditors are not employees of the company they audit
c. Responsible for applying generally accepted accounting principles (GAAP)
d. Regulatory body that requires audits of all publicly traded companies
e. Separation of management from those who own the business or finance operations
f. Party that reports on whether a company’s financial statements are in accordance with GAAP
g. View expressed by an auditor as to the accuracy of a company’s financial statements

A

d. Regulatory body that requires audits of all publicly traded companies

65
Q

Match the concepts associated with the role of auditor in financial reporting with its description: Need for auditing

a. Phrase meaning to present the accounting records in an altered format
b. Auditors are not employees of the company they audit
c. Responsible for applying generally accepted accounting principles (GAAP)
d. Regulatory body that requires audits of all publicly traded companies
e. Separation of management from those who own the business or finance operations
f. Party that reports on whether a company’s financial statements are in accordance with GAAP
g. View expressed by an auditor as to the accuracy of a company’s financial statements

A

e. Separation of management from those who own the business or finance operations

66
Q

Match the concepts associated with the role of auditor in financial reporting with its description: Cooking the books

a. Phrase meaning to present the accounting records in an altered format
b. Auditors are not employees of the company they audit
c. Responsible for applying generally accepted accounting principles (GAAP)
d. Regulatory body that requires audits of all publicly traded companies
e. Separation of management from those who own the business or finance operations
f. Party that reports on whether a company’s financial statements are in accordance with GAAP
g. View expressed by an auditor as to the accuracy of a company’s financial statements

A

a. Phrase meaning to present the accounting records in an altered format

67
Q

Match the concepts associated with the role of auditor in financial reporting with its description: Management

a. Phrase meaning to present the accounting records in an altered format
b. Auditors are not employees of the company they audit
c. Responsible for applying generally accepted accounting principles (GAAP)
d. Regulatory body that requires audits of all publicly traded companies
e. Separation of management from those who own the business or finance operations
f. Party that reports on whether a company’s financial statements are in accordance with GAAP
g. View expressed by an auditor as to the accuracy of a company’s financial statements

A

c. Responsible for applying generally accepted accounting principles (GAAP)

68
Q

Match the concepts associated with the role of auditor in financial reporting with its description: Auditor

a. Phrase meaning to present the accounting records in an altered format
b. Auditors are not employees of the company they audit
c. Responsible for applying generally accepted accounting principles (GAAP)
d. Regulatory body that requires audits of all publicly traded companies
e. Separation of management from those who own the business or finance operations
f. Party that reports on whether a company’s financial statements are in accordance with GAAP
g. View expressed by an auditor as to the accuracy of a company’s financial statements

A

f. Party that reports on whether a company’s financial statements are in accordance with GAAP

69
Q

Match the concepts associated with the role of auditor in financial reporting with its description: Independent

a. Phrase meaning to present the accounting records in an altered format
b. Auditors are not employees of the company they audit
c. Responsible for applying generally accepted accounting principles (GAAP)
d. Regulatory body that requires audits of all publicly traded companies
e. Separation of management from those who own the business or finance operations
f. Party that reports on whether a company’s financial statements are in accordance with GAAP
g. View expressed by an auditor as to the accuracy of a company’s financial statements

A

b. Auditors are not employees of the company they audit

70
Q

Match the concepts associated with the role of auditor in financial reporting with its description: Opinion

a. Phrase meaning to present the accounting records in an altered format
b. Auditors are not employees of the company they audit
c. Responsible for applying generally accepted accounting principles (GAAP)
d. Regulatory body that requires audits of all publicly traded companies
e. Separation of management from those who own the business or finance operations
f. Party that reports on whether a company’s financial statements are in accordance with GAAP
g. View expressed by an auditor as to the accuracy of a company’s financial statements

A

g. View expressed by an auditor as to the accuracy of a company’s financial statements

71
Q

Indicate whether the related account would be classified as an asset, liability, stockholders’ equity, dividend, revenue, or expense: Common Stock

A

Stockholders’ Equity

72
Q

Indicate whether the related account would be classified as an asset, liability, stockholders’ equity, dividend, revenue, or expense: Equipment

A

Asset

73
Q

Indicate whether the related account would be classified as an asset, liability, stockholders’ equity, dividend, revenue, or expense: Salaries Payable

A

Liability

74
Q

Indicate whether the related account would be classified as an asset, liability, stockholders’ equity, dividend, revenue, or expense: Service Revenue

A

Revenue

75
Q

Indicate whether the related account would be classified as an asset, liability, stockholders’ equity, dividend, revenue, or expense: Utilities Expense

A

Expense

76
Q

Indicate whether the related account would be classified as an asset, liability, stockholders’ equity, dividend, revenue, or expense: Supplies

A

Asset

77
Q

Indicate whether the related account would be classified as an asset, liability, stockholders’ equity, dividend, revenue, or expense: Research and development expense

A

Expense

78
Q

Indicate whether the related account would be classified as an asset, liability, stockholders’ equity, dividend, revenue, or expense: Land

A

Asset

79
Q

Indicate whether the related account would be classified as an asset, liability, stockholders’ equity, dividend, revenue, or expense: Income Tax Payable

A

Liability

80
Q

Indicate whether the related account would be classified as an asset, liability, stockholders’ equity, dividend, revenue, or expense: Interest Payable

A

Liability

81
Q

Indicate whether the related account would be classified as an asset, liability, stockholders’ equity, dividend, revenue, or expense: Deferred Revenue

A

Liability

82
Q

Indicate whether the related account would be classified as an asset, liability, stockholders’ equity, dividend, revenue, or expense: Accounts Receivable

A

Asset

83
Q

Indicate whether the related account would be classified as an asset, liability, stockholders’ equity, dividend, revenue, or expense: Accounts Payable

A

Liability

84
Q

Indicate whether the related account would be classified as an asset, liability, stockholders’ equity, dividend, revenue, or expense: Retained Earnings

A

Stockholders’ Equity

85
Q

Pair the term and definition associated with the FASB’s conceptual framework: Completeness

a. Requires the consideration of the costs and value of information
b. Ability to make comparisons between firms
c. Comprehending the meaning of accounting information
d. Including all information necessary to report the business activity
e. The business will last indefinitely unless there is evidence otherwise
f. Recording transactions only for the company
g. Implies consensus among different measures
h. Accounting should be useful in making decisions
i. Accounting information should not favor a particular group

A

d. Including all information necessary to report the business activity

86
Q

Pair the term and definition associated with the FASB’s conceptual framework: Comparability

a. Requires the consideration of the costs and value of information
b. Ability to make comparisons between firms
c. Comprehending the meaning of accounting information
d. Including all information necessary to report the business activity
e. The business will last indefinitely unless there is evidence otherwise
f. Recording transactions only for the company
g. Implies consensus among different measures
h. Accounting should be useful in making decisions
i. Accounting information should not favor a particular group

A

b. Ability to make comparisons between firms

87
Q

Pair the term and definition associated with the FASB’s conceptual framework: Neutrality

a. Requires the consideration of the costs and value of information
b. Ability to make comparisons between firms
c. Comprehending the meaning of accounting information
d. Including all information necessary to report the business activity
e. The business will last indefinitely unless there is evidence otherwise
f. Recording transactions only for the company
g. Implies consensus among different measures
h. Accounting should be useful in making decisions
i. Accounting information should not favor a particular group

A

i. Accounting information should not favor a particular group

88
Q

Pair the term and definition associated with the FASB’s conceptual framework: Understandability

a. Requires the consideration of the costs and value of information
b. Ability to make comparisons between firms
c. Comprehending the meaning of accounting information
d. Including all information necessary to report the business activity
e. The business will last indefinitely unless there is evidence otherwise
f. Recording transactions only for the company
g. Implies consensus among different measures
h. Accounting should be useful in making decisions
i. Accounting information should not favor a particular group

A

c. Comprehending the meaning of accounting information

89
Q

Pair the term and definition associated with the FASB’s conceptual framework: Cost effectiveness

a. Requires the consideration of the costs and value of information
b. Ability to make comparisons between firms
c. Comprehending the meaning of accounting information
d. Including all information necessary to report the business activity
e. The business will last indefinitely unless there is evidence otherwise
f. Recording transactions only for the company
g. Implies consensus among different measures
h. Accounting should be useful in making decisions
i. Accounting information should not favor a particular group

A

a. Requires the consideration of the costs and value of information

90
Q

Pair the term and definition associated with the FASB’s conceptual framework: Verifiability

a. Requires the consideration of the costs and value of information
b. Ability to make comparisons between firms
c. Comprehending the meaning of accounting information
d. Including all information necessary to report the business activity
e. The business will last indefinitely unless there is evidence otherwise
f. Recording transactions only for the company
g. Implies consensus among different measures
h. Accounting should be useful in making decisions
i. Accounting information should not favor a particular group

A

g. Implies consensus among different measures

91
Q

Pair the term and definition associated with the FASB’s conceptual framework: Decision usefulness

a. Requires the consideration of the costs and value of information
b. Ability to make comparisons between firms
c. Comprehending the meaning of accounting information
d. Including all information necessary to report the business activity
e. The business will last indefinitely unless there is evidence otherwise
f. Recording transactions only for the company
g. Implies consensus among different measures
h. Accounting should be useful in making decisions
i. Accounting information should not favor a particular group

A

h. Accounting should be useful in making decisions

92
Q

Pair the term and definition associated with the FASB’s conceptual framework: Economic entity assumption

a. Requires the consideration of the costs and value of information
b. Ability to make comparisons between firms
c. Comprehending the meaning of accounting information
d. Including all information necessary to report the business activity
e. The business will last indefinitely unless there is evidence otherwise
f. Recording transactions only for the company
g. Implies consensus among different measures
h. Accounting should be useful in making decisions
i. Accounting information should not favor a particular group

A

f. Recording transactions only for the company

93
Q

Pair the term and definition associated with the FASB’s conceptual framework: Going concern assumption

a. Requires the consideration of the costs and value of information
b. Ability to make comparisons between firms
c. Comprehending the meaning of accounting information
d. Including all information necessary to report the business activity
e. The business will last indefinitely unless there is evidence otherwise
f. Recording transactions only for the company
g. Implies consensus among different measures
h. Accounting should be useful in making decisions
i. Accounting information should not favor a particular group

A

e. The business will last indefinitely unless there is evidence otherwise

94
Q

List the 4 underlying assumptions

A
  1. Economic Entity
  2. Periodicity
  3. Going Concern
  4. Monetary Unit

Principles of Accounting - Financial (11 decks)

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