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Acct 2020 > Chapter 1 > Flashcards

Chapter 1 Flashcards

1
Q

Define a buissness

A

An organization in which basic resources (inputs), such as materials and labour, are assembled and processed to provide goods or services (outputs) to customers.

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2
Q

Define profit

A

The difference between the amounts recieved from customers for goods or services provided and the amounts paid for the inputs used to provide the goods and services.

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3
Q

What are the three types of buissnesses operating for profit.

A

Service, retail, and manufacturing.

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4
Q

Define service buissness

A

Service businesses provide services or labor

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5
Q

Define retail buissness

A

A type of buissness that purchases products from other businesses and sells them to customers.

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6
Q

Define manufacturing buissness

A

A types of buissness that changes basic inputs into products that are sold to individual customers.

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7
Q

Define accounting

A

An information system that provides reports to stakeholders about the economic activities and condition of a buissness

The art of recording, classifying, summarizing, and analyzing the financial events of a buissness

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8
Q

What is the process by which accounting provides information to its users?

A

1 identify users
2 assess users’ information need
3 design the accounting information system to meet users’ needs
4 record economic data about buissness activities and events
5 prepare accounting reports for users

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9
Q

What are the internal users of accounting information?

A

Managers and employees

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10
Q

Define managerial accounting

A

The branch of accounting that users both historical and estimated data in providing information that managment uses in conducting daily operations, in planning future operations, and in developing overall buissness strategies.

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11
Q

Define management accounting

A

The branxh of accounting that uses both historical and estimated data in providing internal users (managment) with information relevant to decision making.

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12
Q

What is the objective of managerial accounting

A

To provide relevant and timely information for managers’and employees’ decision-making needs.

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13
Q

Define private accounting

A

The field of accounting whereby accountants are employed by a buissness firm or a not-for-profit organization.

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14
Q

What is the objective of financial accounting

A

To provide relevant and timely information for the decisionmaking needs of users outside of the buissness.

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15
Q

Define general-purpose financial statements

A

A type of financial accounting report that is distributed to external users. The term “general purpose” refers to the wide range of decision-making needs that the reports are designed to serve.

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16
Q

Define the Sarbanes-oxley act

A

An act by congress to restore public confedince and trust in the financial statements of companies

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17
Q

Define Public Company Accounting Oversight Board

A

A new oversight body for the accounting position that was established by the Sarbanes-oxley Act.

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18
Q

Why must buisnesses behave ethically?

A

Otherwise, few will be willing to invest in or loan money to the buissness

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19
Q

What are the guidlines for behaving ethically in buissness and accounting?

A

Is it the truth? Is it fair? What are the consequences? Who is affected? How are the affected? Is it worth these consequences?

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20
Q

Define cash accounting

A

Income is not counted until the cash is actually recieved, and expenses are not counted until they are actually paid.

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21
Q

Accrual accounting

A

When the transactions are counted, when the order is actually made, or the services occur regardless of when the money is actually recieved for them. You don’t wait until you have the money or pay out the money to record the transaction.

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22
Q

Define audit

A

An official inspection of an indevidiauls or organizations accounts, typically by an independent body… a financial examination of an individuals accounts.

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23
Q

Define public accounting

A

The field of accounting where accountants and their staff provide services on a fee basis.

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24
Q

Define Certified public accountant (CPA)

A

Public accountants who met state education, experience, and examiniation requirements

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25
Define single-entry accounting system
Keeps track of what goes in and out of account Only uses this system if your buissnes is very small, simple, and with a low volume of acyivity
26
Define double-entry accounting system
More complex than a singl entry Tracks the debit and credit for each transaction Most buissnesses use this system becuase it Prepares financial statments easily, records assets and liabilities, prevents fraud, and takes advantage of the matching principle
27
Define the general ledger
A general ledger is a moment by moment record of everything that happens in a buissness
28
Define bookkeeping
The recording of financial records
29
Define income
Selling product or service Recieving money from the proceedsof a loan Recieving money from a new investor or current owner
30
what four principles are an integral part of financial accounting?
Measurement Historical cost Revenue recognition Expense recognition
31
define the "going concern assumption"
An assumption that requires that financial reports be prepared assuming that the entity will continue operating in the future.
32
what forms can a business entity take
proprietorship, partnership, corporation, or limited liability company (LLC)
33
define Proprietorship
owned by one individual
34
define Partnership
owned by two or more individuals
35
define Corporation
organized under state or federal statutes as a separate legal taxable entity.
36
define Limited liability company (LLC)
combines the attributes of a partnership and a corporation.
37
what two important characteristics must financial reports posses?
relevance and faithful representation
38
define relevancy in financial reports
information has the potential to impact decision making
39
what does it mean when there is Faithful representation in financial reports
the information accurately reflects an entity’s economic activity or condition.
40
characteristics of relevant and faithful representation are enhanced by what (4)
comparability, verifiability, timeliness, understandability
41
Define Income
refers to money received for work or through investments. Money can come into your business in several ways.
42
define Expenses
the costs that occur as part of a business’ operating activities
43
what are some examples of expenses
Purchasing assets Paying expenses incurred from being in business Making payments to satisfy a loan or liability Distributing some of the business earnings to the owners
44
what are some examples of income
Selling products or services Receiving money from the proceeds of a loan Receiving money from a new investor or current owner
45
What is a Balance Sheet?
Snapshot of your business Outlines the financial condition of your business at a specific point in time Provides a financial perspective by highlighting what you own, and what you owe to other parties
46
define assets
Assets are what your business owns. They are bought to increase the business’ value and can generate cash flow.
47
what are the two types of assets.
current assets and fixed assets
48
define current assets
cash or other assets that can be converted into cash within one year
49
what are examples of current assets
Accounts receivable Inventory Prepaid expenses
50
define Fixed assets
property and equipment owned by your business (things not normally intended for sale) which are used repeatedly
51
what four principles are an integral part of financial accounting
Measurement Historical cost Revenue recognition Expense recognition
52
define the measurement principle
A principle that requires that amounts be objective and verifiable
53
how is something verifiable
if it can be confirmed by a third party
54
arm’s-length transactions
Transactions between two independent parties.
55
what do arm’s-length transactions have to do with anything
provide amounts of unbiased evidence that are objective and verifiable as it was the result of a transaction between two independent parties
56
define historical cost principle or cost principle.
A concept of accounting that states that an asset should be recorded and maintained in the accounting records at its initial transaction price. "what ever you pay for it is what needs to be recorded"
57
define Revenue
Increases in owner’s equity as a result of providing services or selling goods to customers.
58
define revenue recognition principle
A concept of accounting that states that revenues are recorded when earned, which is when the services have been performed or products have been delivered to customers.
59
define Expenses
Amounts used to generate revenue; assets used up or services consumed in the process of generating revenues.
60
define "expense recognition principle, sometimes called the matching principle"
A principle, sometimes called the matching principle, that requires expenses to be recorded in the same period as the related revenue; a concept of accounting in which expenses are matched with the revenue generated during a period by those expenses.
61
what are some examples of assets
cash, land, buildings, and equipment.
62
what two types of The rights or claims to the assets are divided into
(1) the rights of creditors and (2) the rights of owners.
63
define liabilities
The rights of creditors that represent debts of the business. The company's debts or obligations that arise during the course of business operations. Examples include: Bank debt Loans Accounts payable
64
define equity
The rights of the owners of a business. The part of the assets that the owner or owners have claims to after all the liabilities are paid.
65
define stockholders’ equity
The ownership rights of stockholders in a corporation; the stockholders’ rights to the assets in a corporation.
66
define owner’s equity
The equity for a proprietorship, partnership, or a limited liability company.
67
assets=
Liabilites+equity
68
define Income Statement
Important financial statement Used to track sales and expenses during a particular period Called a Profit and Loss (P&L) statement Tells you if your business is profitable or not Shows your income earned and expenses incurred
69
Define Net profit
the resulting difference between your income and your expenses, often referred to as the bottom line
70
what is the income statement's format
(income - cost of sales = gross margin) - fixed operating expenses = net profit
71
define varibale expenses from an income statement point of view
Variable expenses represent the costs of doing business and might include direct labor, materials, and shipping. They usually increase with sales since they are the direct costs of delivering your products and services.
72
define Gross Margin/gross profit
important for any business because it’s the money you have left over to pay for any expenses of being in business and for making a profit
73
define business expenses/fixed expenses
Business expenses are the costs of being in business. These might include salaries, insurance, rent, advertising, utilities, and interest payments. They usually do not vary with the sales level of your business. This is why they are called fixed expenses.
74
define Figuring Depreciation
As the equipment ages, you will expense depreciation on your income statement, which reduces the value of the asset over time. Some of the most common methods used to calculate depreciation are: Straight-line Units-of-production Sum-of-years digits Double-declining balance (an accelerated depreciation method)
75
equity=
assets-liabilities
76
when you see key words like 'received cash', "on account," and 'paid' ask yourself....
what had to happen in the accounting equation, assets=liabilities+ stockholder's equity, to result in the key word. for example, if you're "paid" logically your asset goes up, but in order for assets to go up the liabilites and stock holders equity has to go up as well becuase of the equeaiton
77
What is the Cash Flow Statement?
Keeps track of the cash flowing through your business Also called Statement of Cash Flows Presents where the money is coming from and how it is being spent
78
Define Cash inflow
The cash flow statement details any sources of cash coming into the business. Cash collected from selling products or services Cash collected that was owed on account Loans made to the business New ownership equity placed into the business by a partner or investor
79
Define cash outflow
The cash flow statement also lists any uses of cash by your business. This is cash leaving the business. Purchasing assets Buying inventory Paying for expenses generated by the business Making payments to satisfy any business liabilities Distributing earnings to the owners of the business
80
define the The ending cash balance
beginning cash balance for the accounting period + any sources of cash - any uses of cash = the ending cash balance
81
business transaction.
An economic event or condition that directly changes an entity’s financial condition or directly affects its results of operations.
82
common stock
Certificates issued by a corporation to investors as proof of their ownership rights; an account representing the ownership rights of investors in a corporation; a class of stock issued by a corporation that bears no preference rights.
83
on account transaction
you received an asset and incurred a liability to pay a future bill.
84
accounts payable
The liability created by a purchase "on account."
85
prepaid expenses
Assets created by making advanced payments for expense items, such as supplies, that will be used in the business in the future.
86
dividends ____ stockholders equity
increase
87
Common stock ____ stockholders equity
decrease

Acct 2020 (6 decks)

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