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Accounting 1 > Chapter 1 > Flashcards

Chapter 1 Flashcards

1
Q

the information system that identifies, records and communicates the economic events of an organization to interested users.

A

accounting

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2
Q

what three basic activities does accounting consist of?

A

identify
record
communicate

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3
Q

what happens when a company identifies?

A

a company identifies economic events relevant to it business

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4
Q

what happens when a company records?

A
  • Once a company identifies economic events it records those events in order to provide a history of its financial activities
  • This consists of keeping a systematic chronological diary of events
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5
Q

what happens when a company communicates?

A
  • The company communicates the collected information to interested users by means of accounting reports
  • An important point in communicating is the ability to analyze and interpret the reported information
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6
Q

the most common accounting report is known as

A

a financial statement

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7
Q

a part of the accounting process that involves only the recording of economic events

A

bookkeeping

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8
Q

what are the two groups of users of financial information?

A
  • internal users

- external users

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9
Q

managers who plan, organize and run the business.

This includes marketing managers, production supervisors, finance directors and company officers

A

internal users

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10
Q

individuals and organizations outside a company who want financial information about the company

A

external users

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11
Q

the field of accounting that provides international reports to help users make decisions about their companies

A

Managerial Accounting

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12
Q

What are the two main groups of external users?

A

Investors and Creditors

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13
Q

(owners) use accounting information to decide whether to buy, hold or sell ownership shares of a company

A

investors

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14
Q

(such as suppliers and bakers) use accounting information to evaluate the risks of granting credit or lending money

A

creditors

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15
Q

the field of accounting that provides economic and financial information for investors, creditors and other external users

A

financial accounting

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16
Q

what type of people ask for financial information and what do they want to know?

A
  • Tax Authorities want to know whether the company complies with tax laws
  • Regulatory Agencies want to know whether the company is operating within prescribed rules
  • Customers are interested in whether a company will continue to honor product warranties and support its product lines
  • Labor Unions want to know whether the owners have the ability to pay increased wages and benefits
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17
Q

Law passed by congress intended to reduce unethical corporate behavior and to help increase confidence in corporate accounting

A

Sarbanes Oxley Act (SOX)

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18
Q

the standards of conduct by which actions are judged as right or wrong, honest or dishonest, fair or not fair

A

ethics

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19
Q

common standards that indicate how to report economic events

A

Generally Accepted Accounting Principles (GAAP)

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20
Q

A private organization that establishes generally accepted accounting principles in the United States and is considered to be the primary accounting standard setting body in the US

A

Financial Accounting Standards Board (FASB)

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21
Q

A governmental agency that oversees US financial markets and accounting standard setting bodies

A

Securities and Exchange Commission (SEC)

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22
Q

An accounting standard setting body that issues standards adopted by many countries outside of the US (the primary one)

A

International Accounting Standards Board (IASB)

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23
Q

International accounting standards set by the international Accounting Standards Board

A

International Financial Reporting Standards (IFRS)

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24
Q

the process of reducing the differences between US GAAP and IFRS

A

convergence

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25
Q

what two measurement principles does GAAP use?

A
  • Historical Cost Principle (cost principle)

- Fair Value Principle

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26
Q

an accounting principle that states that companies should record assets at their cost ( This is true for when the asset is purchased and over the time it is held)

A

Historical Cost Principle (cost principle)

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27
Q

an accounting principle stating that assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liability)

A

fair value principle

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28
Q

Financial information that is capable of making a difference in a decision

A

relevance

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29
Q

Numbers and descriptions match what really existed or happened (they are factual)

A

faithful representation

30
Q

what provides a foundation for the accounting process?

A

assumptions

31
Q

an assumption stating that companies include in the accounting records only transaction data that can be expressed in terms of money

A

Monetary Unit Assumption

32
Q

an assumption that requires that the activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities

A

Economic Entity Assumption

33
Q

a business owned by one person

A

proprietorship

34
Q

a business owned by two or more persons associated as partners

A

partnership

35
Q

a business organized as a separate legal entity under state corporation law having ownership divided into transferable shares of stock

A

corporation

36
Q

resources a business owns

A

assets

37
Q

creditor claims against total assets (owes)

A

liabilities

38
Q

the ownership claim on total assets

A

owner’s equity (residual equity)

39
Q

What is the basic accounting equation?

A

assets = liabilities + owner’s equity

40
Q

assets an owner puts into the business also known as owner’s capital

A

investments by owner

41
Q

the gross increase in owner’s equity resulting from business activities entered into for the purpose of earning income

A

revenues

42
Q

withdrawals of cash or other assets from an unincorporated business for the personal use of the owners

A

drawings (disinvestment)

43
Q

the cost of assets consumed or services used in the process of earning revenue

A

expenses

44
Q

what is the expanded accounting equation?

A

Assets = Liabilities + Owner’s Capital - Owner’s drawings + Revenue - Expenses

45
Q

the economic events of a business that are recorded by accountants

A

transactions (business transactions)

46
Q

what are the two types of transactions?

A

internal and external transactions

47
Q

Involve economic events between the company and some outside enterprise

A

internal transactions

48
Q

Economic events that occur entirely within one company

A

external transactions

49
Q

what are the four different financial statements that companies prepare?

A
  • income statements
  • owner’s equity statement
  • balance sheet
  • statement of cash flow
50
Q

a financial statement that presents the revenues and expenses and resulting net income or net loss of a company for a specific period of time

A

income statement

51
Q

the amount by which revenue exceeds expenses

A

net income

52
Q

the amount by which expenses exceeds revenue

A

net loss

53
Q

a financial statement that summarizes the changes in owner’s equity for a specific period of time

A

owner’s equity statement

54
Q

A financial statement that reports the assets liabilities and owner’s equity at a specific date

A

balance sheet

55
Q

a financial statement that summarizes information about the cash inflows (receipts) and cash outflows (payments) for a specific period of time

A

statement of cash flow

56
Q

an area of accounting in which the accountant offers expert service to the general public

A

public accounting

57
Q

The examination of financial statements by a certified public accountant in order to express an opinion as to the fairness of presentation

A

auditing

58
Q

an area of public accounting involving tax advice, tax planning, preparing tax returns and representing clients before governmental agencies

A

taxation

59
Q

an area of public accounting ranging from development of accounting and computer systems to support services for marketing projects and merger acquisition activities

A

management consulting

60
Q

an area of accounting within a company that involves such activities as cost accounting budgeting design and support of accounting information systems and tax planning and preparation

A

private (managerial) accounting

61
Q

an area of accounting that uses accounting, auditing, and investigative skills to conduct investigations into theft and fraud

A

forensic accounting

62
Q

what are the 5 different steps of accounting as an information system?

A
  • gather
  • classify
  • record
  • report
  • audiences
63
Q

What are the 5 major account groups?

A
  • assets
  • liabilities
  • owner’s equity
  • revenues
  • expenses
64
Q

what does the word receivable imply

A

that it is an asset

65
Q

what does the word payable imply

A

that it is a liability

66
Q

what affects the owner’s equity statement?

A
  • contributions
  • withdrawals
  • revenues
  • expenses
67
Q

what groups are included in an income statement?

A

Revenues and expenses

68
Q

what groups are included in an owner’s equity statement

A

owners capital, investments, net income, and drawings

69
Q

what groups are included in a balance sheet?

A

assets, liabilities and owner’s capital

70
Q

what is the order in which the four financial statements should be prepared?

A
  • income statement
  • owner’s equity statement
  • balance sheet
  • statement of cash flows
71
Q

why do liabilities appear before owner’s equity in the accounting equation?

A

because liabilities are paid first if a business is liquidated

72
Q

what does the statement of cash flow report?

A
  • the cash effects of a company’s operations during a period
  • its investing activities
  • its financing activities
  • the net increase or decrease in cash during the period
  • the cash amount at the end of the period

Accounting 1 (3 decks)

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