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Principles of Financial Accounting > Chapter 1: Accounting and the Financial Statements > Flashcards

Chapter 1: Accounting and the Financial Statements Flashcards

1
Q

a company’s annual report

A

Form 10-K

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1
Q

a summary of the results of a company’s operations

A

Financial Statements

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2
Q

the process of identifying, measuring, recording, and communicating financial information about a company’s activities so decision makers can make informed decisions

A

accounting

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3
Q

accounting is the “language of __________”

A

business

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4
Q

Demand for accounting information coming from OUTSIDE the business is called:

A

financial accounting

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5
Q

Demand for accounting information coming from INSIDE the business is called:

A

managerial accounting

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6
Q

Who are the users in financial accounting?

A

Investors (owners), and creditors (lenders)

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7
Q

Who are the users in managerial accounting?

A

Managers

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8
Q

accounting and reporting to satisfy the outside demand (primarily investors and creditors) for accounting information

A

financial accounting

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9
Q

use accounting information to evaluate the future prospects of a company and decide where to invest their money

A

investors (owners)

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10
Q

use accounting information to evaluate whether to loan money to a company

A

creditors (lenders)

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11
Q

What are the three other external users for financial accounting?

A

governmental agencies, labor unions, financial analysts

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12
Q

What are the four basic financial statements?

A
  1. The Balance Sheet
  2. The Income Statement
  3. The Retained Earnings Statement
  4. The Statement of Cash Flows
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13
Q

a business that has an identity separate from that of its owners and managers and for which accounting records are kept

A

accounting entity

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14
Q

a business owned by one person

A

sole proprietorship

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15
Q

Who is personally responsible for the debt of the business in a sole proprietorship?

A

the owner

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16
Q

Which type of business organization does this describe?
- Accounts for more than 70% of all businesses.
- Usually small, local businesses
- Simple to set up and owner has control over business
- Can be formed or dissolved at the wishes of the owner

A

Sole Proprietorship

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17
Q

a business owned jointly by two or more individuals

A

partnership

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18
Q

What type of business organization does this describe?
- Small businesses and many professional practices (physicians, lawyers, accountants) often organized as this type of business
- Provide increased access to financial resources and the individual skills of each of the partners
- Each partner pays taxes at his or her individual rate
- Partners are jointly responsible for all the debt of the _________.

A

Partnership

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19
Q

a company chartered by the state to conduct business as an “artificial person” and owned by one or more stockholders (ex: Apple)

A

corporation

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20
Q

whose ownership interests are represented by shares of stock

A

stockholders

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21
Q

What business organization do these advantages describe:
- The ability to raise capital by selling new shares
- The limited legal liability of owners
- The transferability of shares

A

corporation

22
Q

What business organization do these disadvantages describe:
- requirements to form this type of organization are more complex than the others
- owners generally pay more taxes

A

corporation

23
Q

T or F: the stockholder’s legal responsibility for the debt of the business is limited to the amount they invested in the business

A

True

24
Q

What are the two reasons owners generally pay more taxes in a corporation business organization?

A
  1. The corporate income tax rare is greater than the individual income tax rate
  2. A corporations income is taxed twice (called double taxation)
25
Q

What are the three types of business activities?

A
  1. Financing
  2. Investing
  3. Operating
26
Q

obtaining funds to start a business (from owners or creditors) through either issuing stock or borrowing money

A

financing activities

27
Q

buying resources (assets) used to generate revenues

A

investing activities

28
Q

operating the business to earn a profit

A

operating activities

29
Q

T or F: when borrowing money from another entity such as a bank, the business must repay the amount borrowed

A

True

30
Q

the person to whom money is owed (ex: bank)

A

creditor

31
Q

obligation to repay a creditor; can take many forms

A

liability

32
Q

a corporation borrowing money with the promise to repay the amount borrowed plus interest at a future date

A

notes payable

33
Q

special form of note payable used by corporations to obtain large amounts of money

A

bond payable

34
Q

the dollar amount paid to a corporation for the shares of stock and represents the basic ownership interest in a corporation

A

common stock

35
Q

the corporation isn’t obligated to repay the stockholder the amount invested; however many corporations distribute a portion of their earnings to stockholders in a regular basis. These distributions are called:

A

dividends

36
Q

economic resources representing expected future economic benefits controlled by the business (ex: cash, accounts receivable, inventory, land, buildings, equipment, and intangible resources)

A

assets

37
Q

the owner’s claims against the assets of a corporation after all liabilities have been deducted (considered a residual interest in the assets of a corporation that remain after deducting its liabilities)

A

stockholder’s equity

38
Q

What are two examples of intangible assets?

A

copyrights and patents

39
Q

the purchase and sale of assets used in operations (operating assets) are a corporation’s ___________ activities.

A

investing

40
Q

T or F: All businesses want to generate revenue

A

True

41
Q

the increase in assets that results from the sale of products or services

A

revenue

42
Q

the right to collect an amount due from customers (a type of asset)

A

accounts receivable

43
Q

the cost of assets used, or the liabilities created, in the operation of the business

A

expenses

44
Q

What are the three different types of liabilities that arise from operating activities?

A
  1. Account payable
  2. Wages payable
  3. Income Taxes payable
45
Q

if a corporation purchases goods on credit from a supplier, the obligation to repay the supplier

A

account payable

46
Q

amounts owed to employees for work performed

A

wages payable

47
Q

taxes owed to the government

A

income taxes payable

48
Q

If revenues > expenses, then a corporation has earned:

A

net income

49
Q

If expenses > revenues, then a corporation has incurred:

A

a net loss

50
Q

Revenues - expenses =

A

net income

51
Q

Expenses - revenues =

A

net loss

52
Q

a set of standardized reports in which the detailed transactions of a company’s activities are reported and summarized so they can be communicated to decision-makers

A

financial statements

Principles of Financial Accounting (1 decks)

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