Chapter 1 - Accounting in Action

Question 1

Accounting

Answer 1

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

Question 2

Assets

Answer 2

Resources a business owns

Question 3

Auditing

Answer 3

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

Question 4

Balance Sheet

Answer 4

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

Question 5

Basic Accounting Equation

Answer 5

Assets = liabilities + owner’s equity

Question 6

Bookkeeping

Answer 6

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

Question 7

Convergence

Answer 7

the process of reducing the differences between US GAAP and IFRS

Question 8

Corporation

Answer 8

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

Question 9

Drawings

Answer 9

withdrawal of cash or other assets from an unincorporated business for the personal use of the owner(s)

Question 10

Economic Entity Assumption

Answer 10

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

Question 11

Ethics

Answer 11

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

Question 12

Expanded Accounting Equation

Answer 12

Assets= Liabilities + Owner’s Capital - Owner’s drawings + Revenues - expenses

Question 13

Expenses

Answer 13

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

Question 14

Fair Value Principle

Answer 14

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)

Question 15

Faithful Representation

Answer 15

numbers and descriptions match what really existed or happened– they are factual

Question 16

Financial Accounting

Answer 16

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

Question 17

Financial Account Standards Board (FASB

Answer 17

a private organiztion that establishes generally accepted accounting principles in US (GAAP)

Question 18

Generally Accepted Accounting Principles (GAAP)

Answer 18

Common standards that indicate how to report economic events

Question 19

Historical Cost Principle

Answer 19

an accounting principle that states that companies should record assets at their cost

Question 20

Income Statement

Answer 20

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

Question 21

International Accounting Standards Board (IASB)

Answer 21

an accounting standard-setting body that issues standards adopted by many countries outside of the US

Question 22

Investments by Owner

Answer 22

the assets an owner puts into the business

Question 23

Liabilities

Answer 23

Creditor claims against total assets

Question 24

Managerial Accounting

Answer 24

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

Question 25

Monetary Unit Assumption

Answer 25

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

Question 26

Net Income

Answer 26

the amount by which revenues exceed expenses

Question 27

Net Loss

Answer 27

the amount by which expenses exceed revenues

Question 28

Owner’s Equity

Answer 28

the ownership claim on total assets

Question 29

Owner’s Equity Statement

Answer 29

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

Question 30

Partnership

Answer 30

a business owned by two or more persons associated as partners

Question 31

Proprietorship

Answer 31

a business owned by one person

Question 32

Relevance

Answer 32

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

Question 33

Revenues

Answer 33

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

Question 34

Statement of Cash Flows

Answer 34

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

Question 35

Transactions

Answer 35

the economic events of a business that are recorded by accountants