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Financial & Managerial Accounting > Chapter 1 - Accounting In Action > Flashcards

Chapter 1 - Accounting In Action Flashcards

1
Q

Accounting consists of 3 basic activities- what are they?

A

Identification
Recording
Communication

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2
Q

A company Identifies?

A

economic events relevant to its business

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3
Q

Recording in accounting means…

A

a systematic, chronological diary of events

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4
Q

What is the Sarbanes-Oxley Act (SOX)?

A

An act passed by Congress to reduce unethical corporate behavior and decrease the likelihood of future corporate scandals.

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5
Q

GAAP

A

Generally Accepted Accounting Principles - standards indicate how to report economic events

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6
Q

FASB

A

Financial Standards Accounting Board

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7
Q

IASB

A

International Accounting Standards Board

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8
Q

IFRS

A

International Financial Reporting Standards - standards set by IASB

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9
Q

Convergence

A

Reduction in differences between GAAP & IFRS to make them more comparable.

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10
Q

Relevance

A

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

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11
Q

Faithful representation

A

Means that the numbers and descriptions match what really existed or happened- they are factual.

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12
Q

What are the two measurements of GAAP Accounting and why are they useful?

A

Relevance and faithful representation are two primary qualities that make accounting information useful for decision making.

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13
Q

Historical cost principle

A

Dictates that companies record assets at their cost.

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14
Q

Fair value principle

A

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

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15
Q

What are the two main assumptions in accounting?

A

Monetary Unit Assumption

&

Economic Entity Assumption

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16
Q

What is the Monetary Unit Assumption?

A

Requires companies include in the accounting records only transaction data that can be expressed in money terms.

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17
Q

What is the Economic Entity Assumption?

A

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

Think Toyota and Lexus.

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18
Q

What is a Proprietorship?

A

A business owned by one person. The owner receives any profits, suffers any losses, and is personally liable for all debts of the business.

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19
Q

What is a partnership?

A

A business owned by two or more persons associated as partners.

20
Q

What is a corporation?

A

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

21
Q

What is the formula that represents the basic accounting equation?

A

Assets = Liabilities + Stockholders Equity

*Liabilities and stockholders equity must equal assets

22
Q

Claims of those who the company owes money (creditors) are called?

A

Liabilities

23
Q

Claims of owners in a company is called?

A

Stockholders’ Equity

24
Q

Resources a business owns are called what?

A

Assets

*the common characteristic of all assets is THE CAPACITY TO PROVIDE FUTURE SERVICES OR BENEFITS.

25
Q

Claims against assets- that is, existing debts and obligations are known as what?

A

Liabilities

26
Q

Merchandise purchased using credit are obligations known as what?

A

Accounts Payable

  • Campus pizza, for instance, purchases cheese, sausage, flour, and beverages on credit from suppliers.
27
Q

Note Payable

A

Promissory note to pay as agreed a certain amount of cash.

*Campus pizza has a loan on the truck to the bank.

28
Q

Who’s claims get paid first- creditors or ownership?

A

Creditors

29
Q

The ownership claim on a corporation’s total assets is?

A

Stockholders’s Equity (common stock & retained earnings)

*it is equal to total assets minus liabilities

Stockholders Equity = Assets - Liabilities

30
Q

The equity “left over” after creditors’ claims are satisfied is known as what?

A

Residual Equity

31
Q

Revenues, expenses, and dividend make up what?

A

Retained Earnings

32
Q

Increases in assets or decreases in liabilities resulting from the sale of goods or the performance of services in the normal course of business is known as?

A

Revenues (sales, fees, services, commissions, interest, dividends, royalties, and rents).

Revenues usually result in an increase in an asset.

33
Q

The cost of assets consumed or services used in the process of generating revenues is known as what?

A

Expenses (wages, utilities, rent expense, interest expense, property tax expense, supplies expense, etc)

*They are a decrease in stockholders equity that result in operating the business.

34
Q

The distribution of cash or other assets to stockholders is called what?

A

Dividends

*They reduce the earnings, BUT ARE NOT AN EXPENSE.

35
Q

The system of collecting and processing transaction data and communicating financial information to decision-makers is known as what?

A

th Accounting Information System

36
Q

A businesses economic events recorded by accountants are know as what?

A

Transactions (business transactions)

37
Q

How is stockholders equity affected by the payment of a liability related to an expenses previously recorders?

A

It does not affect stockholder equity

  • $250 in asset column
  • $250 in liabilities column
38
Q

Your company receives a $600 cash payment from a customer who had previously been billed. How is this transaction recorded?

A

+$600 cash
-$600 accounts receivable

No change to liabilities or stockholders equity- the revenue was recorded at billing

39
Q

What increases stockholders equity?

A

Investments by stockholders

Revenues

40
Q

What decreases stockholder equity?

A

Dividends to stockholders

Expenses

41
Q

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

A

Income Statement

The income statement does not include investment and dividend transactions between stockholders and the business in measuring net income.

42
Q

What financial statement summarized the changes in retained earnings for a specific period of time?

A

A retained earnings statement

43
Q

What financial statement reports the assets, liabilities, and stockholders equity of a company for a specific period of time?

A

The balance sheet

44
Q

What financial report summarizes information about the cash inflows (receipts) and outflows (payments) for a specific period of time?

A

A statement of cashflows

Reports the cash effects of a company’s operating, investing, and financing activities.

45
Q

How do you calculate net income?

A

Revenues less Expenses = Net Income

The balance sheet uses this formula

46
Q

How do you calculate retained earnings?

A

Beginning earnings
Add: net income

Less: Dividends
= Retained Earnings

This the retained earnings statement

Financial & Managerial Accounting (1 decks)

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