Chapter 1: Accounting in Business

Question 1

Two principles and Assumptions of Accounting

Answer 1

1. general [basic assumptions, concepts and guidelines for preparing financial statements; stem from long used accounting practices]. #2. specific [detailed rules used in reporting transactions; from rulings of authoritative].

Question 2

Cost Principle [measurement principle]

Answer 2

info based on actual cost. Actual cost is considered objective. Cost is measured on a cash or equal-to-cash basis. Emphasizes reliability and verifiability [objective].

Question 3

Revenue recognition principle

Answer 3

revenue is recognized [recorded] when earned. proceeds don’t have to be cash

Question 4

expense recognition principle [matching principle]

Answer 4

a company records expenses incurred to generate revenues it reported

Question 5

Full disclosure principle

Answer 5

reporting the details behind the financial statements that would impact users’ decisions

Question 6

The 4 assumptions

Answer 6

going concern assumption, monetary unit assumption, time period assumption, business entity assumption

Question 7

going-concern assumption

Answer 7

accounting information reflects the assumption that the business will continue operating instead of being closed or sold

Question 8

monetary unit assumption

Answer 8

transactions and events are expressed in monetary, or money units. Generally this is the currency of the country in which it operates but today some companies express reports in more than one monetary unit

Question 9

time period assumption

Answer 9

the life of the company can be divided into time periods, such as months and years, and that useful reports can be prepared for those periods

Question 10

business entity assumption

Answer 10

a business is accounted for separate from other business entities and separate from its owner.

Question 11

sole proprietorship

Answer 11

a business owned by one person that has unlimited liability. Business not subject to an income tax but the owner is responsible for personal income tax on the net income of entity

Question 12

partnership

Answer 12

a business owned by two or more people, subject to unlimited liability. The business is not subject to an income tax, but the owners are responsible for personal income tax on their individual share of the net income of entity.

Question 13

three special partnership forms that limit liability

Answer 13

1. Limited partnership [LP] #2. Limited liability partnership [LLP] #3. Limited liability company [LLC]

Question 14

Limited partnership

Answer 14

[LP] has general partners with unlimited liability & a limited partner with limited liability restricted to the amount invested

Question 15

Limited liability partnership

Answer 15

restricts partners liabilities to their own acts and the acts of individuals under their control.

Question 16

Limited liability Company LLC

Answer 16

Offers the limited liability of a corporation and the tax treatment of partnership note most proprietorships and partnerships are now LLC

Question 17

Corporation

Answer 17

A business that is separate legal entity whose owners are called shareholders or stockholders. These owners have limited liability. The entity is responsible for a business income tax and the owners are responsible for personal income tax on profits that are distributed to them informant dividends.

Question 18

Transactions analysis and the accounting equation

Answer 18

Accounting equation (assests=liabilities+equity)

Question 19

Assets

Answer 19

Resources the company owns or controls that are expected to carry future benefits. i.e. cash supplies equipment and land

Question 20

Equity

Answer 20

Owners claim on assets: assets minus liabilities. Also called net assets or residual equity

Question 21

Transaction analysis

Answer 21

Each transaction in the van always leaves the equation and balance. Assets equal liabilities plus equity

Question 22

The four financial statements and their purposes are:

Answer 22

Income statement, statement of owners equity, balance sheet, statement of cash flow’s

Question 23

Income statement

Answer 23

Describes the company’s revenues and expenses along with the resulting net income or loss over. Of time. And come occurs when revenue exceeds expenses. That loss occurs when expenses exceed revenues.

Question 24

Statement of owners equity

Answer 24

Explain changes in equity from net income or loss and from owner investment in withdraws over a period of time

Question 25

Balance sheet

Answer 25

Describes a company’s financial position, types and amounts of assets liabilities equity. At a point in time

Question 26

Statement of cash flow’s

Answer 26

Identifies cash inflows, receipts, and cash outflows, payments, over. Time

Question 27

Three activities of a business and statement of cash flow’s

Answer 27

In order to capture all-cash activity must understand operating costs investing and financing. The purpose is to show how you get the money and how it was spent

Question 28

Decision analysis-return on assets ROA

Answer 28

The return on assets is calculated by dividing net income for a period of average total assets. Average show I said to determine by adding the beginning and ending assets and dividing by two. This is useful in evaluating management, and analyzing and forecasting profits. Expressed as a percentage

Question 29

Return

Answer 29

How much is made on the investment

Question 30

Risk

Answer 30

Uncertainty on how much return you will make on investment “ more risk equals more money “

Question 31

ROA

Answer 31

Return on assets equals net income over average total assets

Question 32

Financing activities

Answer 32

Activities that provide the means organizations use to pay for resources such as land buildings and equipment to carry out plans. two types of financing are owner financing and non-owner

Question 33

Owner financing

Answer 33

Refers to resources contributed by owner including income left in the organization

Question 34

Non-owner or creditor

Answer 34

Refers to resources contributed by creditors

Question 35

Investing activities

Answer 35

Are the acquiring and disposing of resources, assets, that are in organization uses to acquire and sells products or services

Question 36

Operating activities

Answer 36

Involve using resources to research, develop, purchase, produce, distribute, and market products and services. Day-to-day business activities

Question 37

Investing assets

Answer 37

Is bound by financing, liabilities and equity. Operating activities is a result of investing and financing