Chapter 1 - Accounting in Business

Question 1

What are the (5) functional areas of Accounting

Answer 1

1- Financial
2- Managerial
3- Tax
4- Systems
5- Audit

Question 2

________ users of accounting information do not directly run the organization and have limited access to its accounting information.

Answer 2

External

Question 3

________ users of accounting information directly manage the organization. Internal reports are designed for the unique needs of managerial or executive employees.

Answer 3

Internal

Question 4

What is the primary objective of financial reporting?

Answer 4

To provide useful information to investors and creditors

Question 5

What are the (4) general accounting principles?

Answer 5

1- Measurement
2- Revenue Recognition
3- Expense Recognition
4- Full Disclosure

Question 6

What are the (4) accounting assumptions?

Answer 6

1- Going concern: [Business will continue to operate]
2- Monetary unit: [Transactions and events are expressed in monetary units]
3- Time-period: [The life of a company can be divided into time periods]
4- Business entity: [A business is accounted for separately from other business entities and owner]

Question 7

What is the accounting equation?

Answer 7

Assets = Liability + Equity

Question 8

What are the (3) requirements of an asset?

Answer 8

1- Probable future economic benefit
2- Ownership (or control)
3- Acquired as a result of past transaction/event

Question 9

Asset

Answer 9

Resources a company owns or controls

Question 10

Liabilities

Answer 10

Creditors’ claims on assets

Question 11

Equity

Answer 11

Owner’s claim on assets and is equal to assets minus liabilities.

Question 12

Measurement Principle

Answer 12

Accounting information is based on actual cost. Cost is measured on a cash or equal-to-cash basis

Question 13

Revenue Recognition Principle

Answer 13

Revenue is recognized when

(1) goods or services are provided to customers, and
(2) at the amount expected to be received from the customer.

Question 14

Expense Recognition Principle

Answer 14

A company records the expenses it incurred to generate the revenue reported.

Question 15

Full Disclosure Principle

Answer 15

A company reports the details behind financial statements that would impact users’ decisions.

Question 16

3 types of business activity

Answer 16

1- Financing
2- Investing
3- Operating

Question 17

________ activities provide the resources organizations use to pay for assets such as land, building, and equipment

Answer 17

Financing

Question 18

________ activities are the acquiring and disposing of assets that an organization uses to buy and sell its products or services.

Answer 18

Investing

Question 19

________ activities involve using resources to research, develop, purchase, produce, distribute and market products or services.

Answer 19

Operating